Domestic budget carrier Go First on May 2 announced that it has filed an application for voluntary insolvency resolution proceedings before the National Company Law Tribunal (NCLT), Delhi.
The announcement was made by the airline’s CEO Kaushik Khona shortly after the Wadia Group-owned carrier said it will temporarily suspend flight operations on May 3 and 4 due to a "severe fund crunch". The flights will be restarted once the NCLT admits the application, Khona said.
Explaining why it is facing a fund crunch, Khona told news agency PTI that the airline has grounded 28 planes, which is more than half of its fleet, due to the non-supply of engines by Pratt & Whitney (P&W).
Go First said it had to take this step to protect the interests of all stakeholders. It has been forced to take this step despite the infusion of substantial funds to the tune of Rs 3,200 crore by the promoters into the airline in the last three years since it had to ground nearly 50 percent of its A320neo fleet due to the serial failure of Pratt & Whitney’s engines, which set Go First back by Rs 10,800 crore in lost revenues and additional expenses.
Also read: Go First’s woes follow a familiar industry pattern, its prospects look gloomy
The loss-making airline said in a statement: “Go First has had to take this step due to the ever-increasing number of failing engines supplied by Pratt & Whitney’s International Aero Engines, LLC, which has resulted in Go First having to ground 25 aircraft (equivalent to approximately 50 percent of its Airbus A320neo aircraft fleet) as of 1 May 2023. The percentage of grounded aircraft due to Pratt & Whitney’s faulty engines has grown from 7 percent in December 2019 to 31 percent in December 2020 to 50 percent in December 2022. This is despite Pratt & Whitney making several ongoing assurances over the years, which it has repeatedly failed to meet.”
“It is an unfortunate decision (filing for voluntary insolvency resolution proceedings) but it had to be done to protect the interests of the company,” Khona said.
“Go First 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 (SIAC). That order directed Pratt & Whitney to take all reasonable steps to release and dispatch without delay to Go First at least 10 serviceable spare leased engines by 27 April 2023 and a further 10 spare leased engines per month until December 2023, with the objective of Go First returning to full operations and achieving Go First’s financial rehabilitation and survival,” the airline said.
Also read: Wadia Group likely to entirely exit or offload significant stake in loss-making Go First
It added: “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.”
The airline has informed the government about the developments and will also be submitting a detailed report to aviation regulator Directorate General of Civil Aviation (DGCA). Meanwhile, the Directorate General of Civil Aviation has issued a show cause notice to Go First for cancelling fresh bookings from May 3 to May 4.
Officials of Go First, which has over 5,000 employees, had informed about a month ago, on March 31, 2022, that it has not been able to pay lease rentals for 10 planes for the past two months, forcing its lessors to write to the DGCA on the matter.
“Go First has not paid lease rentals for the past two months and despite multiple extensions, there are no signs that the airline will be paying,” an official aware of the talks between the airline and its lessors had said.
AerCap Holdings, Celestial Aviation, and BOC Aviation have written to the DGCA over the lease rental dues from Go First for 10 Airbus A320 neo aircraft.
Notably, Go First had been delaying its IPO plans despite getting the market regulator's nod in August 2021. It was first postponed due to the outbreak of the third wave of the coronavirus pandemic in November-December 2021. After that, when it planned to launch its public issue in March-April 2022, the Pratt & Whitney engine supply concerns began worrying investors. These developments came around the same time when Jeh Wadia stepped down as the managing director of the airline.
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