Go First’s revival was clouded further by a 3 October government notification that said leased aircraft and engines would not come under the bankruptcy moratorium. If applied retrospectively, this implies a lessor can potentially take away its 53 leased aircraft, snuffing out any chance of revival.
“Strictly going by the way the ministry of corporate affairs (MCA) and the directorate general of civil aviation (DGCA) are treating the situation at Go First, liquidation seems to be the only direction the airline is headed for. It’s only a matter of time,” said one of the people cited above.
Still, creditors will first seek an extension of the resolution deadline after a Delhi high court verdict on 3 November in a case between the airline and its lessors, the people said.
The 3 October announcement was meant to comply with the Cape Town Convention, control rental costs and prevent higher fares. “We have to see whether this rule will be applied prospectively or retrospectively, but the government’s direction is clear,” the first person said.
“We have to see how the court handles the case. But, even if it is applied prospectively, the aircraft in Go First are deteriorating fast, which will demand more money than expected if a revival is desired. Will a buyer or existing stakeholders be willing to spend that extra money for the already-indebted airline?” said the first person.
GoFirst, according to its insolvency filings, owes at least ₹11,463 crore collectively to banks, international lessors and vendors. As per insolvency filings, at least ₹6,521 crore is due towards financial creditors, including Central Bank of India, Bank of Baroda, IDBI Bank Ltd. and Deutsche Bank Ltd. A Deutsche Bank spokesperson declined to comment. Emails sent to Go First’s resolution professional and the other lenders remained unanswered till press time.
Billionaire industrialist Naveen Jindal is the only one to place an expression of interest in the airline so far.
“There is no serious bid yet to take over the airline, but discussions with Naveen Jindal’s office are on. Jindal’s office has been asked to come up with a concrete offer and a resolution plan if their expression of interest is a serious one. The resolution professional is also open to receiving bids from other serious players during the period of the extended deadline,” said the first person.
A second person, who is a part of Go First’s committee of creditors (CoC), said that the 180-day insolvency resolution deadline ends on 6 November, and the CoC will meet ahead of that to decide on the next steps. He said lenders plan to seek an extension of the timeline granted under the insolvency code since they have received only one expression of interest so far.
Although the initial deadline to complete an insolvency case is 180 days, it is extendable up to 330 days. Data so far shows that, on average, it has taken 643 days to achieve a resolution.
“We still do not know how serious Jindal Power is about converting the EoI into a bid, but that is the only proposal right now, and we would want to wait for some more time. It will be taken up in the next CoC meeting,” the banker said.
However, banks have maintained that even if Go First goes to liquidation, they have enough collateral with them.
Apart from pure bank loans, Go First has also borrowed ₹1,292 crore under the Centre’s emergency credit scheme introduced during the covid crisis. “Add to all these dues the cost to revive all the unusually deteriorated aircraft in Go First’s fleet to make them fit to fly again. And then, as per Directorate General of Civil Aviation’s conditions, the amount of ₹400 crore that the airline has to pay the passengers back who had pre-booked flights on Go First before it was suddenly suspended,” said the first person.
This person said that any intent to revive Go First would also require the airline to offer better remuneration packages to attract pilots and crew. “So, the potential bidder has to keep these additional costs in mind while submitting any firm proposal to acquire the company. Essentially, we are talking about bidders with ₹15,000-20,000 crore in their wallets,” said the first person.
Meanwhile, the government is likely to issue a clarification soon on whether lessors to Go First airline can repossess their aircraft and engines, its counsel told the Delhi high court in a recent hearing.
“The government clearly wants India to adhere to the Cape Town Convention so that lessors rank the country with lower risks and are able to lease out aircraft to the country’s airlines at affordable rates. In Go Air’s case, however, the government and the court should ideally make an exception if they want to save the creditors from loan losses. Also, if Go First is allowed to resume, it can generate enough cash to repay even the lessors, the pre-booked passengers, the government and the vendors,” said the first person.
India is a signatory of The Convention on International Interests in Mobile Equipment (Cape Town Convention), where the Convention on International Interests in Mobile Equipment on Matters specific to Aircraft Equipment were adopted. This basically allows lessors to have full access to their leased aircraft and the right to take them back in the event of an exigency.
On 6 October, the ministry of civil aviation said the legal entities dealing in aircraft financing and leasing have estimated that the impediment being caused by the IBC that was hampering the repossession of the aircraft by the lessors was costing Indian airlines an extra $1.2-1.3 billion more than before in terms of lease costs. As a consequence, there could be a reduction in the supply of aircraft on favourable terms to India’s airline companies, which would adversely affect the entire aviation industry, the ministry said.
“Further, the cost of higher lease rentals would be passed on to the public, causing high fares on all routes. As such, there would be an overall impact on not only the aviation sector but all sectors dependent on connectivity, like tourism, cargo, etc… In view of the above, the notification has been issued,” added the ministry’s notification.