Go First, an airline owned by the Wadia Group filed for insolvency on Tuesday due to a cash crunch caused by the grounding of almost half of its 57 aircraft. The airline blamed Pratt & Whitney, its engine manufacturer, and suspended all flights until Thursday. The airline has been flying around 200 flights daily for the past few days, carrying 25,000-30,000 passengers daily. Bankers to the company will meet on Wednesday to review the situation and discuss next steps.
The Directorate General of Civil Aviation has issued a show-cause notice to the airline for not informing them about flights canceled on May 3 and 4. However, the airline’s website says it has canceled flights not only on May 3 and May 4, and May 5. Travel industry sources reported panic-stricken customers have begun withdrawing their tickets for future dates, and even refunds were not processed on Monday.
Go First stated that it was forced to file for insolvency after Pratt; Whitney refused to comply with an award by an emergency arbitrator appointed by the 2016 Arbitration Rules of the Singapore International Arbitration Centre. The airline claimed Rs 8,000 crore in compensation for the grounding before the arbitral tribunal. The grounding of the planes has resulted in revenue loss and additional expenses of Rs 10,800 crore, according to Go First. The airline added that it incurred Rs 1,600 crore as lease rent for the grounded planes.
Go First’s decision to file for bankruptcy came as a surprise to lenders and suppliers. The airline has irregularly paid airports, ground handlers, and suppliers, and even staff salaries have been delayed. However, it has been regular in servicing bank debt. Go First’s bank exposure is around Rs 2,600 crore, excluding loans granted under the government’s emergency credit loan guarantee scheme. Over 90 percent of the debt is provided by the Bank of Baroda and Central Bank, and the rest by IDBI Bank.
