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Part One: Go First collapse once again brings India’s challenges into focus

By Ellis Taylor, Dashboard Editor Asia

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May was an extraordinary month in Indian aviation with the collapse of budget carrier Go First, which has led to a tussle as lessors tried, but were blocked, from recovering their assets. Meanwhile, the airline has been given a reprieve from its creditors in the hope that it will be able to return to service soon, and maintain its status as a going concern.

Geared for insolvency

Go First made the voluntary plea to enter insolvency resolution on 2 May, placing the blame squarely on engine manufacturer Pratt & Whitney for failing to supply adequate engines to keep its Airbus A320neo fleet in the air, in accordance with a March arbitration ruling, causing it to lose $25 million per month. (Cirium Dashboard subscriber access.)

At the time it suspended operations, Cirium fleets data showed that the airline had 24 A320neos in service and five A320ceos; however, it is unclear how many of those aircraft are serviceable given the lack of Pratt & Whitney PW1100G engines available.

That kicked off a race between the aircraft’s lessors to repossess their aircraft from Go First before the resolution process could be ordered by the National Company Law Tribunal. That saw a rush from 4 May of lessors filing deregistration requests with the Directorate General of Civil Aviation to take back their aircraft, in the hope that the five working day period for processing would allow them to recover their aircraft and engines.

Those hopes were dashed however on 10 May when the court ruled that Go First would enter a corporate insolvency resolution process, appointing Abhilash Lal as the interim resolution professional to run the company, with the aim of maintaining its status as a going concern.

The ruling included a moratorium on repossessing the airline’s fleet, and also ordered Airbus and others to continue providing parts and support to position the airline to return to operations.

Although there were indications through May that a return to the skies could occur within weeks, as of June 6 no firm date had been set for it to resume operations.

Legal limbo

Go First’s entry into insolvency resolution and the moratorium on lessors recovering their aircraft will allow it to return to the air, but a number of lessors have pursued legal avenues to get their aircraft back – so far with little success. 

Soon after the order, SMBC Aviation Capital launched an appeal in the National Company Law Appellate Tribunal, seeking to overturn the resolution ruling, which was joined by CDB Aviation and SKY Leasing. That appeal was unsuccessful, with the lessors ordered back to the lower court to resolve repossession issues. 

Since then, Carlyle Aviation Partners and other lessors have moved to the Delhi High Court, where they are suing the Indian government and the Directorate General of Civil Aviation over its failure to deregister aircraft following requests made before the moratorium came into force.

Despite hearing arguments in late May, the court is not expected to rule until September.

Feeling the effects in Cape Town

While the High Court challenge continues, the Aviation Working Group placed on watch for a potential downgrade of its Cape Town Convention (CTC) compliance score on 11 May, which would impact future lease deals in the country.

In its watchlist notice, the AWG said that that the voluntary insolvency proceedings by Go First are a “material development that implicates CTC compliance in India” that confirm its earlier assessment that there are “gaps in primacy, notably in respect of bankruptcy legislation.”

Legislation that would give the Convention primacy over India’s bankruptcy code was introduced to the country’s parliament in 2022 but has yet to pass into law, legal sources tell Cirium.

There are some signs that the Go First situation may prove a catalyst to pass that legislation, as there is a real risk now that future aircraft leases in India will start to bear a risk premium.

However the substance of the potential downgrade is centred around DGCA’s failure to deregister aircraft within five working days of publishing requests on its website, in accordance with its own standard operating procedure.

In an extraordinary move, Go First attacked the AWG soon after it issued its watchlist notice, using it to redouble its attack on Pratt & Whitney’s parent company Raytheon for “clearly treating India like a second-class market where Pratt & Whitney’s actions continue to do irreversible damage to Indian airline companies”.

Read Part 2 of the Go First analysis: Indian airlines vie for summer gains. Sign up below.