Running an airline is a capital-intensive business with high operating costs, including aircraft maintenance, fuel, labor, and other expenses. Airlines rely on a consistent flow of revenue to cover these costs and generate profits.
Major airlines face a cash crunch and file for bankruptcy. There are several reasons why an airline may file for bankruptcy, high debt levels topping the list. Airlines often carry significant debt due to the high capital costs associated with purchasing and maintaining aircraft. If the airline is unable to make its debt payments, it may be forced to file for bankruptcy. When the economy experiences a downturn, people tend to travel less. This can result in decreased revenue for airlines and make it difficult for them to cover their expenses.
Fuel is a significant expense for airlines, and when oil prices rise, it can increase their operating costs. This can put pressure on the airline’s profitability and lead to financial difficulties. Airlines operate in a highly competitive industry, and if they are unable to keep up with their competitors, they may struggle to generate enough revenue to remain profitable.
Labor costs, including salaries, benefits, and pensions, can be a significant expense for airlines. If the airline is unable to negotiate favourable labor contracts or manage its workforce effectively, it may struggle financially.
In some cases, a combination of these factors can lead an airline to file for bankruptcy. When an airline files for bankruptcy, it may be able to restructure its debt, reduce costs, and emerge as a stronger and more competitive company. However, bankruptcy can also result in job losses and other negative consequences for employees and stakeholders.
Kingfisher Airlines: The airline, founded by businessman Vijay Mallya, stopped operations in 2012 due to financial difficulties.
Jet Airways: Once one of India’s largest airlines, Jet Airways suspended operations in April 2019 and filed for insolvency later that year.
Air Costa: The regional airline ceased operations in 2017 due to financial troubles.
Air Pegasus: Another regional airline, Air Pegasus, suspended operations in 2016 due to financial difficulties.
SpiceJet: In December 2014, SpiceJet was on the verge of bankruptcy and had to be bailed out by its co-founder Ajay Singh.
It’s worth noting that the COVID-19 pandemic has also had a significant impact on the Indian aviation industry, leading to reduced demand for air travel and financial difficulties for many airlines. Some Indian airlines were still facing financial challenges as a result of the pandemic.
External shocks, such as the COVID-19 pandemic, can have a severe impact on the airline industry. Travel restrictions, reduced demand, and other factors can lead to financial difficulties for airlines.
When an airline is unable to generate enough revenue to cover its expenses or pay its debts, it may be forced to shut down. In some cases, the airline may file for bankruptcy or go through a restructuring process to try to improve its financial situation. However, in other cases, the airline may be forced to close permanently.
Recently Go First, which is owned by the Wadia group, has announced that it can no longer fulfill its financial obligations and has filed for insolvency resolution. The airline has blamed the grounding of 50% of its fleet on “faulty engines” manufactured by US company Pratt & Whitney. Go First has applied for voluntary insolvency resolution proceedings before the National Company Law Tribunal (NCLT), according to CEO Kaushik Khona. In addition, the airline has stated that it will be suspending all flights from May 3 to May 5 initially. Later it suspended all the flights till 12th May promising a full refund to everyone who had their flights cancelled. Now the airline has decided to give a credit note instead of refund. The customers are enraged by this decision as it’s impossible to use the credit note for an airline that turns non-operational.
