GoAir awaits Airbus delivery schedule to decide IPO timing

Go Airlines (India) Ltd, which runs low-fare carrier GoAir, is waiting to hear from plane maker Airbus SAS on the delivery schedule of its fuel-efficient A320neo jets before deciding on the timing of a proposed share sale.

GoAir is expected to start taking delivery of its first A320neos by May and is expected to take delivery of at least 10 of the jets in the next financial year, according to two people aware of the situation, who spoke on condition of anonymity.

The airline, founded by the Wadia family, has placed an order for 72 A320neo planes that offer 15-20% savings on jet fuel, which makes up the largest chunk of spending by airlines.

Experts say that the fuel-efficient A320neos will boost GoAir’s profitability and share sale prospects.

GoAir’s initial public offer (IPO) timing is directly linked with the induction of A320neo planes into its fleet, said one of the two people cited above, adding that it would finalize the share sale plan once it receives clarity on the delivery schedule from Airbus.

A GoAir spokesperson declined to comment.

In an e-mailed statement, Airbus said it does not share delivery schedules and that is up to customers to do so. Airbus said it has not made public the outlook for A320neo deliveries in 2016.

Overall, it is targeting the delivery of 650 aircraft of all types (A320s, A320neos, A330s, A350s, XWBs and A380s) in 2016, the plane maker said.

GoAir, which has an 8% share of domestic air traffic, is expected to post a net profit of around $20-25 million in the year ending 31 March, aviation consulting firm Capa India said in a report released this year.

Capa India also said GoAir is expected to be listed on the stock exchanges shortly.

“Banks have been talking to the company regarding their IPO. However, they haven’t formally appointed banks. Since formal work is yet to begin on the IPO, the deal launch is definitely some time away,” said an investment banker, requesting anonymity.

“The timing will depend a lot on macro factors such as crude pricing, which IndiGo got right with its launch,” he said.

In October, the IPO of InterGlobe Aviation Ltd, owner of India’s largest and most profitable airline IndiGo, received demand for 6.14 times the shares it offered investors, as financial institutions and rich individuals sought to tap the world’s fastest growing aviation market. Shares of InterGlobe Aviation rose 14.7% above their offer price of Rs.760 on the airline’s trading debut.

IndiGo took delivery of Asia’s first A320neo aircraft on 10 March from Airbus. On 29 February, IndiGo said Airbus had confirmed that it will deliver 24 A320neo aircraft by March 2017.

Induction of A320neos is also critical for IndiGo, which has been consistently profitable since 2009, a feat unrivalled by any other domestic airline, to maintain its dominant market share in Indian aviation.

“When IndiGo launched its IPO, from a timing perspective, it had the twin advantage that the crude prices were low and the pricing power largely still with the airlines,” said Munish Aggarwal, director at investment banking firm Equirus Capital Ltd.

Crude prices have risen since Indigo’s IPO.

If the price keeps going up, airline margins will be hit, Aggarwal added.

“If GoAir were to launch its IPO today then definitely there will be significant demand. But if there is a significant rise in crude price over the next six months, then the story can change very fast,” he said.

In 2015, the price of benchmark Brent crude fell 42.4% to $39.40 per barrel. Crude prices have risen from $29.38 per barrel on 20 January to $41.23 now.