Keeping hopes alive
for the revival of debt-ridden Go First, the National Company Law Tribunal (NCLT) has admitted the airline’s plea for voluntary insolvency as well as protection of assets under a moratorium. Rohit Vaid takes a look at the company’s insolvency plea and what could happen next.
The background
Go First filed for insolvency under Section 10 of the Insolvency and Bankruptcy Code (IBC). The airline said it was forced to apply after engine failure ground a chunk of its fleet, resulting in major financial stress. It blamed Pratt & Whitney, claiming the engine-maker failed to meet contractual obligations and comply with arbitration orders. P&W has denied any role, instead claiming that Go First had a history of missing financial obligations to P&W.
Go First has told NCLT that it owes Rs 6,521 crore to financial creditors. But at the time of filing, it had not defaulted on payments to this class of creditors—it had noted, however, that default is “imminent”. It has defaulted on payments to operational creditors, including vendors and aircraft lessors. Per its NCLT filing, liabilities to all classes of creditors stand at `11,463 crore.
The immediate implications of NCLT admitting the application
The NCLT has admitted Go First’s insolvency resolution application and appointed Abhilash Lal as the interim resolution professional (IRP) to manage the airline. Following the admission of the resolution application, a moratorium comes into force that prohibits ‘any action to foreclose, recover or enforce any security interest created by the corporate debtor in respect of its property’ and ‘the recovery of any property by an owner or lessor’ where such property is occupied by or in the possession of the corporate debtor’.
This slams the brake on the plans of aircraft lessors to repossess 45 leased aircraft by Go First from them. However, at least three aircraft lessors are learned to have moved the National Company Law Appellate Tribunal (NCLAT) against the order.
What’s next
As per the NCLT’s direction, Go First’s suspended management will now hand over control of the airline to the IRP. The IRP will then call for financial claims by creditors and lessors. After collation of claims, creditors will be invited to form the Committee of Creditors (CoC).
Lal will manage the airline’s affairs and develop a way forward for its revival. At present, the aviation regulator has directed the airline to stop booking and sale of tickets directly or indirectly, until further orders. The airline has announced a flight cancellation period till May 19.
The biggest challenge facing the airline is the plea submitted by at least three aircraft lessors to NCLAT against the order. The appellate tribunal partly heard the matter on Thursday and will continue the hearing on Friday. Furthermore, the airline needs to restart operations as soon as possible to avoid mounting losses.
The impact on the civil aviation sector
At present, Go First has 54 aircraft, out of which the lessors want to repossess 45 under the Irrevocable Deregistration and Export Request Authorization (IDERA) norms. These norms require the regulator to deregister aircraft in cases of lease rental defaults and allow lessors to repossess them within five working days of receiving a request. Sources had told FE that the first deadline for the trigger of IDERA norms was Thursday. In addition to the aircraft, the airline has airport time slots that also hold value. But with the IBC moratorium kicking in, the assets can’t be touched by the operational creditors.
Also, given how IBC privileges financial creditors over operational creditors, the corporate insolvency resolution process (CIRP) could leave the vendors and aircraft lessors with little precious if the CIRP yields a significant haircut for the lenders. Thus, experts say, it is very likely that the Go First CIRP will have an impact on the aircraft leasing charges for all Indian airlines. The precedence of IBC norms over the IDERA ones might add to the risk pricing, thus driving up the lease rentals. Sharp haircuts for the lender could mean that the airline can pare its debt down by a large quantity and emerge viable afterwards.
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*`11,463 cr: Total liabilities of Go First, across creditor classes
* `6,521 cr owed to financial lenders as per NCLT filings
* May 19: Airline has canceled all flights till this date
* 45 aircraft within its fleet of 54 are leased