Go First files for voluntary

insolvency. What happened to the

airline?
Go First said it has been forced to ground 25 aircraft, which is
approximately 50 per cent of its Airbus A320neo aircraft fleet as of 1
May 2023.

Air Carrier Go First Airways on Tuesday filed for insolvency resolution

proceedings in the National Company Law Tribunal. It has
also suspended its flights for the next three days.

What is voluntary insolvency?

• In simple words, voluntary insolvency means that the

company has accepted its business is insolvent.
• It is a process in which the company says it cannot pay
debts and needs help from someone to sort it out.
o When the company goes insolvent, it can proceed to
voluntary liquidation.
• This process refers to the dissolution of a company with
approval from shareholders and creditors of the company.
 • It is a time-bound process which needs to be completed in
270 days from the date of commencement of Voluntary
Liquidation.

Why this drastic step?

In a statement, Go First said it had to take the step due to the increasing
number of failing engines supplies 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 P&W refused to comply with an award issued by an emergency
arbitrator appointed in accordance with the 2016 Arbitration Rules of the
Singapore International Arbitration Centre (SIAC). Pratt & Whitney had
been directed to take all reasonable steps to release and dispatch without
delay to GO FIRST at least 10 serviceable spare leased engines by 27 April
2023 and a further 10 spare leased engines per month until December
2023.

Financial woes
Go First said it has lost revenue worth ₹10,800 crore due to the grounding
of close to 50 per cent of its A320neo fleet. The company said it has paid
₹5,657 crores to lessors in the last two years of which approximately ₹1600
crore was 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 ₹8,000 crore in the
Singapore International Arbitration Centre. In case the arbitration is
successful, the company will be able to address the liabilities of its creditors,
small and large.

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 happens now?

• Go First has applied to the NCLT because of the persistent issues

with the engines supplied by Pratt and Whitney.
o The engine supplier, according to the airline, has failed to
repair those engines and/or provide sufficient spare leased
engines.
• Once the application is admitted under NCLT, an interim resolution
professional will take over and operate Go First.

What does it mean for Indian aviation?

• Second incident in five years
o Go First's bankruptcy filing would be the second in five years after Jet
Airways failure in April 2019 in the aviation industry.
o Although, Jet Airways although has been rescued by Murari Lal Jalan
and asset management firm Kalrock. It is yet to commence its
operations in the market.
 o Hence, how much time Go First takes to hit the runway again will be
keenly observed.

• Sudden availability of workforce at all levels

o Currently, the demand for pilots was picking up and airlines were being
pushed into a corner by pilot bodies for salaries and minimum flying
hours guarantee.
o In this context, an airline getting into bankruptcy resolution would mean
that there is likely to be a sudden availability of workforce at all levels.
o As a result, the airports, passengers, employees and just about everyone
in the ecosystem will be impacted.