Go First Airways (previously known as GoAir) had earlier today decided to cancel flights between May 3-5, 2023. However, a little while after the airline cancelled these flights, they also announced that the airline had applied for voluntary insolvency with India’s National Company Law Tribunal.

Go First files for voluntary insolvency with the NCLT.

Go First, which is India’s third largest airline, today filed an application with the National Company Law Tribunal (“NCLT”) Delhi for resolution under section 10 of the Insolvency Bankruptcy Code (“IBC”). Go First blamed Pratt & Whitney for bringing them to take this step.

In a detailed statement, Go First explains that they had to take this step due to the ever-increasing number of failing engines supplied by Pratt & Whitney, which has resulted in Go First having to ground 25 aircraft (equivalent to approximately 50% of its Airbus A320neo aircraft fleet) as of May 1, 2023. The percentage of grounded aircraft due to Pratt & Whitney’s faulty
engines have grown from 7% in December 2019 to 31% in December 2020 to 50% in December 2022.

Go First further explains that the airline has been forced to apply to the NCLT after Pratt & Whitney, the exclusive engine supplier for Go First’s Airbus A320neo aircraft fleet, 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 (SIC). Said order directed Pratt & Whitney to take all reasonable steps to release and dispatch without delay to Go at least ten serviceable spare leased engines by April 27, 2023, and a further ten spare leased engines per month until December 2023, with the objective of Go First returning to full operations.

As per Go First, if Pratt & Whitney were to comply with the orders in the emergency arbitrator’s award, Go First would be able to return to full operations by August/September 2023. Despite the emergency arbitrator’s ruling, however, Pratt & Whitney still needs to provide further serviceable spare leased engines and has stated that there are no spare leased engines available for it to comply with the emergency arbitrator’s award.

Go First infused significant funds into the airline, but engine trouble kept them grounded.

Go First says the promoters have infused funds to the tune of INR 3,200 crores (USD 390 Million) into the airline in the last three years, INR 2,400 crores (USD 293 Million) of which were injected in the previous 24 months and INR 290 crores (USD 39.5 Million) in April 2023 alone. This brings the total promoter investment in the airline since its inception to approximately IN 6,500 crores (USD 794 Million). Go First also received support from the Government of India’s Emergency Credit Line Guarantee Scheme.

The grounding of close to 50% of its A320neo fleet due to the serial failure of Pratt & Whitney’s engines, while it continued to incur 100% of its operational costs, has set Go First back by INR 10,800 crores (USD 1.32 Billion) in lost revenue and additional expenses. Moreover, Go First claims it has paid INR 5,657 crores (USD 691 million) to lessors in the last two years, of which approximately INR 1600 crores (USD 195 Million) 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.

Go First states that it has been forced to apply to the NCLT because of the recurring and persistent issues with the GTF (geared turbofan) engines supplied by Pratt & Whitney, coupled with Pratt & Whitney’s failure to repair those engines and/or provide sufficient spare leased engines as it was required to do under its obligations under the relevant agreements entered into
between Go and Pratt & Whitney.

Go First claims that its management repeatedly sought to engage with Pratt & Whitney on the engine issue, but Pratt & Whitney did not respond constructively. Instead, despite its contractual obligations to provide a spare leased engine within 48 hours
of failure, it refused to provide sufficient spare leased engines to GO FIRST and declined to repair GO FIRST’s engines.

The additional consequence of Pratt & Whitney’s actions has also driven some lessors to repossess aircraft, draw down letters of credit and notify further withdrawal of aircraft. The culmination of these actions, per Go, will result in a severe depletion in the number of aircraft available for Go First to operate going forward, thereby making it further unfeasible for Go First to
continue its operation and meet its financial obligations, the airline’s statement said.

What’s next?

Once the NCLT processes Go First’s application under section 10 of IBC, an Interim Resolution Professional (“IRP”) will take over and operate Go First.  As a result, GO FIRST was left with no option but to commence an arbitration against Pratt & Whitney under the 2016 Rules of the Singapore International Arbitration Centre (SIAC) – seeking compensation over INR 8000 crores and other final relief – as well as to seek interim, emergency relief as permitted by those Rules.

Bottomline

India’s Go First Airlines, a no-frills carrier, has been admitted into voluntary insolvency proceedings. The airline claims that the unavailability of its engines from Pratt & Whitney caused the airline to be left with no option but to proceed into insolvency. In the meantime, flights stay unavailable for May 3-5, 2023, and the airline hopes to come back into action under an Insolvency Resolution Professional soon. The airline has promised to refund those affected by the cancellations to their original payment source.

What do you think lies in the future of Go First? Will they be back, and soon?

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