Shares of Aviation stocks rose higher in Wednesday’s trade as they surged up to 8 per cent after Wadia Group-owned Go First filed for bankruptcy on Tuesday, May 2. On the back of this announcement, Shares of InterGlobe Aviation (IndiGo), Jet Airways and SpiceJet rallied up to 8 per cent during the early trading session on Wednesday. Also, a sharp fall in the crude oil prices in the international markets supported the aviation counters.
InterGlobe Aviation shares rallied 8 per cent to Rs 2,235.95 on Wednesday, before trading at Rs 2,174.60 at 9.35 am. The scrip had settled at Rs 2,070.40 in the previous sessions. Similarly, Shares of SpiceJet surged about 6 per cent to Rs 33.25 against its close at Rs 31.49 in the previous session. Defunct airlines Jet Airways’ shares also surged 5 per cent to Rs 60.59.
Why are Aviation Stocks Rising?
Go First filing for bankruptcy on Thursday has put the spotlight on India’s airlines. This means lower competition for peers.
With Go First’s bankruptcy filing, India’s aviation market is heading towards a duopoly structure. Both IndiGo and the Tata Group together account for nearly 80% of the entire industry.
However, both groups have different positioning for customers. While IndiGo is a low-cost carrier, Tata Group is primarily a full-service carrier.
Go First insolvency will remove 9 per cent of domestic supply in the aviation sector, according to BofA Securities.
As of March this year, IndiGo continued to remain the market leader with a 56.8 per cent market share, followed by Vistara (8.9 per cent) and Air India (8.8 per cent). Go First had a 6.9 per cent market share as of March, followed by SpiceJet at 6.4 per cent.
The Wadia Group airline said that it cannot continue to meet its financial obligations and blamed US company Pratt & Whitney’s ‘faulty engines’ for grounding 50 per cent of its fleet. In the buzz, all flights of Go First were suspended for May 3-5.
The low-cost carrier has filed an application for voluntary insolvency resolution proceedings before the National Company Law Tribunal (NCLT), said CEO Kaushik Khona. Aviation regulator DGCA has also issued a show cause notice to the airline after Go First decided to cancel flights for three days.
Prior to this, Go First was looking to raise about Rs 3,600 crore via its initial public offering (IPO), which was deferred once again amid the weak sentiments and reluctance of owners to infuse funds into the loss-making company. Go First’s Draft Red Herring Prospectus has expired in August 2022 and the company has been eyeing a listing since 2015.
The airline had received approval from the market regulator for its IPO but had held back the share sale plan first in August 2021 after SEBI called the promoters, the Wadias, for a pending inquiry, and then in December 2021, Go First further delayed the offering due to the outbreak of the Omicron wave.
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