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India’s aviation market gets hit by turbulence

BusinessIndia’s aviation market gets hit by turbulence

Go First, a low-cost carrier, grounded its operations and filed for bankruptcy.

The Indian aviation market is once again hit with turbulence as Go First, India’s Low-Cost Carrier (LCC), grounded its operations earlier this month and filed for bankruptcy owing to funds crunch, making it the third airline in the last one decade to take this extreme step and leaving passengers with limited choice as far as LCCs are concerned.
The Indian passengers are now left to choose between IndiGo and an already crumbling SpiceJet when it comes to affordable flying as the other players, like the newly launched Akasa Air, and veterans like Air India express and Air Asia (both belong to the Air India group) operate only in limited routes.
This, many within the aviation industry say, could make airfares go up further as demand for flying in India has been increasing constantly, but the aircraft and airlines are coming down.
Currently, more than 145 aircraft are grounded in India due to engine issues and lack of spare parts availability from engine manufacturers and this number constitutes approximately 22% of the total aircraft fleet available in India, leading to further slump in the growth of the aviation sector in India.
As per data, 20 aircraft of IndiGo, 54 of Go First, 27 of SpiceJet and 26 of the Air India group are grounded and parked in different airports of the country.
Go First, that filed for insolvency earlier this month, blamed the US-based engine manufacturer Pratt and Whitney for its troubles as the airline was forced to ground 50% of its fleet (25 aircraft) as the engine manufacturer failed to provide them with the engines on time. The airlines also blamed Pratt and Whitney for not being able to comply with an award issued by an emergency arbitrator appointed in accordance with the 2016 Arbitration Rules of the Singapore International Arbitration Centre (SIAC).
“Go First has been forced to apply to the NCLT because of the recurring and persistent issues with the GTF (geared turbofan) engines supplied by Pratt and Whitney, coupled with Pratt and Whitney’s failure to repair those engines and or provide sufficient spare leased engines as it was required to do pursuant to its obligations under the relevant agreements entered into between Go First and Pratt and Whitney. Go First’s management repeatedly sought to engage with Pratt and Whitney on the engine issue, but Pratt and Whitney did not respond constructively. Instead, despite its contractual obligations to provide a spare leased engine within 48 hours of failure, it refused to provide sufficient spare leased engines to Go First and refused to repair Go First’s engines,” Go First said in a statement released to the media.
An official spokesperson of Pratt and Whitney, responding to queries from The Sunday Guardian, said, “Go First’s allegations that Pratt and Whitney is responsible for its financial condition are without merit. Pratt and Whitney will vigorously defend itself against Go’s claims, and is pursuing its own legal recourse.”
The NCLT has admitted the insolvency plea of the airline and has dissolved the airline’s management board and appointed Abhilash Lal as the IRP (Interim Resolution Professional) who has already taken charge of the management of the airlines and have also granted a moratorium to Go First’s asset and liabilities which now cannot be taken over or sold until further orders.
The Wadia group backed Go First had to take the step to move for insolvency due to the mounting financial woes for the airline as it was unable to pay to its vendors and creditors and have defaulted on payments. The Wadia group decided not to infuse further funds into the airline and rather move for insolvency as the company did not see any profit coming in for the airline unless its 25 aircraft that have been grounded take to the skies.
According to Go First’s financials, the airline has a net negative revenue of Rs 10,800 crore. In the last financial year of 2022-2023, Go First recorded its biggest ever loss of Rs 1,808 crore, while the company has a negative net worth of Rs 3,222 crore.
Go First in a statement said, “Go First has taken this step in order to protect the interests of all stakeholders. It has been forced to take this step despite the infusion of substantial funds to the tune of Rs 3,200 crore by the promoters into the airline in the last three years, Rs 2400 crore of which were injected in the last 24 months, and Rs 290 crore in April 2023 alone.
This brings the total promoter investment in the airline since its inception to approximately Rs 6,500 crore. Go First has also received significant support from the Government of India’s exceptional Emergency Credit Line Guarantee Scheme, for which it is extremely grateful. However, even this collective and significant support has not sufficed to prevent the enormous damage caused by Pratt and Whitney’s defective and failing engines.”
The airlines further added, “The grounding of close to 50% of its A320neo fleet due to the serial failure of Pratt and Whitney’s engines, while it continued to incur 100% of its operational costs, has set Go First back by Rs 10,800 crore in lost revenues and additional expenses. Moreover, Go First has paid Rs 5,657 crore to lessors in the last two years of which approximately Rs 1600 crore was paid towards lease rent for non-operational grounded aircraft from the funds infused by the Promoters and Government of India’s Emergency Credit Line Guarantee Scheme.”
The airline has suspended its operation till 19 May and the Indian aviation watch dog, the Directorate General of Civil Aviation (DGCA), has asked the airline to refund in full all the customers who had booked flights till then. However, the airline is hopeful that it will be able to restart operations from 14 May.
According to reports, Go First defaulted on its payment of Rs 11 crore to its financial creditors earlier this month. The airline also has a total liability of Rs 11,463 crore out of which the airline owes Rs 6,500 crore to different banks. Some of the banks that are exposed to the credit line of Go First includes, Bank of Baroda, IDBI Bank, and Central Bank of India.
However, the airline has not defaulted on any of its bank payments till date and the banks are hopeful that they will be able to recover their dues from the airline. This is also not the first time an Indian carrier has been forced to shut shop owing to mounting financial crisis. Some of the prominent examples of airlines that has been forced to clip their wings include the premium Jet Airways, which had to shut down its operations in 2019 as the airline started to default on its payments to its creditors.
The airline then took the path of bankruptcy and insolvency after which the consortium of Jalan and Kalrock became the winning bidders for the airline. However, despite this, Jet Airways has not been able to take to skies as yet.
Another prominent airline, Kingfisher airlines, started by fugitive businessman Vijay Mallya went bust in 2012 after it started to keep itself afloat due to the increasing financial crisis within the airline. Some of the other airlines that went bust in India include Air Deccan, Pegasus Air, Kalinga Airlines, Air Sahara, among many others.

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