Go First bankruptcy: What does bankruptcy protection mean for airline?
3 min read . Updated: 10 May 2023, 01:19 PM IST
PremiumNational Company Law Tribunal (NCLT) accepted Go First airlines bankruptcy protection appeal on Wednesday. Know about its implication to the company and its operations from now
One of India's largest airlines, Go Airlines, now rebranded as Go First, has been granted bankruptcy protection by the National Company Law Tribunal (NCLT) on Wednesday.
The low-cost carrier had filed for bankruptcy after reporting loss due to "faulty" Pratt & Whitney engines that grounded about half its 54 Airbus A320neos. On the other hand, the US engine maker said that the claims were made without evidence.
Also Read: Go First cancels all flights till 19 May
Notably, an Indian airline has voluntarily applied for bankruptcy protection to renegotiate its contracts and debt for the first time. The decision can prove to be a saviour for the airline, but a big headache for its foreign partners who have leased their aircraft to Go First airlines.
“This is a historic ruling as an application of insolvency has been admitted so fast. The order prevents a viable airline from becoming an unviable one. The purpose of IBC has always been revival," says Go First CEO Kaushik Khona.
What does bankruptcy protection mean?
Bankruptcy proceedings against Go First airline will take place as per the process stated under the Insolvency and Bankruptcy code of India, 2016. NCLT announced its order accepting the bankruptcy petition of Go First airline, under Section 10 of IBC code 2016.
When a company goes into bankruptcy protection after the approval of its bankruptcy, it results in a temporary halt of all collection activity and legal proceedings regarding debt and financial matters. The stay prevents any enforcement or appeal of actions and judgements, judicial or administrative actions against the debtor, in this case Go First airlines. Which means all the assets and properties of the debtor remains as it is till the completion of bankruptcy. There are chances that the airline might end up protecting some of its assets under bankruptcy code to ensure its survival.
What does the approval of Go First's plea mean for the airline?
The NCLT, in its order, said that an interim resolution professional will take over the airline management with immediate effect. The order also announced a moratorium on Go First's assets and leases. The moratorium order of NCLT will prevent lessors from taking back aircraft.
The list of Go First lessors includes names like Jackson Square Aviation, SMBC Aviation Capital, and CDB Aviation's GY Aviation Leasing.
The interim leadership of the airline will help Go First to come out of the crisis. Go First CEO Kaushik Khona, called NCLT's decision historic in terms of its speedy proceedings. The decision will help the airline in maintaining its viability. The current operation of 27 aircraft by the airline is also expected to continue.
As the moratorium won't allow Go First's foreign lessors to take back their aircraft, they would end up losing their rental payments.
"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," said Abhirup Dasgupta, a partner at HSA Advocates who specialises in insolvency law but is not involved in the Go First matter.
NCLT has suspended the existing board of directors and appointed Abhilaash Lal as IRP. NCLT has also directed the initiation of the Corporate Insolvency Resolution Process (CIRP) and the appointment of the insolvency resolution process (IRP). In addition to this, Go First is asked to deposit ₹5 crore with IRP to meet its expenses, reported CNBC.
Go First bankruptcy also posed a threat to the future of its thousand of the workforce, whose future was in limbo. Now, the Indian tribunal has also ordered that no employee of the company will be laid off.