Go First: Banks in wait-and-watch mode on fresh funding, seek clarity

The Wadia-group backed airline on May 2 announced that it had filed an application for voluntary insolvency resolution proceedings after it was forced to ground half of its fleet citing faulty engines supplied by the American aerospace manufacturer, Pratt &Whitney.

Lenders to crisis-ridden Go First, which are owed over Rs 6,000 crore, are adopting a wait-and-watch approach before deciding to provide the airline with additional funds, a top banker said.

“Presently, it is status quo. At this point, I suppose banks aren't open for fresh funding due to uncertainty (on operations) and initiation of bankruptcy,” the banker said.

The comment assumes significance as Go First is currently facing a funding crunch that pushed it to file for bankruptcy.

However, experts said banks may ultimately fund the airline because its loans are still standard assets, which are not classified as bad loans.

Also read: MC Explains: What is Section 10 of IBC and what it means for crisis-ridden Go First

The airline may ask creditors for more funds, a person aware of the matter told Moneycontrol.

The Wadia Group-backed airline said May 2 it halted flights and filed for voluntary insolvency resolution after grounding half of its fleet because of faulty engines supplied by US manufacturer Pratt & Whitney.

Experts said banks that have already lent to the domestic budget carrier may be ready to advance more money.

“The airline, in its voluntary insolvency application, said it has not defaulted on any payments. Considering this, there is no risk to the lenders and they will give more funds,” said Sonam Chandwani, managing partner at KS Legal & Associates.

Also read: DGCA orders Go First to stop selling air tickets with immediate effect

An insolvency professional who worked on another airline’s proceedings said on condition of anonymity that Go First had kept banks in the dark when it went ahead with its insolvency proceedings.

“But if the Wadia Group gives backing or financial guarantees to the creditors, then banks will look at funding the airline,” the insolvency professional said.

Bank exposure to Go First

Go First’s Insolvency and Bankruptcy petition was filed under Section 10, instead of Sections 7 and 9. While Section 10 allows a debtor to initiate insolvency proceedings against itself, Sections 7 and 9 allow creditors to take the debtor to the National Company Law Tribunal (NCLT) to recover dues.

Go First owes lenders including Bank of Baroda, Central Bank of India, Deutsche Bank and IDBI Bank Rs 6,521 crore, according to the airline’s filing.

Central Bank of India had the highest exposure of Rs 1,987 crore, followed by Bank of Baroda at Rs 1,430 crore, Deutsche Bank at Rs 1,320 crore and IDBI Bank at Rs 58 crore, Acuite Ratings and Research said in a January 19 report.

“The banks will ask for more clarity on the insolvency of the airline and if they find it suitable, they may give more funds,” said Sanjay Agarwal, senior director at Care Ratings.

Also read: MC Exclusive | Cash burn of Rs 200 crore a month leaves GoFirst broke: CEO

A banking analyst, who did not wish to be identified, said Go First had a good business history and market share.

“Considering these things, the lenders do not see any risk,” the analyst said.

Insolvency proceedings

In its application, Go First blamed Pratt & Whitney for its situation, saying the engine maker refused to comply with the award issued by the Singapore International Arbitration Centre (SIAC) in favour of the airline. The SIAC asked Pratt & Whitney on March 30 to provide Go First with 10 serviceable engines by April 27, 2023, and 10 engines each month till December this year.

The airline is seeking compensation from Pratt & Whitney for the faulty engines. However, with fewer operating aircraft, its market share shrank, leading to a loss of revenue and delayed payments to vendors.

On April 28, Go First moved a petition before the Delaware court, seeking enforcement of the Singapore arbitration panel's award.

Also read: Go First Insolvency: IndiGo may ride the tailwind, analysts see duopoly ahead

Pratt & Whitney said in a statement on May 3 that it is committed to the success of its airline customers.

“We continue to prioritise delivery schedules for all customers. P&W is complying with the March 2023 arbitration ruling related to Go First. As this is now a matter of litigation, we will not comment further,” it said.
Kaushik Khona, chief executive officer of Go First Airlines, said Go First needs at least 20 aircraft to return to service and break even on daily operations. He said the airline had been spending about Rs 200 crore every month since November.

Email queries sent to Go First were unanswered at the time of publishing the article.