Go First said not to have paid rentals for 10 planes to three lessors

Go First

Low-fare carrier Go First has not paid lease rentals for 10 planes for the past two months, forcing its lessors to write to the Directorate General of Civil Aviation on the matter, people aware of the development told Moneycontrol.

“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,” said an official aware of the talks between the airline and its lessors.

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.

While the lessors have not asked the DGCA to deregister the aircraft, that is likely to be the next step. The lessors will file for deregistration in a month if payment of Rs 700 crore is not made by the airline, the person said.

A deregistration request is usually filed if a lessor and airline fail to reach agreement on payment. It would result in removal from the country’s official register of aircraft and means it cannot be used for flight operations.

“The DGCA has written a warning letter to Go First, asking the airline to pay its lessors,” said another person aware of the situation.

Commenting on the development, a  Go First spokesperson later stated, "We don’t comment on speculations. We would like to clarify that GO FIRST has not received any warning letter from DGCA on this aspect. We continue to have cordial and collaborative relations with lessors and the payments are made as per the plan."

Revenue loss

The delayed lease rental payments have added to Go First’s woes as it seeks compensation from Pratt & Whitney for faulty engines, which have grounded half of its fleet. With fewer operating aircraft, the airline’s market share has shrunk, leading to loss of revenue and delayed payments to vendors.

Go First had 30 aircraft grounded as of March 31, including nine on which the lease payments are due, industry officials said. Go First has a total of 61 aircraft in its fleet – 56 A320neos and five A320ceos, according to the airline’s website.

The loss of passenger revenue comes when airfares are high and traffic is soaring after the pandemic. The airline plans to operate 1,538 flights a week in the ongoing summer schedule, 40 lower than last year. The season started on March 26 and goes on till October 28.

Since July 2022, when it first had to ground its aircraft, Go First's market share has shrunk. Market share narrowed to 8 percent carrying 963,000 passengers in February from a peak of 11.1 percent when it carried 1.27 million passengers in May 2022.

The fall in passengers carried has impacted Go First's financials. The airline reported a net loss of $218 million in FY22, according to regulatory filings. This was twice as much as the previous year’s loss of $105 million.

The carrier withheld payments of Rs 5 crore in February to employees, hotel vendors, and transport vendors.

“The airline regularly pays its fuel vendor, but all the rest are paid intermittently and this month at least, hotels and transport vendors have not been paid," an official working with Go First said.

Go First received Rs 210 crore under the government’s Emergency Credit Line Guarantee Scheme (ECLGS) in February, while its promoters put in Rs 210 crore of funding. The airline has already availed of Rs 600 crore under ECLGS.

The Wadia group-backed airline said in March it may be forced to ground 8-12 more aircraft in the next six to 12 months if Pratt & Whitney does not fulfil its contractual obligations and provide the airline with spare engines.

Another official said Go First does not have money to pay its lessors and it has not received compensation from Pratt & Whitney for faulty engines.

“Go First has no choice but to take Pratt & Whitney to court and win the case if they plan to continue operations,” the official said. He added that the airline’s payments to lessors and vendors far exceed the revenue generated by operating its limited fleet.

Deadlocked talks

Go First and Pratt & Whitney have reached a deadlock on negotiations over PW-1100G geared turbofan (GTF) engines. Go First is looking to sue Raytheon Technologies, the parent company of Pratt & Whitney, and seek compensation for the loss of business due to grounded planes.

“Pratt & Whitney is not fulfilling its contractual obligations to Go First. The engine maker is refusing to repair its faulty engines free of cost and has also stopped compensating Go First for grounded aircraft,” said an official aware of the discussions.

In 2019, Go First signed a deal to buy P&W engines for its 72 A320neo aircraft along with a comprehensive service agreement that mandated compensation from the engine maker for any maintenance issues.

"Go First has received 8-9 spare engines from P&W till now and the engine maker has refused to provide any more spare engines to the airline," a second official said. He added that P&W has asked Go First to pay for the repair of the faulty engines, despite being under contract to repair them free of cost.

Emails sent to Raytheon remained unanswered at the time of publishing.
P&W's geared turbofan engines have faced technical problems since 2016, causing a number of in-flight shutdowns. Raytheon Technologies said in January that a shortage of complex metal components used to produce aerospace turbofans will likely continue through most of 2023.

In 2019, the DGCA mandated that Indian carriers will have to replace faulty engines before inducting a new aircraft.