This article on ‘Go-First Airlines files for Bankruptcy: Facts and Laws’ was written by Farhat Sultana, an intern at Legal Upanishad.
Go-First Airlines, formerly known as GoAir, has filed for bankruptcy amidst the ongoing problems with the engines supplied by Pratt & Whitney. This decision was made after the airline suffered financial losses due to the decrease in air travel demand and the subsequent reduction in revenue. The bankruptcy filing means that Go-First Airlines will not be able to pay its debts and liabilities in full, and its assets will be sold to repay its creditors.
The article provides an overview of the bankruptcy filing, including the airline’s debts and liabilities, as well as its assets and potential buyers. It also discusses the legal implications of bankruptcy filing, including the role of the National Company Law Tribunal (NCLT) in overseeing the bankruptcy process.
II. Background of Go-First Airlines
Go-First Airlines, previously known as GoAir, is a low-cost airline headquartered in Mumbai, India. The airline was founded in 2005 by Jeh Wadia, son of the famous industrialist Nusli Wadia. Go-First Airlines operates in 35 domestic and international destinations with a fleet of 60 aircraft, including Airbus A320s and A320neos.
However, the airline has been facing financial difficulties for some time, and on May 3, 2023, Go-First Airlines announced that it would temporarily halt all its flying operations from May 3 to May 5, 2023. The announcement was made on the airline’s official Twitter account. This came after the airline moved a plea before the National Company Law Tribunal (NCLT), Delhi, to declare bankruptcy due to mounting debts.
The primary reason for the airline’s financial difficulties is its ongoing problems with the engines supplied by Pratt & Whitney. The airline claims that the defective engines have led to the grounding of 28 flights, which is more than 50% of its fleet. The airline had filed a lawsuit against P&W in a federal court in Delaware, United States, for breaching the contract by failing to repair the engines or provide adequate spare parts. The court had ruled in favour of Go-First Airlines and directed P&W to provide engines to the airline.
Despite the court’s ruling, the airline continued to face financial difficulties and was no longer able to make payments on its debts. Hence, the airline filed for voluntary insolvency under Section 7 of the Insolvency and Bankruptcy Code with the NCLT. Senior attorney P Nagesh brought up the claim in front of the NCLT chair.
The NCLT will hear a petition on May 4, 2023, regarding the insolvency of Go-First Airlines’ debts. If the NCLT accepts the plea, an insolvency resolution process will be initiated, and a resolution professional will be appointed to manage the airline’s affairs.
The financial difficulties faced by Go-First Airlines due to the ongoing problems with Pratt & Whitney’s engines have led to the airline’s decision to file for bankruptcy. The NCLT will decide the fate of the airline, and a resolution professional will be appointed to manage the airline’s affairs if the plea is accepted.
III. Bankruptcy laws in India
The Insolvency and Bankruptcy Code, 2016 (IBC) is a comprehensive law that consolidates the existing framework for insolvency and bankruptcy in India. The IBC provides a time-bound process for the resolution of insolvency and bankruptcy cases, intending to maximize the value of assets of insolvent individuals and companies and promote entrepreneurship and investment in the economy.
Under the IBC, there are two types of bankruptcy proceedings available in India: corporate insolvency resolution process (CIRP) and liquidation. CIRP is a time-bound process to resolve the insolvency of a company by restructuring its debt or selling its assets to repay its creditors. Liquidation, on the other hand, is the process of winding up a company’s affairs and distributing its assets to its creditors.
The key provisions of the IBC include the establishment of the National Company Law Tribunal (NCLT) and the Insolvency and Bankruptcy Board of India (IBBI), which oversee the implementation of the law. The IBC also provides for the appointment of an insolvency professional (IP) who manages the affairs of the insolvent company during the CIRP or liquidation process.
The IBC further provides for a moratorium period, during which no legal action can be taken against the insolvent company or its assets. This provides the company with breathing space to restructure or sell its assets to repay its creditors.
In cases of CIRP, the IBC provides for the creation of a creditors’ committee, which comprises the company’s financial creditors and operational creditors. The committee is responsible for deciding on the resolution plan submitted by the potential buyer of the company’s assets or the restructuring plan submitted by the company itself.
The bankruptcy laws in India are governed by the Insolvency and Bankruptcy Code, 2016, which provides for a time-bound process for the resolution of insolvency and bankruptcy cases. The law aims to maximize the value of assets of insolvent individuals and companies and promote entrepreneurship and investment in the economy. Go-First Airlines’ bankruptcy filing is a reminder of the importance of a sound financial management system and the need for businesses to stay abreast of their financial position.
IV. Details of Go-First Airlines’ bankruptcy filing: Creditors’ claims and objections
Go-First Airlines, a budget carrier in India, has filed for bankruptcy, according to its recent filing with the court. As per the filing, the airline owes financial creditors INR 65.21 billion ($798 million) as of April 30, 2023, and expects to default on these dues soon due to its current financial situation. The filing also revealed that the airline has not defaulted on any of its dues so far.
The creditors listed in the filing include the Central Bank of India, Bank of Baroda, IDBI Bank, Axis Bank, and Deutsche Bank. Notably, Axis Bank has no outstanding exposure to the airline, while the Central Bank of India and Bank of Baroda have exposures of INR 13 billion each under a consortium loan. IDBI Bank’s exposure is INR 500 million, and Deutsche Bank has not commented on the issue yet.
Furthermore, Go-First Airlines has borrowed INR 12.92 billion under the government’s emergency credit scheme introduced during the COVID-19 crisis, which is guaranteed by the government. The airline’s total liabilities to all creditors stand at INR 114.63 billion, including dues to banks, financial institutions, vendors, and aircraft lessors. The airline has defaulted on payments to operational creditors, including INR 12.02 billion to vendors and INR 26.60 billion to aircraft lessors. The airline’s filing also stated that it has received termination notices from some aircraft lessors, and some lessors have initiated actions to ground or repossess aircraft. Additionally, six lessors have invoked letters of credit issued to them by lenders.
The filing will allow the airline to appoint an insolvency resolution professional (IRP) to manage its day-to-day operations during the bankruptcy proceedings. The IRP will invite creditors to submit their claims and objections, after which a resolution plan will be proposed. If the creditors accept the resolution plan, the airline can exit bankruptcy proceedings. However, if the resolution plan is not accepted, the airline may face liquidation.
V. Case laws related to Go-First Airlines’ bankruptcy
One of the key case laws related to bankruptcy in India is the Essar Steel case. In this case, the Supreme Court held that financial creditors have a greater say in the resolution process than operational creditors. This means that financial creditors, such as banks and financial institutions, have a higher priority in the distribution of assets than operational creditors, such as suppliers and employees.
Another important case law is the Jet Airways case, which is also a significant airline bankruptcy case in India. In this case, the National Company Law Tribunal (NCLT) ordered the liquidation of Jet Airways after attempts to revive the airline failed. The case highlighted the challenges faced by airlines in India, including high taxes and fuel costs, intense competition, and regulatory issues.
In the case of Go-First Airlines, it remains to be seen how the bankruptcy proceedings will play out. The airline’s creditors will have a significant say in the resolution process, and the airline’s assets will likely be sold off to pay its debts. The case also underscores the challenges faced by airlines in India, particularly in the wake of the COVID-19 pandemic.
VI. Impact of Go-First Airlines’ bankruptcy
Go-First Airlines’ bankruptcy filing is likely to impact its creditors, operational vendors, and aircraft lessors. The appointment of an IRP will provide the airline with an opportunity to restructure its debts and emerge as a viable entity. Nevertheless, the ultimate outcome will depend on the resolution plan’s acceptance by the creditors.
In conclusion, the bankruptcy filing by Go-First Airlines highlights the challenging times faced by the aviation industry due to the ongoing problems with the engines supplied by Pratt & Whitney.
The decision to file for bankruptcy is a complex legal process, which allows the company to reorganize its finances and operations, and potentially emerge stronger. However, the impact on the airline’s employees, customers, and stakeholders cannot be ignored, and the aviation industry must navigate these uncertain times with resilience and innovation.
- Go First files for bankruptcy, suspends flights for 3 days, The Hindu, 2 May 2023, available at: https://www.thehindu.com/news/national/go-first-airline-cancels-all-flights-on-may-3-4/article66803367.ece
- Go First Airlines Insolvency : NCLT Delhi Allows Urgent Listing; To Hear Tomorrow, LiveLaw, 3 May 2023, available at: https://www.livelaw.in/ibc-cases/go-first-insolvency-nclt-delhi-allows-urgent-listing-to-hear-tomorrow-227829
- Back Go First files for bankruptcy proceedings, suspends flights for 2 days amidst financial crunch, Livemint, 2 May 2023, available at: https://www.livemint.com/news/india/go-first-files-for-voluntary-insolvency-resolution-proceedings-after-suspending-flights-on-may-3-4-11683024357726.html