Can GoFirst still be a going concern? Yes, no, maybe: Legal experts grope in the dark

Ajay Monga, Partner, SNG & Partners, says that if the airline wins the case in the US and if the damages awarded come to it and are sufficient to meet its financial debts, “Go First may withdraw the NCLT petition. If, however, only the faulty engines are ordered to be replaced, Go First will not be able to pay its dues immediately because generating cash using the new engines will take time.”

According to Prantik Hazarika, aviation law expert and Partner, Khaitan and Khaitan, if the petition filed before the Delaware court for enforcing the emergency arbitration award is allowed, then P&W will have to honour it. Thereafter, depending on its financial health, Go First can decide whether to withdraw the insolvency petition and resume operations or continue the insolvency proceedings.

A person who has been closely involved with the insolvency proceedings disagrees. Choosing to remain unnamed, he says that the Delaware proceedings and the insolvency petition are parallel tracks.

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“Even if Go First wins damages from P&W, it may be too little, too late. I believe the insolvency track may be more to help clean up the books and make the company more attractive to potential investors since earlier efforts came to nought. The money from the Delaware proceedings can be used as a deal-sweetener for potential acquirers,’’ he said.

Sanjay Sen, Senior Advocate, Supreme Court of India, says the reason the airline has filed for insolvency is because the company is unable to meet its current liabilities.

“Against this background, to speculate on a win in Delaware, based on which it may resume operations, is a bit far-fetched in my view. They need to address the issues separately. The issue of P&W engines needs to be resolved both from a technical and commercial standpoint,” he added.

However, instead of getting bogged down in lengthy litigation in the NCLT and the Delaware court, the parties can opt for an out-of-court settlement, as dispute resolution through mediation is always a better option, feels Hazarika.

Monga feels that if the parties successfully conclude an out-of-court settlement, Go First may come out of insolvency if damages are agreed to be paid by P&W, and they are sufficient to meet the airline’s financial obligations.

“But merely damages would not be sufficient as in order to fly, the aircraft’s engines will also have to be replaced. Else, Go First aircraft with faulty engines will still remain grounded, leading to a financial crunch again,” he says.

According to Sen, a settlement with P&W will certainly give hope to lenders and stakeholders, who may infuse more funds into the airline. “The earlier this is resolved, the more likely the chances of the company resuming operations,” he feels.

Jet Airways, too, had approached the NCLT in an attempt to revive the airline, but this has not happened so far. So what are the chances of Go First succeeding?

Here again, opinion is divided. Monga feels that given the fact that Go First is a smaller company, it has a better chance of revival.

Similarly, the insider who chooses to remain unnamed rates the chances of Go First’s revival “fairly high, simply because it is more up and running than Jet Airways was (Go First’s air operator’s certificate is in place, and slots, manpower, aircraft, resources, airport spaces, ground equipment are all there). The team is still there to help change gears quickly,” he says. The air operator’s certificate (AOC) is granted by the Directorate General of Civil Aviation (DGCA) to an aircraft operator, allowing it to use its aircraft for commercial purposes.

According to Mukesh Chand, Senior Counsel, Economic Laws Practice, “The two things which are most critical for the successful reversal of such cases are keeping the operations running during the CIRP (corporate insolvency resolution process) — which will require a continuous flow of funds — and a quicker completion of the resolution process.”

“In this case, none of this appears feasible as lenders may not be willing to take on additional exposure, and the management will have to look for investors, which would be a tough call given that insolvency resolution has become a lengthy process now. The better option could be to look for a takeover by some existing airline which might be looking for additional routes," Chand adds.