OPSIGMA

The Operations and Supply

Chain Club, IIFT Delhi

Analysing the Case of GoFirst Airlines

Submitted by : Anoushka Verma

Application No : 221510003592
Reason and Impact of Bankruptcy
Pratt and Whitney’s Faulty Engines Causing
Grounding of Flights
P&W, the exclusive supplier of engines
for GoFirst’s AirBus A320neo fleet,
refused to supply spare engines citing
non-payment of dues by GoFirst.
Price of ATF rose by 150% between 2020-23
Aviation Turbine Fuel makes up 40% of
operational costs of airlines. Added to
this, states in India charge upto 30% VAT
on ATF.
Reasons
15% Appreciation of $ against Rupee
Airlines in India pay for fuel,
maintenance, lease, overhaul costs and
purchase of aircrafts in dollars to foreign
suppliers. (Between 2020-23)
High fixed costs, variable revenues of airline
industry
GoFirst has to pay salaries pilots and staff
irrespective of demand conditions.
Additionally, aircraft purchases must be
made 5-7 years in advance.
Crash in demand during COVID-19 pandemic
Lockdowns and restrictions placed on
flying substantially reduced GoFirst’s ability
to cover even its operational costs.
Industry Analysis and Remedial Action Route Optimization Problem
Filed for Bankruptcy Market Share down from 11% to 6.9%
3 May 2023 GoFirst has lost a significant chunk of
market share to competitors between
Nov ‘19 and Mar ‘23 and the bankruptcy
announcement can further worsen this.
Total liabilities to all
creditors = Rs 11,463 cr. Less than 15% success rate of IBC procedures
Insolvency and Bankruptcy Code
procedures have only resulted in a
resolution in 15% of cases and
liquidation in 45% cases.
for Impact of
Bankruptcy- Bankruptcy- Inability to retain pilots
Uncertainty of GoFirst’s fate has resulted
A Supply Immediate in pilots leaving to join other airlines.
Chain and Though GoFirst initially rolled out a
Analysis Expected retention allowance for pilots, the same
has been withdrawn due to lack of funds.
Declining credibility among investors, lessors
and passengers
The delay in resolution procedures as
Percentage of grounded well as restarting operations (set to begin
fleet up from 7% in Dec in July 2023) will make it more difficult
2019 to 50% in 2022 for GoFirst to regain its lost position.
High cost of resuming operation after long gap
Additionally, the dispute with P&W in an
international arbitration court will also add
Rs. 108 bn. in lost to delays in procuring engines.
revenues due to
grounding of fleet
Reason and Impact of Bankruptcy Industry Analysis and Remedial Action Route Optimization Problem

How they managed to succeed:

1) Large and diversified fleet. This prevents issues like Using the Rs. 400 crore GoFirst can start out with
disputes with suppliers of spares from affecting the interim funding approved by operating a smaller fleet of
entire fleet of aircrafts. creditors on Jun 24, payments planes on a frequent basis on
must be made to employees high traffic routes to start
2) A large part of Indigo’s success is attributable to a to retain them and to lessors generating profits and switch
large market share captured through aggressive to keep the airplane fleet to full fleet operation
pricing and attracting passengers on new routes intact for operations.
with low costs. Quick gradually.
repayment of Increase
dues to lessors operational
The ones that floated and employees flexibility
Industry Analysis Remedial Action
The ones that failed
Arbitration Boost cash
and settlement reserves
Why they failed:
1) A common point between all these airlines is that Since 50% of GoFirst’s fleet
they all failed due to accumulation of debt and comprises of the Airbus Due to high fixed cost and
mismanagement. A320neo, a quick settlement variable revenue airlines are
must be reached with P&W for vulnerable to external shocks
2) Most of these airlines entered the market due to operationalizing aircrafts since and GoFirst must therefore
low cost of entry offered by leasing facilities procuring new aircrafts would voluntarily keep aside a
(instead of buying), regulatory forbearance and entail far higher costs and contingency fund.
easy availability of credit from public sector banks. delays.
However, at the first sign of external pressure, say
aggressive pricing by better performing competitors
or rise in fuel prices, these airlines spun out of
control.
 Reason and Impact of Bankruptcy Industry Analysis and Remedial Action Route Optimization Problem
Domestic Destinations - capacity = 150 Approach used to arrive at solution :
Destinati If Demand If Demand Whether Final
on Revenue Cost Demand Rev-Cost met unmet included Amount 1) To maximise operational profit we have to maximize
Guw 6000 2900 180 3100 300 -1800 Yes 2800
Sri 6500 3500 170 3000 200 -1700 Yes 2800 (revenue – cost) and minimize unmet demand.
Del 5000 2500 160 2500 100 -1600 Yes 2400
Nag 3600 1200 160 2400 100 -1600 Yes 2300 2) For both domestic and international flights the (Revenue-
Jai 3700 1300 150 2400 0 -1500 Yes 2400
Hyd 3900 1800 150 2100 0 -1500 No -1500 Cost) was maximized. Logically, this would mean including
Chennai 4000 2000 150 2000 0 -1500 No -1500
Calcutta 4400 2600 140 1800 0 -1400 No -1400 the top 5 cities of India and Paris, Rome, Budapest, Vienna
Bang 3800 2100 130 1700 0 -1300 No -1300
Triv 4300 2900 120 1400 0 -1200 No -1200 and Moscow.
1510 5800
3) At the same time, unmet demand was minimized.
International Destination - capacity = 300
If Demand If Demand Whether Final 4) Upon totalling the maximized operational profit of
Dest Rev Cost Demand Rev-Cost met unmet included Amount
Paris 25000 8000 400 17000 1000 -4000 Yes 16000 domestic and international destinations we get
Rome 28000 12000 350 16000 500 -3500 Yes 15500
Buda 29000 16000 330 13000 300 -3300 Yes 12700
5800+57400 = 63200 which is greater than the minimum
Vienna 26000 13000 320 13000 200 -3200 Yes 12800 required operational profit of 63000 mentioned as a
Berlin 20000 8000 310 12000 100 -3100 No -3100
Moscow 22000 7000 310 15000 100 -3100 Yes 14900 condition.
London 21000 10000 300 11000 0 -3000 No -3000
Munich 30000 21000 290 9000 0 -2900 No -2900 Link to Excel Sheet with solution -
Istanbul 20000 12000 280 8000 0 -2800 No -2800
Madrid 22000 14000 270 8000 0 -2700 No -2700
https://docs.google.com/spreadsheets/d/1yFozwtdlnLWo14ny
3160 57400
4MrCW7wyUm5eNXGKVlqm8x38H8M/edit?usp=sharing
THANK YOU