Go First Insolvency: What Has Transpired So Far?

The low-cost airline arm of IndiGo Air's Go First announced a suspension of all its flights from May 3-5, as it needs to solve its financial crisis. The company on its own also filed for insolvency resolution proceedings in the National Company Law Tribunal (NCLT) on Tuesday, May 2, 2023. Go First cited that the faulty engines by Pratt & Whitney is the main reason for the company's current situation.

Why did the company file for insolvency?
The company realised and accepted the fact that it cannot pay debts and sought help from someone to sort it out, business is insolvent, its termed voluntary insolvency. When the company goes insolvent, it can proceed to voluntary liquidation.

Voluntary Liquidation is the dissolution of a company with approval from shareholders and creditors of the company. It is a time-bound process that needs to be completed within 270 days from the date of commencement of Voluntary Liquidation.

Go First had to take this step due to the increasing number of failing engines supplied by Pratt & Whitney's International Aero Engines. This resulted in the airline being forced to ground 25 aircraft, which is approximately 50 per cent of its Airbus A320neo aircraft fleet as of 1 May 2023.

The company said it had been forced to apply to the company law tribunal after Pratt &Whitney refused to comply with an award issued by an emergency arbitrator. Go First said it has lost revenue worth Rs 10,800 crore due to the grounding of close to 50 percent of its A320neo fleet. While Pratt & Whitney denied allegations.

How much does Go First owe to the creditors?
The company said it has paid Rs 5,657 crores to lessors in the last two years without default. Out of the amount paid, approximately, Rs 1600 crore is paid towards lease rent for non-operational grounded aircraft from the funds infused by the Promoters & Government of India's Emergency Credit Line Guarantee Scheme.

The airline has also sought compensation worth Rs 8,000 crore from the Singapore International Arbitration Centre. The total debt the airline owes stands at Rs 65.21 billion ($ 798 million) and the Central Bank of India, Bank of Baroda, Axis Bank, IDBI Bank, and Deutsche Bank are its top five lenders.

What will happen to the passengers?
Wadia Group company Go First's bankruptcy has been the biggest airline collapse in India since Jet Airways in 2019. This news comes days after India achieved a milestone as domestic air traffic hit a record high with 4,56,082 passengers and 2,978 flights taking off on a single day on April 30, 2023.

As the flights were canceled for three days without any prior notice, it led to panic and frustration among passengers, and its insolvency news shocked the industry.

Further, Go First has promised to refund the ticket expenses to passengers. Following the cancellation of flights, the Directorate General of Civil Aviation (DGCA) also issued a show-cause notice to the airline for the cancellations.

What lies ahead for Go First?
Go First has applied to the NCLT because of the persistent issues with the engines supplied by Pratt and Whitney. The engine supplier according to the airline, has failed to repair those engines and/or provide sufficient spare leased engines as it was required to do according to its obligations under the relevant agreement.

It has received notices even from lessors for termination of aircraft lease agreements and, some initiated to act against the company to ground or repossess aircraft. It is awaiting the NCLT directions for the outcome of its application before the NCLT bench on Thursday.

The airline, which has liabilities worth Rs 11,463 crore, in its plea for voluntary insolvency proceedings, asked NCLT to intervene to restrain lessors from taking back aircraft and the regulator DGCA from taking any adverse action against the airline.