Go First: Nosedive into insolvency and the turbulent path to recovery

In the wake of Go First’s plunge into insolvency a year ago, the aviation industry in India witnessed yet another turbulent chapter. The once-promising carrier owned by the Wadia family, faced a cascade of challenges that ultimately led to its current state of uncertainty. Grounded flights, legal battles, and mounting financial woes paint a grim picture for the airline’s future.

The saga began on May 3, 2023, when Go First was forced to suspend operations and file for bankruptcy, citing multi-crore dues. Amidst this crisis, the airline sought protection from its lessors, securing brief respite from the National Company Law Tribunal (NCLT) on May 10.

“A significant portion of our troubles stems from Pratt & Whitney engines,” lamented Go First, pointing to engine failure that has grounded nearly half of its A320neo fleet, severely impacting operational capacity and revenue generation.

• Also read: Go First, a first in the IBC world

Impact on aviation landscape

“The fall of Go First on the Indian aviation landscape was much smaller than the impact of Jet Airways going off radar,” noted an industry observer. “However, the airline’s inability to capture a large enough market share exacerbated its financial struggles.”

The grounding of planes not only curtailed revenue streams, but also led to a decline in ticket sales, exacerbating the airline’s financial strain. With unpaid dues running into crores and liabilities stretching across lenders, lessors, and vendors, Go First found itself mired in a deepening crisis.

• Also read: Go First lenders ask resolution professional to evaluate revival bids

The airline owed around Rs 6,521 crore to lenders. Outstanding dues to aircraft lessors totalled around Rs 2,660 crore. Combining both financial and operational debts, Go First’s total liabilities were estimated at around Rs 11,463 crore at the time of filing for insolvency. Financial reports painted a bleak picture, with net losses surging to over Rs 1,807 crore in the fiscal year 2022.

While Go First grappled with its internal challenges, the aviation landscape in India underwent significant shifts. The market, already competitive, edged closer to a duopoly dominated by IndiGo and the Tata Group’s airlines.

Legal battles and regulatory hurdles added to Go First’s woes. The Delhi High Court’s order for the Directorate General of Civil Aviation (DGCA) to deregister leased aircraft dealt a severe blow to the airline’s prospects. Meanwhile, on October 3, the Union Corporate Affairs Ministry issued a gazette notification exempting aircraft and engine transactions from the Insolvency and Bankruptcy Code (IBC) moratorium, providing relief to Indian airlines, particularly after the GoAir fiasco. This move was crucial as India had not legislated the Cape Town Convention (CTC), which facilitates lessors’ repossession of assets from defaulting airlines.

“Grounding a significant part of the fleet due to engine issues meant major revenue loss for Go First,” explained an ex-employee of the company.

As lessors contemplate reclaiming their aircraft, the road ahead remains fraught with challenges. Finding spare parts for Pratt & Whitney engines and navigating legal complexities will be imperative for lessors seeking to recover their assets.

“Go First might not have been able to capture a large enough market share to financially sustain itself, especially while facing other challenges,” remarked an industry observer.

Go First’s descent into insolvency serves as a cautionary tale for the Indian aviation industry. Despite regulatory interventions and legal battles, the path to recovery remains fraught with challenges. As stakeholders navigate the turbulent skies ahead, the fate of Go First hangs in the balance, underscoring the fragility of the aviation sector in times of crisis.

COMMENT NOW