On May 10, 2023, the National Company Law Tribunal (NCLT) admitted an application filed by GoFirst and declared a moratorium under the provisions of the Insolvency and Bankruptcy Code, 2016 (IBC). GoFirst had been operating as a low-cost airline under the brand name Go Air for the last 17 years and was renamed as GoFirst in May 2021.
As of 2022, GoFirst was India’s third largest airline operator by passenger market share. Statistics indicate that GoFirst has had its fair share of success and has contributed significantly to the aviation and tourism sector. Between 2010 and January 2021, GoFirst flew 83.8 million passengers, with an average of around 2,300 departures made weekly. GoFirst served over 12 million passengers annually and was a profitable airline operator from 2009 to 2019. The extent of GoFirst’s operations was such that the company, when filing the insolvency application under Section 10 of the IBC, had a workforce of 7,000 direct employees and 10,000 indirect employees. Clearly, the airline was doing well, at least until the onset of the pandemic.
But its problems began when the Pratt & Whitney (P&W) engines developed defects, which caused a third of to be grounded. GoFirst says P&W has refused to honor its commitments. The company even initiated emergency arbitration against P&W before the Singapore International Arbitration Centre (SIAC).
The arbitral tribunal directed P&W to supply GoFirst with 10 serviceable engines by late April 2023 and another 10 each month until December 2023. GoFirst has alleged that P&W failed to comply with these orders, and has initiated enforcement proceedings.
GoFirst says that due to the defective P&W engines 4,118 flights had to be canceled in the month preceding the commencement of the insolvency proceedings. At present, the company has a total of 54 aircrafts of which 28 are grounded due to engine related issues and the remaining 26 are operational. On this count, GoFirst pleaded before the NCLT that its insolvency petition may be admitted and a moratorium under Section 14(1) of IBC may be granted to protect the company’s existing assets.
The application of GoFirst seeking the initiation of the insolvency proceedingscame to be resisted by some of the operational creditors of GoFirst who wished to present their objections, for which they contended that a notice of the application ought to have been issued by GoFirst. The NCLT held that no express provision in law necessitates issuing a notice or service of a copy of the application under Section 10 of the IBC to the creditors. Even otherwise, the NCLT opined that it would not be feasible to issue notices to multiple creditors, especially when the creditors would anyway not lose their rights. Accordingly, GoFirst’s application for commencement of insolvency was admitted, and an interim resolution professional (IRP) was appointed. The NCLT directed the IRP to take charge of the corporate insolvency resolution process with immediate effect.
Further, the IRP was directed to take necessary steps for the execution of SIAC’s arbitral award and not resort to the retrenchment of employees without informing the NCLT.
Despite NCLT instructing the IRP to avoid retrenchment of employees, the future of GoFirst is full of uncertainties. As per reports, salary payments of employees have been delayed leaving many to look for opportunities in other airline companies. Many pilots have urged the Central government to reduce the notice period of 12 months for resigning under the DGCA norms.
Light at the end of the tunnel?
GoFirst has submitted, at DGCA’s behest, a 6-month revival plan, intending to resume operations on the Pune, Bagdogra, and Goa routes. It has also offered to immediately deploy two aircraft to start operations on the Delhi-Srinagar and Delhi-Leh routes.
Notably, prior to the commencement of insolvency proceedings, GoFirst served at critical airports such as Leh and Port Blair and was the largest operator in Jammu and Kashmir.
On 26 June 2023, it was reported that GoFirst’s lenders approved an interim funding of ₹4.5 billion ($54.9 million) for the resumption of operations. Now that the lenders have approved the funding, the decision lies with DGCA to permit GoFirst to resume operations.