[UPDATE with Pratt & Whitney statement]
Go First, the Mumbai-based and third-largest Indian carrier, filed an application with the National Company Law Tribunal (NCLT) Delhi for resolution under section 10 of the Insolvency Bankruptcy Code (IBC). The airline says it has been forced “due to the ever-increasing number of failing engines supplied by Pratt & Whitney, resulting in the grounding of 25 aircraft equivalent to 50 percent of its Airbus A320neo aircraft fleet, as of 1 May 2023,” the company said in a statement. Go First files for bankruptcy and blames Pratt & Whitney.
The Indian aviation watchdog, the Directorate General of Civil Aviation (DGCA), issued a show cause notice to Go First for canceling all flights on May 3 and 4 without giving any prior intimation to the agency. The airline later extended cancellations to May 5. “Go First has failed to report in writing the cancellations and reasons thereof,” the DGCA said in a statement calling on the airline to show cause within 24 hours as to why action should not be taken against the airline.
Pratt & Whitney Blamed
In a statement, Go First elaborated on why it is in trouble. It says it has been plagued by issues with Pratt & Whitney Geared Turbofan engines since January 2020, During this period its grounded aircraft due to Pratt & Whitney’s faulty engines grew from seven percent in December 2019 to 31 percent in December 2020 and then to fifty percent in December 2022. The airline hit engine troubles when it was still called GoAir. GoAir was one of the earliest GTF operators in 2016.
“This is despite several ongoing commitments made by Pratt & Whitney over the years, which it has repeatedly failed to meet. More precisely, Go First 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 order issued by the Singapore International Arbitration Centre (SIAC), an emergency arbitrator,” the statement adds. Incidentally, this is the first time the airline acknowledged it is in arbitration with Pratt & Whitney, although media reports emerged in March.
Pratt & Whitney ordered to provide spare engines
The statement says that SIAC directed Pratt & Whitney to take all reasonable steps to release and dispatch, without delay, to Go First at least ten serviceable spare engines by 27 April and a further ten spare engines per month until December 2023. “If Pratt & Whitney had followed the directions laid down in the award, Go First would have been able to return to full operations by August/September 2023 leading to Go First’s financial rehabilitation and survival. Pratt & Whitney has failed to provide any further serviceable spare leased engines at all at the date of this press release and has stated that there are no further spare leased engines available.”
The engine issues forced Go First-shareholder Wadia Group to inject Rs32.000 million into the airline over the last three years. Of which Rs24.000 million was injected in the last 24 months. A further Rs2.900 million in April 2023. This brings the total investment in the airline since its inception to approximately Rs65.000 million. Recently Wadia Group warned that it wished to sell the airline.
The statement claims that despite this crippling situation, the company paid Rs56.570 million to lessors in the last two years out of which approximately Rs16.000 million was paid for non-operating grounded aircraft. Some of these funds came the promoters and the Government of India’s Emergency Credit Line Guarantee Scheme. In order to cater to these losses, Go First sought compensation in excess of Rs80.000 million in its arbitration application.
If this claim is successful, Go First will be able to address the liabilities of creditors. Once the NCLT processes Go First’s application, an Interim Resolution Professional (IRP) will take over and operate the airline.
Alternate capacity plans
Commenting on the day’s development, Satyendra Pandey, Managing Partner, Aairavat Technology and Transport Ventures (AT-TV) says that with almost half the fleet grounded coupled with additional operational issues, Go First was already flying a significantly reduced schedule.
“But the trade is also asking why alternate capacity plans were not implemented as other airlines face similar issues but have worked through them. Operational performance issues most notably on-time performance saw significant deterioration over the past three months for Go First. This meant a drop in booking volumes, especially in the higher yield fares. Which in turn impacted cash flow,” he said.
Pandey notes that with Akasa aggressively hiring, Go First is impacted by talent leaving the airline and struggles with management continuity. However, he adds that “Go First’s decision to file for voluntary insolvency still comes as a surprise. Consequently stakeholders – from airports to ancillary service providers – will resort to cash and carry on payment terms. How the airline navigates this is yet to be seen. In the medium term, Go First’s decision will likely impact market risk premiums for all airlines and the perception of the entire Indian aviation ecosystem. In the longer term, the jury is out on how this will impact the Indian aviation story.” AT-TV believes the Indian market is rich with opportunity, yet the risk profile is unique and has to be planned for.
Pratt & Whitney Responds
Pratt & Whitney issued a statement in response to Go Air’s statement. “Pratt & Whitney is committed to the success of our airline customers, and we continue to prioritize delivery schedules for all customers. Pratt & Whitney is complying with the March 2023 arbitration ruling related to Go First. As this is now a matter of litigation, we will not comment further“.
It should be noted that Go Air had trouble paying salaries in November 2021 and meeting business expenses for some time – including payments to Pratt & Whitney. We are aware that since 2017 Go Air has missed payments to Pratt & Whitney. While there have been problems with the GTF, Go Air’s challenges appear to predate the engine issue.
