GO AIR INSOLVENCY

A Special Bench of NCLT, New Delhi admitted the insolvency of Go Airlines (India) Ltd,
popularly known as GoAir, on the 10th May 2023. The insolvency was admitted on an
application of the company itself, on the ground of a self-admitted default of Rs. 11.03 crores
towards interest to financial creditors, out of a pile of debt, that is, Rs. 2660 cr towards
aircraft lessors and Rs. 1202 cr towards its vendors. The application was admitted in the face
of strong opposition by the financial creditors and the lessors of aircrafts taken on lease by the
company. Subsequently, on an appeal before the NCLAT, the appellate forum affirmed the
order of the NCLT, rejecting the contention that the filing of the insolvency application was
malicious. However, concerns arise regarding India's status as a favorable jurisdiction for
aircraft leasing. The Cape Town Convention, ratified by India in 2021, guarantees rights to
lessors, but the moratorium during insolvency raises questions about its enforcement. This
uncertainty may impact the confidence of aircraft lessors in India's regulatory framework.

The National Company Law Tribunal on November 21, 2023 allowed bankrupt airline Go
First’s resolution professional’s appeal to extend the timeline by 90 days till February 4,
2024. The Committee of Creditors passed a resolution on October 17 to extend the resolution
process by 90 days. The six months ended on November 6.

Against this backdrop, the government, in October, exempted aircraft objects registered in the
international registry from the applicability of the moratorium under the Insolvency and
Bankruptcy Code (IBC). News agency Reuters reported that lenders to Go First, including
Central Bank of India, Bank of Baroda, IDBI Bank and Deutsche Bank, are not in favour of
releasing additional funding to the grounded airline, given its legal troubles with lessors and
complexities related to changes in t ..
Earlier this month, the Directorate General of Civil Aviation (DGCA) said the amendment in
the insolvency law that exempts aircraft objects from the ambit of moratorium will be
applicable retrospectively.

Latest update on 16 Feb 2024

Go First has received a fresh lease of life after receiving two bids on Friday for revival of its
operations. The carrier, which has been grounded since May 2023, has been undergoing an
insolvency process since then. The first bid has been submitted by SpiceJet chairman and
managing director Ajay Singh jointly with Busy Bee Aviation Private Limited. Two people
aware of the development said Nishant Pitti, co-founder of online travel platform
EaseMyTrip, has a 51% stake in Busy Bee Aviation Limited while the remaining 49% stake
is held by local investors.

The people further added that the company sees potential in the land assets of Go First, which
are estimated to be worth around ₹10,000 crore and the expected compensation from engine
manufacturer Pratt & Whitney for engine grounding will also be key in the revival plans.
“SpiceJet will help in the operations while Busy Bee will focus on funding requirements," one
of the two people cited above added.

The second bid has been submitted by Sharjah-based aviation company Sky One, which
specializes in a wide array of aviation services such as Cargo Charters, Asset Trading, Pilot
Training, Maintenance, Repair, and Overhaul (MRO) among others.

Impact of the Go Air Insolvency

Go Airlines, operating under the brand name Go First, is an airline with a fleet of 54 aircraft,
most of which were obtained through leasing arrangements with various aircraft lessor
companies. The imposition of insolvency moratorium would mean the lessors would not be
able to repossess the aircrafts for the 6 months of insolvency, which may stretch to 9 months.
The implications of this ruling extend beyond Go First and the lessors involved. It is likely to
have far-reaching consequences for the entire aircraft industry, especially considering the
Indian government’s efforts to promote aircraft leasing in the country. The decision could
potentially undermine the progress made in this sector. Consequently, there have been reports
of several aircraft lessors associated with another struggling carrier, SpiceJet, seeking to de-
register their aircraft. This indicates a growing lack of confidence among international lessors
in the Indian market. In fact this is not the first time, international lessors had to bite the dust
in India with respect to repossession of leased aircrafts. Even in the case of Jet Airways, and
Kingfisher Airlines the lessors had to struggle. There have also been reports that Aviation
Working Group, a UK-based entity which monitors aircraft leasing and financing related laws
for the manufacturers, has issued a negative outlook for India, which is likely to dampen the
confidence of the lessors. The loss of confidence from international lessors could have a
significant impact on lease pricing in the future. With lessors becoming wary of the risks
associated with leasing aircraft in India, they may demand higher lease rates or impose stricter
terms and conditions. This could make it more challenging for Indian airlines to secure
affordable leasing options, hampering their growth and potentially increasing costs for
passengers.
NCLAT order
SMBC Aviation Capital Ltd, GY Aviation and SFV Aircraft Holdings (“Lessors”) had leased
out aircrafts to the Corporate Debtor. The Lessors filed an appeal before the NCLAT
challenging the NCLT order dated 10.05.2023, since the Order restricted the Lessors from
recovering their assets (aircrafts) which are in possession of the Corporate Debtor. The
Lessors submitted that they had terminated the Lease Agreement of aircrafts prior to initiation
of CIRP and imposition of moratorium. The assets belonging to third parties could not be
covered under moratorium and must be reverted to the Lessors. The NCLAT upheld the
NCLT order initiating CIRP against the Corporate Debtor. However, liberty has been granted
to the IRP and the Lessors to file application(s) before the NCLT with respect to their claims
relating to the leased aircrafts. The following liberties have been granted:

“(3) The Appellant(s) as well as IRP are at liberty to make appropriate Application before the
Adjudicating Authority for declaration with regard to applicability of the moratorium on the
aircrafts with regard to which Leases in favour of the Corporate Applicant were terminated
prior to admission of Section 10 Application, which Application need to be considered and
decided by the Adjudicating Authority in accordance with law.
(4) The Appellant(s) and the IRP are also at liberty to make an appropriate Application under
Section 60, sub-section (5) with regard to claim of possession and other respective claims of
claim of possession and other respective claims of both the parties relating to the aircrafts in
question, which need to be decided by the Adjudicating Authority in accordance with law”,
the Bench directed.”

MCA notification on 3.10.2023

Notification issued by MCA Section 14(1) of IBC imposes a moratorium with respect to the
entity (Corporate Debtor) which has been admitted into Corporate Insolvency Resolution
Process (CIRP) under the IBC. Imposition of moratorium ensures value maximization of the
Corporate Debtor during the CIRP, by prohibiting any form of recovery, institution of suits,
continuation of proceedings, transfer/alienation of assets, enforcement of security interest,
recovery of property et al against the Corporate Debtor.
In view of the Convention and Protocol, the Central Government, in exercise of the powers
under Section 14(3)(a) of IBC, has notified that moratorium under Section 14(1) of IBC shall
not apply to transactions, arrangements or agreements, under the Convention and the
Protocol, relating to aircraft, aircraft engines, airframes and helicopters.

“Now, therefore, in exercise of the powers conferred by clause (a) of sub-section (3) of
section 14 of the Insolvency and Bankruptcy Code, 2016 (31 of 2016), the Central
Government hereby notifies that the provisions of sub-section (1) of section 14 of the
Insolvency and Bankruptcy Code, 2016 (31 of 2016), shall not apply to transactions,
arrangements or agreements, under the Convention and the Protocol, relating to aircraft,
aircraft engines, airframes and helicopters.”

Effect of the notification.

This is a move towards strengthening India’s international commitment under the CTC (Cape
Town convention) and the Protocol, the frameworks for which have evolved through a desire
to enhance protection to creditors lending in connection with or leasing aircrafts. International
financial institutions too have not given due weightage to accession to the CTC and the
Protocol by any country unless it is accompanied by an implementing legislation, thereby
making aircraft borrowing and leasing expensive. The Notification is therefore expected to
provide an impetus to instilling greater confidence and predictability in international
financing and leasing of aircrafts in Indian markets. The move shall empower aircraft
financiers/ creditors by making aircraft financing efficient and viable, by reducing the time
and procedural steps for such financing as well as recovery, including during the insolvency
proceedings under IBC. The Notification is also consistent with one of the objectives of IBC,
which is promotion of availability of credit. One of the immediate developments following
the issuance of the Notification is the projected increase in India’s score in the positive
watchlist notice in the CTC compliance index as issued by the Aviation Working Group, the
UK-based global aviation watchdog.

There were doubts whether this notification would help the Go first lessors as the effect of the
notifictaion applies prospectively and not retrospectively. However, in an affidavit filed
before the Delhi High Court, the Directorate General of Civil Aviation (DGCA) has said the
MCA's October notification would apply with retrospective effect to pending cases as well. A
verdict on the issue is awaited.
The HC was hearing a case by aircraft and engine lessors of grounded airline Go First against
DGCA for de-registration of their aircraft.