Go First: Saga Of Grounded Airline

The struggling Indian aviation industry faced additional difficulties when another successful private airline suddenly ceased operations earlier this month, marking the 11th airline to do so in the past decade. The owners of Go First, a budget airline, filed for voluntary insolvency resolution proceedings, causing shockwaves throughout the industry. Go First had been plagued by problems, particularly the alleged failure of Pratt & Whitney, a jet engine manufacturer based in the USA, to supply engines and spare parts for its aircraft. This led to the grounding of nearly 40 percent of its fleet for several months before the airline was eventually forced to suspend all operations in early May 2023.

The Directorate General of Civil Aviation (DGCA) issued a show-cause notice to Go First for its sudden actions, which caused major disruptions for thousands of passengers. However, Civil Aviation Minister Jyotiraditya Scindia expressed sympathy for Go First's struggles with engine problems. While the government assured that it was providing assistance to the airline, Scindia also urged Go First to make alternative travel arrangements for its passengers to minimize inconvenience.

According to Go First, they applied for insolvency under the Insolvency and Bankruptcy Code (IBC) due to the increasing number of engine failures supplied by Pratt & Whitney. By April 30, 2023, around 25 out of its 61 Airbus A-320neo aircraft, accounting for almost 40 percent of its fleet, had been grounded. Go First claimed that the percentage of groundings due to faulty engines supplied by Pratt & Whitney had risen from 7 percent in December 2019 to 31 percent in December 2020 and 50 percent in December 2022. The airline blamed Pratt & Whitney for failing to meet their assurances. As a result, Go First suffered a massive loss of approximately Rs 10,800 crore and demanded Rs 8,000 crore in compensation from Pratt & Whitney to fulfill its financial obligations.

Speaking with BW Legal World, Yogendra Aldak, Partner, Lakshmikumaran & Sridharan Attorneys said, "Admission of Go First’s plea to take recourse under the insolvency regime has already raised concerns among its employees, aircraft lessors, vendors and passengers who have booked air tickets. While it is certain that the lessors cannot reclaim the possession of the leased aircrafts in light of the moratorium, the fate of their rental claims is doubtful as the issue of eligibility of lease rent being ‘operational debt’ is pending before the Supreme Court. Considering that Go First has claimed to have committed a default of Rs. 2,660/- crores towards the lessors, it is apparent that the lessors will face the major brunt of the company undergoing insolvency. That being the case, it is high likely that the decision of the NCLT would be prone to challenge before appellate forum."

In addition to the engine troubles, Go First had also paid Rs 5,657 crore to its lessors in the past few years, including Rs 1,600 crore as lease rent for non-operational grounded aircraft. The airline also faced issues with Pratt & Whitney not complying with the March 2023 award of the Emergency Arbitrator in Singapore, which required the immediate provision of at least 10 serviceable spare leased engines by April 2023 and an additional 10 engines per month until December 2023 to facilitate the airline's full operations, financial rehabilitation, and survival.

An aviation official mentioned that once the National Company Law Tribunal (NCLT) processes Go First's application, an interim Resolution Professional could be appointed to take over and restart operations. However, a similar attempt with another grounded private carrier in 2019 failed to succeed.

Despite investments of around Rs 3,200 crore in the past three years and a total investment of nearly Rs 6,500 crore, including support from the government's emergency credit line guarantee, Go First continued to incur 100 percent of its operational costs. With a total loss of Rs 10,800 crore, the airline ultimately succumbed. In its NCLT plea, the 17-year-old airline, which operated flights to various domestic and international destinations, requested several interim directions, including preventing lessors from repossessing their aircraft and restraining actions from the DGCA and essential goods and service suppliers.

Go First, previously known as GoAir, started operations in November 2005 and gradually became the fifth largest private carrier in the country, consistently profitable and expanding until the engine troubles with Pratt & Whitney began in December 2020, ultimately leading to its grounding in May 2023. The owner-promoters have stated their intention to revive the airline and are not considering selling or exiting the sector.