Go First has flown into heavy turbulence. Can it fly out of it now?

On May 3, Go First finally folded, announcing that it had voluntarily filed an application with the country’s National Company Law Tribunal (NCLT) Delhi for resolution under section 10 of the Insolvency and Bankruptcy Code (IBC). Image: Nasir Kachroo/NurPhoto via Getty Images

For nearly two decades, Go First had made it a habit of staying away from heavy turbulence and headwinds, but enough to stay afloat in India’s bloodied skies.

The airline never boasted performance like its peer, IndiGo, which today controls over 50 percent of the domestic market, despite starting out at the same time. Nor did it fly into a severe air pocket like SpiceJet, which has made it a habit of raising eyebrows frequently about its survival.

Instead, the airline promoted by Nusli Wadia, India’s 55th richest man worth a staggering $4.1 billion, had made it a habit of holding out. That, despite frequent management changes, rising aviation fuel prices, and even rebranding and repositioning in India’s brutal aviation sector. Until May 3.

On May 3, the airline finally folded, announcing that it had voluntarily filed an application with the country’s National Company Law Tribunal (NCLT) Delhi for resolution under section 10 of the Insolvency and Bankruptcy Code (IBC). That essentially means that Go First has declared bankruptcy which is perhaps the first time that a domestic airline has decided to announce it on its own before a lender took it to court.   

Go First’s decision also marks the second collapse of an airline in the last five years, after Jet Airways went bankrupt in 2019, at a time when the country’s aviation sector has emerged as something of a duopoly with the market leader, IndiGo and the Tata group with four airlines under its wings fighting a turf war in one of the world’s fastest-growing aviation markets.

In Go First’s case, however, it isn’t competition that has led to its crisis. “Go First has had to take this step due to the ever-increasing number of failing engines supplied by Pratt & Whitney’s International Aero Engines, LLC, which has resulted in Go First having to ground 25 aircraft (equivalent to approximately 50 percent of its Airbus A320neo aircraft fleet) as of May 1,” Go First said in a statement. “The percentage of grounded aircraft due to Pratt & Whitney’s faulty engines has grown from 7 percent in December 2019 to 31 percent in December 2020 to 50 percent in December 2022. This despite Pratt & Whitney making several ongoing assurances over the years, which it has repeatedly failed to meet.”

The airline claims that it has been forced to apply to the NCLT after Pratt & Whitney, the exclusive engine supplier for Go First’s Airbus A320neo aircraft fleet, refused to comply with an award issued by an emergency arbitrator. “That order directed Pratt & Whitney to take all reasonable steps to release and dispatch without delay to Go First at least 10 serviceable spare leased engines by April 27 and a further 10 spare leased engines per month until December 2023, with the objective of Go First returning to full operations and achieving Go First’s financial rehabilitation and survival,” it said.

“Usually, an airline insolvency occurs when a multitude of factors start to go wrong,” says Satyendra Pandey, managing Partner at aviation advisory firm AT-TV. “However, most trace it back to cash flow which has been the case here. In the background, there were also challenges with management churn, lower yields, and operational performance. Given the change in the airline landscape with two strong and well-capitalised airlines, namely IndiGo and Air India (including Vistara, AIX Connect and Air India Express), and the aggressive expansion by Akasa, the factors came together. Add to that the engine woes, the foreign exchange fluctuation, and other input costs.”  

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The airline reckons that if Pratt & Whitney were to comply with the orders in the emergency arbitrator’s award, it would have been able to return to full operations by August. “Despite the emergency arbitrator’s order, however, Pratt & Whitney failed to provide any further serviceable spare leased engines at all and has stated that there are no further spare leased engines available for it to comply with the emergency arbitrator’s award,” Go First said in its statement.

What’s the mess all about?

Go First operated 31 domestic and 10 international destinations, including Dubai and Phuket, with its fleet of 59 aircraft, comprising 54 A320neo and five A320. It is the 54 A320neos that have been fitted with the Pratt & Whitney engines. In all, the airline operates 200 flights daily.

The airline had last placed an order for 72 aircraft with Airbus in 2016, after a similar order of 72 aircraft in 2011. The 2016 deal was reportedly worth $7.7 billion and the first of the orders from Airbus was delivered that year, making Go First the world’s third operator to fly the Airbus A320neo. "Go Air is among the three first A320neo operators, and with an order for 144 is one of the leading operators of the type," John Leahy, former chief operating officer of customers at Airbus, had said at that time.

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By August 2019, the Directorate General of Civil Aviation (DGCA) had called for urgent meetings with GoAir and IndiGo over recurring engine snags on the Pratt & Whitney powered engines and had even asked Go First to replace 13 A320neo aircraft’s engines, which have been used for over 3,000 hours, within the next 15 days or face grounding of the airplanes. In November 2019, the country’s aviation watchdog set up a January 31, 2020, deadline for IndiGo and Go First to replace all its potentially defective Pratt & Whitney 1,100 series engines in its fleet.

The deadline was extended to May 31 and then to August 31 largely due to supply constraints caused by the nationwide lockdown due to Covid-19.

“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 & Whitney, coupled with Pratt & 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 & Whitney,” the airline said in a statement.

It claims that its management repeatedly sought 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 sufficient spare leased engines to Go First and refused to repair Go First’s engines.”

As of now, 25 of its aircraft, comprising 50 percent of the operating fleet, are grounded, and awaiting engines. Pratt & Whitney, meanwhile, has said that the company continues to prioritise delivery schedules for all customers.

“If you look at it, post Covid, the airline has been making decent cash,” says Mark Martin, founder and CEO of aviation consultancy firm Martin Consulting. “But you can’t run an airline with one of your hands tied behind your back. They had rebranded themselves, and it was all looking buoyant. So, in that sense, the current crisis isn’t self-inflicted and largely due to the lack of action from Pratt & Whitney.”

Go First had sought a compensation of Rs8,000 crore through the Singapore International Arbitration Centre to address the liabilities of its creditors, as well as to seek interim, emergency relief as permitted by those rules. The arbitrator had found that Go First’s woes were in large part, if not wholly, due to the number of grounded aircraft caused by the unavailability of Pratt & Whitney’s engines.

But since then, the airline claims that the engine manufacturer has not provided spare leased engines nor provided a timeframe for providing spare leased engines in the future. “Had Pratt & Whitney complied with the emergency arbitrator’s award, all of Go First’s aircraft would have been operational by August/September, ensuring profitable operations in the fast-growing Indian aviation market,” Go First says.

Under a turnaround plan

Go First, which rebranded itself as an ultra-low-cost carrier in 2021, had put together a turnaround plan in 2021 under which it wanted to corner 20 percent of the domestic market—with a fleet size of 87 aircraft from 55 aircraft currently.

Helming that transition was Ben Baldanza, a pioneer in the ultra-low-cost airline model, having served as CEO of Spirit for over a decade. Baldanza also had Kaushik Khona, a long-time Wadia group veteran, who had returned to Go First after leaving as its CEO in 2011. The company was also looking to tap into the capital markets to mop up some Rs3,600 crore to use the proceeds towards largely repaying its debt, including dues for fuel supplies.

“We believe that the pre-payment or scheduled repayment will help reduce our outstanding indebtedness and finance cost, assist us in maintaining a favourable debt-equity ratio, and enable utilisation of our internal accruals for further investment in business growth and expansion,” the company had said in its draft red herring prospectus.

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But the IPO plans never fructified and alongside, the Covid-19 crisis too had hit the aviation sector hard even as Go First had to grapple with paying the lease cost for grounded airlines. The airline claims to have spent Rs5,657 crore to lessors in the last two years of which approximately Rs1,600 crore was paid towards lease rent for non-operational grounded aircraft.

“Post-pandemic, there was a distinct change in the traveller profile for Go First,” adds Pandey of AT-TV. “Its travel base included a lot of first-time flyers and those looking for lowest fares.”

Now, with cancellations underway, airfare prices are only expected to rise. “In the event that the airline does not resume operations post May 5, overall impact will be marginal,” adds Pandey. “Competitors will step in to fill the gap. But there will likely be an increase in fares on routes like Patna, Jammu, Srinagar and Leh—those where Go First had a large share of capacity. It remains to be seen how this is mitigated.”

Martin of Martin Consulting reckons that the aviation sector will now see a significant rise in fares, as airlines are already flying at maximum capacity. “We don’t have capacity at the moment,” Martin says. Already, SpiceJet has mobilised funds to revive 25 grounded aircraft to tap into the growing crisis, amidst the vacation season.

Meanwhile, with the NCLT likely to prioritise Go First’s case, expectations are also that the airline’s lenders might look to restructure debt, especially since the promoters have not announced any decision to exit the airline. “Once the creditors meet, they might look to restructure the debt, and not jump into insolvency proceedings straight away,” adds Martin.

That’s also probably because Jet Airways, the country’s oldest private airline, is yet to take off after undergoing insolvency proceedings. “The case, if admitted, is then handed over to a resolution professional, who then takes control of the company's affairs and helps get the company to a position where it can ideally exit insolvency proceedings to continue operations on a standalone basis,” adds Pandey. “The intent of the NCLT is to enable expeditious resolution, but looking at the Jet Airways insolvency, this has not quite been the case.”

All that means is that all eyes will now be on deliberations between the creditors, before Go First can hit the runway again.