By Staff Correspondent
India’s aviation sector is grappling with the contentious voluntary insolvency case of Go First Airlines, led by the Wadia group, which has sparked a deep divide among legal experts and raised concerns about trust in the industry. Debt facilities provided by banks to Go First Airlines are estimated to be around INR 4,500-5,000 crore ($607-674 million), while financial liabilities stand at approximately INR 6,521 crore ($880 million). The timing of the airline’s voluntary approach to the National Company Law Tribunal (NCLT) has been met with scepticism, particularly by a group of lessors who assert that it has alienated them from the assets they loaned to the airline.
Akshat Khetan, a distinguished corporate and legal advisor, has expressed concerns regarding the case, highlighting the rift it has caused within the legal community and its implications for India’s aviation sector. The decision of Go First Airlines to seek insolvency protection has raised questions about the company’s business practices and may have compromised its assets, including hard-earned flight routes, which are highly valuable in the industry.
One of the key factors contributing to Go First’s financial struggles is its incomplete transition to Pratt and Whitney engines, despite the Directorate General of Civil Aviation’s directive to do so. While IndiGo reportedly completed the transition, Go First Airlines must still comply. The legal proceedings at the NCLT have further unravelled the airline’s financial position, with Pratt and Whitney expressing concerns over non-payment and some lessors even going as far as to accuse the airline of fraud.
Drawing comparisons to previous high-profile insolvency cases, such as those of Kingfisher Airlines and Jet Airways, the Go First Airlines case highlights the importance of financial discipline and sound corporate governance in the aviation industry. However, this latest case has opened Pandora’s box, as lessors find themselves unable to regain control of their leased assets, including planes.
The Aviation Working Group (AWG) has raised concerns and placed India on a watchlist due to the airline’s inability to satisfy its leasing obligations. There are indications that the government may intervene, and there are speculations that the cost of acquiring and operating an airline in India may rise. The possibility of the government passing the Cape Town Convention (CTC) bill, which India signed in 2008, has gained traction. The bill aims to protect lessors by streamlining procedures for aircraft repossession in case of default.
Beyond the immediate implications for Go First Airlines and its stakeholders, the case has overshadowed India’s thriving civil aviation sector. The industry has achieved significant milestones, with over one million daily airport footfalls across international and domestic channels and ambitious plans to establish 100 new airports by 2024 under the UDAN scheme. However, the failure of one player like Go First Airlines could result in higher fares and reduced flight options for consumers, potentially impacting the sector’s growth trajectory.
While recent statistics from the Insolvency and Bankruptcy Board of India (IBBI) suggest positive outcomes for voluntary insolvency cases, the Go First Airlines case is expected to have a lasting impact on the industry. Lessons from previous cases indicate the importance of acting swiftly as the value of assets deteriorates over time. Once considered assets that could be rebuilt, flight slots and routes are proving challenging to evaluate in such insolvency scenarios. Urgent measures are needed to mitigate the repercussions and restore confidence in India’s aviation sector.
