Exclusive: Lenders in no mood to pump fresh funds into Go First till resolution

Banks are not looking at lending to the cash-strapped Go First before the completion of the resolution process of the airline, a senior executive of one of the lenders said on condition of anonymity on May 12.

Banks are not looking at lending to the cash-strapped Go First before the completion of the resolution process of the airline, a senior executive of one of the lenders has said, refusing to be identified.

“As of now, we are looking at a resolution. We are not looking at any further lending,” said the executive.

This comes after the airline said it was looking for a one-time settlement with its lenders.

The National Company Law Tribunal (NCLT) on May 10 accepted the airline’s voluntary application for insolvency proceedings.

In line with the initiation of the process in NCLT, the senior executive said that there are positive chances for the airline to revive but “we are waiting for the resolution process”.

“The moratorium is there and the planes are not going out but there's a good chance of the airline getting back and maybe in some months back to normal. Let’s see how the resolution comes out and who the interested players are,” said the executive.

Also read: Will Go First’s voluntary insolvency set a precedent for future IBC cases? Here’s what experts say

Banks’ 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 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.

Also read: Go First extends flight cancellations till May 23

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.

Moneycontrol earlier reported that lenders to the airlines, which are owed over Rs 6,000 crore, have adopted a wait-and-watch approach before deciding to provide the airline with additional funds.

Insolvency proceedings 

The airline filed for voluntary insolvency in the National Company Law Tribunal in New Delhi on May 10 under Section 10 of the Insolvency and Bankruptcy Code, which allows a debtor to initiate insolvency proceedings against itself. It also suspended flights.

Section 10 of the IBC deals with the initiation of the corporate insolvency resolution process by corporate applicants that have defaulted on loans. The NCLT admitted Go First’s petition on May 10, granting it bankruptcy protection and disallowing lessors from repossessing the carrier’s aircraft.

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.

Also read: MC Explains: What is Section 10 and 14(1) of IBC and what it means for crisis-ridden Go First

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.

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.

Also read: Trouble deepens for Go First as international aviation body issues ‘watchlist notice’ to IRP

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.