Indian airline Go First granted bankruptcy protection amid repossession concerns

An Indian tribunal granted bankruptcy protection to Go Airlines (India) Ltd yesterday, a decision that may aid the country’s fourth-largest airline in its revival efforts but could also hinder foreign lessors’ attempts to reclaim their aircraft.

The low-cost carrier recently rebranded as Go First, claimed that its financial crisis originated from “faulty” Pratt & Whitney engines, which grounded approximately half of its 54 Airbus A320neos. However, the US engine manufacturer, a division of Raytheon Technologies, stated that there is no evidence to support these allegations.

The National Company Law Tribunal in New Delhi imposed a moratorium on Go First’s assets and leases and appointed Abhilash Lal of Alvarez & Marsal as the interim resolution professional to immediately take over the airline’s management.

As the tribunal order was read, Go First’s Chief Executive Officer, Kaushik Khona described the decision as “historic”. It is the first instance of an Indian airline voluntarily seeking bankruptcy protection in order to renegotiate contracts and debt. The decision may create difficulties for lessors who have recently requested the return of around 40 Go First planes from India’s aviation regulator, following missed rental payments.

India has made it easier for lessors to repossess planes if airlines default on payments by joining an international treaty known as the Cape Town Convention. However, if bankruptcy protection is granted, these laws supersede lessors’ repossession requests reports Bangkok Post.

“Lessors must be very, very concerned right now. The repossession requests will be of no consequence as the insolvency and bankruptcy process has kicked in,” stated Abhirup Dasgupta, a partner at HSA Advocates who specializes in insolvency law but is not involved in Go First’s proceedings.

Go First’s lessors include major global firms such as Jackson Square Aviation, SMBC Aviation Capital, and CDB Aviation’s GY Aviation Leasing.

Advisers to some lessors have expressed significant concerns that Go First’s bankruptcy protection could force lessors into lengthy litigation to repossess aircraft.

One adviser, who requested anonymity due to not being authorized to speak to the media, said that lessors are anxious about having their assets stuck in India with no clarity on repossession. This development could potentially result in higher lease rates for Indian airlines in the future.

“The next step for lessors is to approach the appellate tribunal… It will be a prolonged legal battle”, remarked Ajay Kumar, managing partner at India’s KLA Legal, which is advising some of the leasing companies.