Go First has applied for voluntary insolvency resolution proceedings before the National Company Law Tribunal (NCLT). The airline’s company is unable to meet its financial obligation as 50% of the fleet is grounded due to faulty engines supplied by Pratt and Whitney. Service will be halted on the 3rd, 4th, and 5th of May 2024.
Table of Contents
About Go First Airline
Earlier, Go First Airlines was named Go Air Airlines a very low-cost and affordable airline which is owned by “Wadia Group”. It was also one of the largest airlines with a market share of 8.9% in FY22. It started its operation in November 2005 and operates Airbus A320 aircraft.
The airlines used to operate 330 flights daily to 36 destinations out of which domestic were 27 and international were 9. Go First Airlines is further planning to launch an IPO of Rs 36 billion and has already filed DHRP with the Stock Exchange Board of India (SEBI) which would have taken place 2 years ago but due pandemic negative effect on the market it was postponed.
Reason Behind Insolvency
The foremost reason behind the insolvency was the increase in the number of failing engines supplied by Pratt and Whitney International Aero Engines, resulting in Go First having to ground 50 percent of its Airbus A320 fleet. Despite Pratt and Whitney’s repeated assurance, the issue persisted and worsened over time. The airline was not able to meet its financial obligation which took them to bankruptcy. Therefore, Go First applied to the National Company Law Tribunal (NCLT), Delhi for resolution under sec 10 of the Insolvency Bankruptcy Code (IBC).
Arbitration against Pratt and Whitney
Go First were forced to take the step and apply to the NCLT. The case was also presented in front of the Singapore International Arbitration Centre (SIAC), which was formed as an emergency arbitrator but PW refused to comply with an award issued by SIAC. The deal was to release 10 serviceable spare lease engines by 27th April 2024 and a further 10 by December 2024 for Go First so that they can continue their operation without incurring many losses.
Pratt and Whitney have not cooperated with the compliance and said they don’t have serviceable spare engines to release for Go First. The ground aircraft has cost a huge amount to Go First with 100 percent of its operational cost. The total lease rent paid by the airlines for two was Rs 5,657 crore and Rs 1,600 crore for non-operational aircraft. The amount was paid by Promoters and the Government of India Emergency Credit Line Guarantee Scheme. Loss revenues for Go First as of now is Rs 10,500 crore. To cover the losses, the airline has asked for compensation of approximately Rs 8,000 crore in SIAC arbitration.
Pratt and Whitney (PW) Response
After the failure of engines, Go First has many times contacted Pratt and Whitney for engines query but hasn’t received any services or response from the Aero Engine Company. Despite the contractual agreement, that in case of engine failure, they would provide leased engines is not been followed by PW. They straight away refused to provide any repair service or lease engines to the airline.
Liabilities
The airline company has infused many funds into meeting financial obligations from external sources one of them is Government and the other is different banking institutions. The amount lent by Central Bank of India is Rs1561.6 crore, Bank of Baroda is Rs1429.82 crore, Axis Bank is Rs30 crore, IDBI Bank is Rs58.58 crore and Deutsche Bank is Rs1320 crore. Many other investors infused funds in Go First.
