Go First halts flights and files for insolvency proceedings, here's what it means

Insolvency is a legal process through which a company is unable to pay off its debts and seeks protection from its creditors. In the case of Go First, the airline has filed for voluntary insolvency resolution proceedings before the National Company Law Tribunal (NCLT) due to the financial strain caused by the grounding of 50 per cent of its fleet. The insolvency filing allows the company to seek protection from its creditors while it restructures its debt and financial obligations. It remains to be seen what course of action the NCLT will take and how it will impact the future of Go First.

The Wadia Group's airline, Go First, has filed for insolvency resolution because it is unable to fulfil its financial commitments. The airline attributed the grounding of 50% of its fleet to the Pratt & Whitney engines that it received that were deficient. The airline had 25 planes grounded as of May 1, 2023, which is almost 50% of its fleet of Airbus A320neos. As a result of Pratt & Whitney's defective engines, more aircraft will be grounded, increasing the rate from 7% in December 2019 to 50% in December 2022. The aviation watchdog, DGCA, issued a show-cause notice to the airline after it had announced the cancellation of all flights for three days, from May 3 to May 5.

The aviation minister, Jyotiraditya Scindia, voiced his concern over the key supply chain concerns affecting Go First's engines and said that the government has been helping the airline in every way it could. Go First claimed in a statement confirming its insolvency petition that it had taken this action due to the rising number of Pratt & Whitney engines that were failing down. The airline expressed remorse for the circumstance that led to it having to submit an application to the NCLT.

Due to ongoing problems and a lack of Pratt & Whitney engines, which power its Airbus A320neo aircraft, the airline has been having cash flow problems and has had to ground more than half of its fleet. Talking to potential investors, Go First has been searching for a strategic investor in the business. Additionally, the airline has filed a lawsuit in federal court in Delaware against the US-based engine manufacturer to enforce an arbitration decision ordering Pratt & Whitney to supply the airline with engines.

Lenders to the airline were unaware of the insolvency filing. It is anticipated that the lenders would get together and go over the airline's next steps. According to a representative of an oil marketing firm, the airline is operating on a cash and carry basis, which means it must make daily payments for the amount of flights it wishes to fly. The airline has agreed that the vendor may cease operations in the event of non-payment.

The grounding of such a large number of aircraft has created significant inconvenience for passengers, with the regulator directing the airline to submit details of the steps taken to mitigate the inconvenience caused to the passengers booked on the cancelled flights and submit a plan of action to operate flights as per the approved schedule from May 5, 2023, onwards.

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