Go First’s Go-To Move To Fight Lessors, Start A New Company!

Go First, entangled in disputes with disgruntled lessors while desperately seeking potential investors in India’s bankruptcy court, is also embroiled in a legal battle with engine manufacturer Pratt & Whitney, and the airline alleges that Pratt & Whitney is the root cause of its financial turmoil.

However, in an unprecedented move, facing contempt petitions from aircraft lessors due to non-disclosure of plane documents, the bankrupt airline, Go First, has established a company with its former employees to facilitate communication with leasing firms. 

In December, the airline introduced SP Mumbai Aviation, spearheaded by Sachin Naik, a former employee from the aircraft finance department. The resolution professional of Go First stated in letters that certain employees formed the company to compile aircraft records and documents.

The letter from Go First’s resolution professional also indicated that the new entity could assist lessors in engaging maintenance, repair, and overhaul firms through Naik for necessary aircraft maintenance. 

However, a lawyer representing one lessor expressed scepticism, asserting that this move is a response to the contempt petition and a result of Go First’s lack of manpower for aircraft maintenance.

Most lessors have reportedly accepted this “tripartite arrangement” to safeguard their aircraft, as the Insolvency and Bankruptcy Code (IBC) mandates the resolution professional to maintain assets, including aircraft. Due to Go First’s financial constraints and manpower shortage, lessors are expected to bear the maintenance costs.

Recently, DAE (SY22) 13 Ireland Designated Activity Company, a unit of DAE Capital, filed a contempt petition accusing the resolution professional of deliberately defying court orders. 

The high court had previously directed the sharing of crucial aircraft documents, but lessors claimed they had not received any. They expressed concerns about the deteriorating condition of their aircraft, citing decay, poor maintenance, dirtiness, and exposure to rain.

Go First defaulted on lease payments before filing for bankruptcy, but Indian bankruptcy laws shield assets from deregistration during insolvency proceedings. 

The Delhi National Company Law Tribunal admitted the airline under the corporate insolvency resolution process on May 10 last year. In its insolvency petition, the airline disclosed a default of Rs 3,802 crore to aircraft lessors and vendors.

Attributing its financial challenges to faulty Pratt & Whitney engines, Go First claims that half of its fleet was grounded, resulting in a loss exceeding ₹10,800 crore. At the same time, Lessors counterclaimed, accusing the airline of rental non-payment. 

Notably, despite interest from entities like Sky One, Safrik Investments, and SpiceJet, no serious bids have been submitted for acquiring Go First.

The Viewpoint

In the aviation industry, Go First’s current predicament stands out as a unique and, dare we say, unprecedented story.

The airline, once soaring through the skies, now finds itself ensnared in a multifaceted crisis, grappling with financial turmoil, legal battles, and the looming specter of bankruptcy. 

What makes this situation truly remarkable is the airline’s recent move to establish a new company, SP Mumbai Aviation, with its former employees, at a time when most organizations would be laser-focused on survival strategies.

The decision to float a new entity, ostensibly to manage the collation of aircraft records and documents, raises eyebrows and prompts contemplation. 

Go First’s struggle against angry lessors and a legal tussle with Pratt & Whitney, accused of being the catalyst for its financial woes, has thrust the airline into uncharted territory, and the initiation of SP Mumbai Aviation, led by a former employee, Sachin Naik, seems to be a response born out of necessity, perhaps desperation, to confront the contempt petitions from aircraft lessors regarding non-disclosure of crucial plane documents.

The move, as unconventional as it may be, reveals the airline’s dire shortage of resources, both in terms of financial capital and human manpower. 

The underlying question here is whether Go First’s decision to create a new company is a strategic manoeuvre to navigate through the storm of legal challenges or a last-ditch effort to stave off the decay of its aircraft fleet.

Most intriguing is the apparent consensus among lessors to accept this “tripartite arrangement” where they bear the costs of aircraft maintenance due to Go First’s inability to do so. It accentuates the gravity of the situation — an airline at the mercy of lessors to prevent its fleet from falling into disrepair.

The legal complexities surrounding Go First’s insolvency proceedings, the contempt petitions, and the allegations against Pratt & Whitney add more to the mix.

The airline’s defaults on lease payments, coupled with its protective shield under India’s bankruptcy laws, create a paradoxical situation where assets are safeguarded even as the company flounders.

In the face of these extraordinary circumstances, Go First’s attempt to forge a path forward through the establishment of SP Mumbai Aviation raises more questions than answers. 

It prompts us to ponder the limits to which a company can innovate and manoeuvre in the midst of financial turmoil, and unprecedented challenges can lead to unorthodox solutions.

The Last Bit, Go First’s current struggles paint a picture of exceptional challenges and uncharted territory. 

The airline’s simultaneous battles with angry lessors, a legal dispute with Pratt & Whitney, and the initiation of a new company, SP Mumbai Aviation, led by former employees, showcase a narrative of desperation and innovation on the brink of financial collapse.

The decision to create a new entity appears to be a response to the pressing contempt petitions from lessors, shedding light on the airline’s resource constraints, both in terms of financial capital and manpower. 

The tripartite arrangement, wherein lessors bear the burden of aircraft maintenance due to Go First’s incapacity, stresses the gravity of the situation and the airline’s struggle for survival.

Let’s see what comes of it!