From a May to forget to a May to remember, Indian aviation was looking forward to a change of fortunes. A Covid-induced lockdown had all but grounded airlines from March 25 to May 24, 2020. Subsequent waves of Covid led to a significant impact on recovery, until this year when revenge tourism led a comeback.
As April came to a close, the industry recorded the highest ever traffic in any April in the past, paving the blocks for a splendid quarter - until Go First stopped bookings for flights tomorrow and beyond.
The airline soon followed up with a formal communication informing that it is voluntarily filing for bankruptcy with the National Company Law Tribunal (NCLT) and blaming the situation on Pratt & Whitney not adhering to the arbitration award.
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As a best-case scenario, the airline expects that it could start operations by August or September this year if the situation resolves by then. This will lead to a frenzy amongst many, including employees and lessors.
No airline in India has been able to start operations after grounding. The prolonged efforts to revive Jet Airways, a first under Insolvency and Bankruptcy Code (IBC) have not borne any results yet.
What happened?
The airline has been facing headwinds with the unavailability of aircraft for many quarters. All its A320neo aircraft are powered by Pratt & Whitney and the engine manufacturer has had issues supplying replacement engines to Go First as well as IndiGo.
Air India and Vistara, the other two A320neo family operators in India, are powered by CFM. IndiGo opted for CFM as part of its follow-on order, while Go First selected Pratt & Whitney for its second round of orders too.
The airline has said that 25 aircraft are grounded awaiting engines, which comprises about 50 percent of its fleet. 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. The airline also said that the engine maker has not complied with the arbitrator's award and if it does then it would be in a position to start services again later this year. The promoters have induced close to Rs 300 crore in April this year.
What happens now?
Once the application is admitted under NCLT, an interim resolution professional will take over and operate Go First. The airline's website talks about cancellation for three days and flights are open for sale beyond May 6, but this puts many questions out in the open rather than answers any. How will customers trust the airline? Will suppliers provide any credit? How will airports handle the chaos and allow the airline to operate on credit?
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The website of airline does mention refunds to customers who were booked in the next three days. However, it is unclear on the path forward.
What will the government do?
The Narendra Modi-led government's first term started in May 2014 and within months the government stared at a crisis brewing at SpiceJet in December that year. The airline changed hands within days and survived, even though it continues to be on the tenterhooks with a financial crunch. In the days leading up to the Lok Sabha elections in 2019, Jet Airways went down in April 2019. The pandemic since 2020 saw many airlines worldwide receive state aid, but India stayed away from direct doling out of cash to airlines, instead relying on other ways to help the industry.
We are a year away from the next election and an airline going down will not bode well for the government which has successfully taken the privatisation of Air India to its logical end. History is a witness of how airlines have always managed to sustain the downturn but gone down later due to a combination of high oil prices and a difficult environment.
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Can the government work on a resolution at a government-to-government level to ensure that Go First is supported on priority by Pratt & Whitney? Can the government work towards enforcement of arbitration awards? A lot of it is possible, formally and informally. Interestingly, there has not been any word on this whole saga from Pratt & Whitney.
What does it mean for Indian aviation?
Just when the demand for pilots was picking up and airlines were being pushed into a corner by pilot bodies for salaries and minimum flying hours guarantee, an airline getting into bankruptcy resolution would mean that there is likely to be a sudden availability of workforce at all levels. Pilots, crew, planning and revenue management professionals and engineering resources have been in short supply as airlines in India, led by IndiGo and the Tata group airlines, look to expand.
Will anybody cash in? Who will be impacted? The airports, passengers, employees and just about everyone in the ecosystem will be impacted.
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