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Go First Lenders To Vote on Potential Liquidation of Airline
Lenders of the bankrupt Indian carrier are considering liquidating the company's assets.
The Indian airline Go First filed for bankruptcy back in May of this year. At that point, it was relatively clear that the airline would no longer be flying but it would only cancel flights out for a few weeks at a time. After a certain point people holding tickets on the airline were told that refunds were no longer possible and travel credits would be issued.
The airline blames Pratt & Whitney for the decision to suspend operations given that half of its Airbus A320neo fleet was grounded due to engine issues resulting in massive losses for the airline. However, several airline industry insiders in India have different opinions.
Many cite fundamental issues with capital management and revenue generation which were simply compounded by engine troubles. IndiGo and SpiceJet, competitors to Go First in India, also faced similar engine issues with their A320neos but still managed to avoid major cancellations.
Lessors Want Airplanes Back
While under insolvency proceedings, the airline faced a new challenge. The entities that leased airplanes to Go First wanted them back. Investors in the airline fought against this because they knew the value of the airline would collapse if its aircraft were repossessed. This has caused a scene in the courts while eroding trust between aircraft lessors and the Indian aviation industry. Go First’s lessors are making claims that their aircraft are being left in a state of disrepair and parts have gone missing.
A U.K.-based aviation leasing watchdog cut India’s compliance rating with international leasing laws over the matter. 130 days had passed since the lessors had requested to repossess their aircraft, double what is agreed to in the Cape Town Convention, a treaty outlining certain aircraft leasing terms.
Since then India has amended its bankruptcy laws to make it easier for foreign lessors to repossess assets, a rule that Go First is now challenging in the courts.
Lenders Consider Liquidation
The airline in September then went through a process to solicit bids for an outside entity to acquire the airline. Interest was minimal with only one entity being deemed suitable. That entity was Jindal Power Ltd but the steel and power conglomerate ultimately did not follow up with a bid.
Now, after several months of trying to get the airline back into the skies, Go First lenders will now vote on a proposal to liquidate the airline. The voting process will take up to two weeks with final results expected within 15 days. These creditors will attempt to recoup $782 million but it’s unlikely liquidation will recoup all losses.
The owners of Go First, the Wadia Group, had put up a 94-acre plot of land valued at $360 million as collateral to the banks in exchange for funding. Assuming the land valuation is accurate and a buyer is found proceeds of the sale would only cover half of the creditor claims.
One can only speculate if the airline will be liquidated by lenders, they have certainly exhausted multiple options. Given lenders now considering liquidation and lessors now have legal standing to repossess aircraft, it becomes increasingly unlikely that the airline will return to the skies. While all of this is happening, Go First has requested a 90-day extension on its bankruptcy resolution timeline which would give it until Feb. 4, 2024 to sort things out.
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