The Wadia Group-owned air carrier with more than 5,000 employees has taken the decision amid severe fund crunch. The company’s chief executive officer Kaushik Khona said that Go First has grounded 25 aircraft due to non-supply of engines by Pratt & Whitney (P&W).

What is voluntary insolvency?

In simple words, voluntary insolvency means that the company has accepted its business is insolvent. It is a process in which the company says it cannot pay debts and needs help from someone to sort it out. When the company goes insolvent, it can proceed to voluntary liquidation.

This process refers to the dissolution of a company with approval from shareholders and creditors of the company. It is a time-bound process which needs to be completed in 270 days from the date of commencement of Voluntary Liquidation.

Why this drastic step?

In a statement, Go First said it had to take the step due to the increasing number of failing engines supplies by Pratt & Whitney’s International Aero Engines. This resulted in the airline being forced to ground 25 aircraft, which is approximately 50 per cent of its Airbus A320neo aircraft fleet as of 1 May 2023.

The company said it had been forced to apply to the company law tribunal after P&W refused to comply with an award issued by an emergency arbitrator appointed in accordance with the 2016 Arbitration Rules of the Singapore International Arbitration Centre (SIAC). Pratt & Whitney had been directed to take all reasonable steps to release and dispatch without delay to GO FIRST at least 10 serviceable spare leased engines by 27 April 2023 and a further 10 spare leased engines per month until December 2023.

Financial woes

Go First said it has lost revenue worth ₹10,800 crore due to the grounding of close to 50 per cent of its A320neo fleet. The company said it has paid
₹5,657 crores to lessors in the last two years of which approximately ₹1600 crore was paid towards lease rent for non-operational grounded aircraft from the funds infused by the Promoters & Government of India’s Emergency Credit Line Guarantee Scheme.

The airline has also sought compensation worth ₹8,000 crore in the Singapore International Arbitration Centre. In case the arbitration is successful, the company will be able to address the liabilities of its creditors, small and large.

What next?

As mentioned earlier, Go First has applied to the NCLT because of the persistent issues with the engines supplied by Pratt and Whitney. The engine supplier, according to the airline, has failed 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.