Go First tears up- What goes next!

Go First bites the dust.

What’s next for the airline industry?

The evening of the 2nd of May concluded on a panic-ridden note when passengers noted that their flights scheduled between the 3rd–5th of May were canceled and the full amount would be reimbursed. In the following moments, reports began to emerge that ‘Go First’ had filed for voluntary insolvency. This shocked the airline’s lenders, traders, and other shareholders. The arrears to be cleared with its lenders tune up to Rs 11,463 crores of which Rs 6,521 crores are immediate dues that must be sorted with multiple commercial banks, airplane renters, dealers, and other investment firms. Go First appealed to the NCLT under Section 10 of the IBC which could prohibit any recovery activities.

Fearing more losses, airplane renters pushed forward applications to the DGCA for disenrolling 20 aircraft (Airbus A320neo) and retaining their rights to sale. They used the IDERA sections which enforce quicker delisting of the affected renter’s airplanes from the nation where it leased. This gives the opportunity for them to take their planes out without needing permission from the respective airlines that operates over it. This act strengthens the ‘leasing industry’ before their planes get entangled in any kind of legal problems.

Go First’s financial disintegration

To salvage losses, Go First initially raised Rs 600 crores from the ECLGS scheme in November 2022 and January 2023. The biggest backers of Go First were largely Deutsche Bank, Axis Bank, IDBI, Bank of Baroda, and the Central Bank of India. For the latter two, they are obliged to repay Rs 1,300 crores and Rs 2,000 crores respectively, while for IDBI they must repay Rs 50 crores. The stock prices of these banks tumbled from anywhere between 2% to 5%. Go First further reneged from their payments to marketers and lease givers totaling up to Rs 3,862 crores. This would lead to recovering taking a hit of 25%-30% as the amounts would be mostly foregone due to the airline’s inability to pay.

The Spat with P&W Engines

P&W is one of the key engine creators for Airbus planes. They supply their engines to both low cost-carriers Indigo and Go First. Reports dating back to 26th February pointed out that P&W engines were increasingly failing on long flights along with inconsistent warning signs leading to the grounding of almost 50% of its total fleet. Since P&W engines were cheaper than its other competitor CFM, Go First continued using the former’s engines. An arbitration under the SIAC saw P&W issue an order to supply new engines and service the faulty engines immediately. However, P&W refused to comply with the order citing a lack of resources.

The Market Share War

Until early 2023, Go First commanded 7% of the market. With its fall, competitors like Indigo, Spice Jet, Tatas’ Air India, and Akasa Air have witnessed more bookings at astronomical prices over the previous weeks. Indigo Airlines share prices have soared by 20% with stock prices gaining from Rs 2,176 per share to projected rates of Rs 2,450 – Rs 2,700 per share. At present, in the race of obtaining vacant parking slots left by Go First, Indigo emerged as the forerunner. Currently, Go First stopped all its flights pointing to financial troubles until May 12. If Go First can restructure its debts entirely, then it may resume complete operations from September 2023.

TERMS ENLARGED

DGCA – Directorate General of Civil Aviation

NCLT – National Company Law Tribunal

IBC – Insolvency and Bankruptcy Code

IDERA – Irrevocable Deregistration and Export Request Authorization

P&W – Pratt and Whitney

SIAC – Singapore International Arbitration Centre

ECLGS – Emergency Credit Line Guarantee Scheme