Wadia Group-owned GoFirst airline (formerly known as GoAir) has announced cancellation of all flights between May 3 and May 4, 2023 amid severe fund crunch. The budget carrier has temporarily suspended all domestic and international flights and has also filed an application for voluntary insolvency resolution proceedings before the National Company Law Tribunal (NCLT), Delhi, the airline’s chief Kaushik Khona said on Tuesday. . Khona said the airline has grounded 28 aircraft, more than half of its fleet, due to non-supply of engines by Pratt & Whitney (P&W). Due to this there is shortage of funds.
Speaking to PTI, he said, “It is an unfortunate decision (filing for voluntary insolvency resolution proceedings) but it had to be done to protect the interest of the company.” The airline has informed the government about the developments and will also submit a detailed report to aviation regulator Directorate General of Civil Aviation (DGCA). Khona said flights would remain suspended on May 3 and 4.
GoFirst’s detailed statement to Zee News
GO FIRST was forced to take this step due to an ever-increasing number of failed engines supplied by Pratt & Whitney’s International Aero Engines, LLC, which resulted in GO FIRST having to ground 25 aircraft (equivalent to approximately 50% of its Airbus A320neo). Had to do aircraft fleet) by 1st May 2023. Pratt & Whitney’s percentage of grounded aircraft due to faulty engines has increased from 7% in December 2019 to 31% in December 2020 to 50% in December 2022.
This is despite several assurances by Pratt & Whitney over the years, which it has repeatedly failed to deliver. More precisely, GO FIRST has been forced to apply to the NCLT because Pratt & Whitney, the exclusive engine supplier for GO FIRST’s Airbus A320neo aircraft fleet, has issued an order issued by an emergency arbitrator appointed as per the 2016 arbitration rules. Refused to comply with a decision. Singapore International Arbitration Center (SIAC).
That order directed Pratt & Whitney to take all reasonable steps to release and dispatch without delay at least 10 serviceable spare leased engines by April 27, 2023, and an additional 10 leased engines per month through December 2023, Whose objective was Go First. Returning to full operations and achieving GO FIRST’s financial rehabilitation and survival.
If Pratt & Whitney were to comply with the orders in the emergency arbitrator’s decision, GO FIRST would return to full operation by August/September 2023. Despite the emergency arbitrator’s order, however, as of the date of this press release, Pratt & Whitney has failed to provide any more serviceable spare leased engines, and has stated that no additional leases are required to comply with the emergency arbitrator’s award. Engine not available.
GO First deeply regrets the disruption and inconvenience caused to its customers, travel partners, creditors and suppliers and in particular to its own employees who have been loyal to GO FIRST over the years and have carried on. GoFirst has taken today’s step to safeguard the interest of all stakeholders. It has been forced to take this step despite substantial money inflow of INR 3,200 crore into the airline by the promoters in the last three years, of which INR 2400 crore was infused in the last 24 months, and INR 290 crore in April 2023 alone .
This brings the total promoter investment in the airline since its inception to around Rs 6,500 crore. GO First has also received significant support from the Extraordinary Emergency Credit Line Guarantee Scheme of the Government of India, for which it is extremely grateful. However, even this collective and significant support was not enough to prevent the massive damage caused by Pratt & Whitney’s faulty and failing engines.
Pratt & Whitney’s grounding of close to 50% of its A320neo fleet due to a gradual failure of its engines, while it continues to incur 100% of its operating costs, has set GO FIRST back Rs 10,800 crore in lost revenue and additional expenses are given.
In addition, GoFirst has paid Rs 5,657 crore to lessors in the last two years, of which around Rs 1,600 crore has been paid by promoters and the Government of India’s Emergency Credit Line Guarantee Scheme for lease rentals of non-operational grounded aircraft. was done with the funds provided.
To recover these (and other) damages, GO First has sought compensation of approximately INR 8000 crores in the SIAC arbitration. If GoFirst is successful in the arbitration, it is expected that GoFirst will be able to address the liabilities of its small and large creditors. However, at this stage, in the absence of Pratt & Whitney not providing the required number of spare leased engines as per the order issued by the emergency arbitrator, GoFirst is not in a position to meet its financial obligations.
While GoFirst awaits entry into the NCLT proceedings, it is committed to attending to as many queries as possible from its stakeholders. Once the NCLT processes GoFirst’s application under Section 10 of the IBC, an Interim Resolution Professional (“IRP”) will take over and operate GoFirst. GO First’s Board and Management will cooperate fully with the IRP and believe that the IRP will appropriately address the concerns of GO FIRST’s stakeholders.
GO FIRST has been forced to apply to the NCLT due to recurring and persistent issues with Pratt & Whitney-supplied GTF (geared turbofan) engines, as well as Pratt & Whitney’s failure to repair and/or repair those engines. or was required to do so in accordance with its obligations under the respective agreements entered into between Go First and Pratt & Whitney to provide sufficient spare leased engines.
Go First’s management repeatedly tried to engage with Pratt & Whitney on the engine issue, but Pratt & 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 GO FIRST with an adequate spare leased engine and refused to repair GO FIRST’s engines.
As a result, GO FIRST was left with no option but to initiate arbitration against Pratt & Whitney under the 2016 Rules of the Singapore International Arbitration Center (SIAC) – seeking compensation in excess of INR 8000 crores and other final relief – as well as To obtain interim, emergency relief as permitted by those rules. By an award dated March 30, 2023, an emergency arbitrator appointed in accordance with SIAC rules found that GO FIRST’s current financial condition was due in large part, if not wholly, to the number of grounded aircraft due to the unavailability of Pratt & Whitney’s engines. So .
Among other things, the emergency arbitrator ordered Pratt & Whitney to take all reasonable steps to release and dispatch without delay to GO FIRST at least 10 serviceable spare leased locomotives by April 27, 2023, and by December 2023 10 additional leased engines per month up to Rs.
Pratt & Whitney has refused to comply with the order of the emergency arbitrator and to date, it has not provided any additional leased engines nor any certainty with respect to the time frame for the provision of additional leased engines in the future Has provided. It also failed to include faulty engines for repair.
After Pratt & Whitney failed to comply with the order of the emergency arbitrator, GO FIRST again approached the emergency arbitrator, the emergency arbitrator in a second award dated 15 April 2023 affirmed the orders in the order of the emergency arbitrator. Had Pratt & Whitney complied with the emergency arbitrator’s award, all GoFirst aircraft would have been operational by August/September 2023, ensuring profitable operations in the fast-growing Indian aviation market.
As a result of Pratt & Whitney’s failure to comply with the emergency arbitrator’s decision, GO FIRST is being prompted to take steps to enforce the decision in the US and other international jurisdictions.
GO FIRST deeply regrets the present situation, which has compelled it to apply to NCLT. With Pratt & Whitney failing to comply with instructions in the emergency arbitrator’s award to provide spare leased engines, and with engines expected to fail in the next 3–4 months, Go First operations would be made impractical.
Additional consequences of Pratt & Whitney’s actions have prompted some lessors to repossess aircraft, withdraw letters of credit, and give further notices of return of aircraft. These actions will result in a significant reduction in the number of aircraft available for GoFirst to operate, making it even more impractical for GoFirst to continue operating and meet its financial obligations.
Prior to serious issues caused by the gradual failure of Pratt & Whitney’s engines, GO First enjoyed a market share of 10.8% in FY’20, and was consistently profitable from 2010-2020, surpassing its largest competitor’s EBITDAR since 2016. With EBITDAR comparable to – 2020. GO FIRST reported EBITDAR in FY’22 is around 3.4% better than that of the largest competitor. The company’s operating costs for 2020-2022 remain lower than those of its largest competitor.
For over 17 years, Go First has proudly served over 84 million passengers. GO First anticipates and expects that once the Application under Section 10 of the IBC is accepted, the Appointed Interim Resolution Professional will maintain GO FIRST’s operations, enabling it to serve many more passengers in the years to come .