The fate of Go Airlines (India) Ltd, the country’s fourth-largest carrier, is set to be decided on Wednesday in a bankruptcy plea ruling. This decision will not only impact the airline’s 7,000 employees but also have major implications for foreign lessors who are attempting to repossess planes.
The low-cost carrier, which recently rebranded as Go First, has blamed its financial crisis on faulty Pratt & Whitney engines that grounded nearly half of its 54 Airbus A320neos. However, the US engine maker, which is part of Raytheon Technologies, has denied these claims and called them baseless.
If the tribunal admits Go First’s plea, a new resolution professional will be appointed to take over management and revive the airline, which is owned by the Wadia Group. The decision is expected at 10:30 am (0500 GMT), and Go First is widely expected to succeed.
The outcome of this ruling will be closely watched by the aviation industry, as it will have significant implications for the sector’s recovery from the COVID-19 pandemic. The pandemic has hit airlines hard, leading to many bankruptcy filings and a decrease in air travel demand.
This is the first time an Indian airline has voluntarily sought bankruptcy protection to renegotiate its contracts and debts.
The unprecedented move could complicate repossession efforts by lessors, which have in recent days filed requests with the aviation regulator for the return of about 40 Go First planes over missed rental payments.
They now face a major roadblock, as the law prohibits any such recoveries once bankruptcy proceedings are initiated for a company, lawyers and industry sources said.
The centre has made it easier for lessors to take back planes if airlines default on payments after joining an international treaty known as the Cape Town Convention.
But lack of a proper legislation to enforce the treaty means the bankruptcy law will supersede lessors’ repossession requests, lawyers said.
“Lessors must be very, very concerned right now. The repossession requests will be of no consequence if the insolvency and bankruptcy process kicks in,” said Abhirup Dasgupta, a partner at HSA Advocates who specialises in insolvency law but is not involved in the Go First matter.
Two industry sources advising some lessors said there were major concerns that Go First’s bankruptcy could force them to trigger drawn-out litigation to assert their rights to repossess planes.
The lessors are nervous about getting their assets stuck in the country with no clarity on repossession, one of the sources said, adding it could lead to higher lease rates for airlines in the future given the risks.
The industry sources could not be named because they were not authorised to speak publicly about the matter.
Go First’s lessors include major global names such as Jackson Square Aviation, SMBC Aviation Capital and CDB Aviation’s GY Aviation Leasing.
The grounding of Go First, which had a near 8% market share in the world’s third-largest aviation market, comes as Prime Minister Narendra Modi has been touting the country’s emergence as an aviation powerhouse.
Bigger rivals IndiGo and Tata Group’s Air India are charting major expansion plans with hundreds of new planes on order as domestic air travel surpasses pre-pandemic levels.
Some of the lessors have initiated talks with IndiGo and Air India to take over Go First’s planes, the two industry sources said, even though it is unclear how the tribunal’s decision on Wednesday could impact such negotiations.
IndiGo declined to comment. Air India did not immediately respond.
If Go First collapses, it would follow other carriers Jet Airways, which went under in 2019 and Kingfisher, which failed in 2012.