Land In Mumbai’s Thane Kept As Collateral By Wadia Group For Go First, To Be Pledged By Creditors For Rs. 1960; With No Hope Of Revival, How Did Go First Join India’s Airline Graveyard?
In 2022, Go First was gearing up for an IPO. Just a year later, it declared bankruptcy and joined the ranks of defunct carriers like Air Deccan, Air Sahara, Kingfisher Airlines, Air Pegasus, and Jet Airways—a list that seems to be growing continuously.
The latest development in Go First’s demise, with no prospects of revival and dwindling hopes of obtaining a good valuation, involves creditors moving forward after the Delhi High Court allowed lessors to deregister and reclaim 54 Go First planes.
Creditors of the now-defunct Go First Airlines are preparing to auction a prime 94-acre land parcel in Thane near Mumbai, which had been used as collateral.
The creditors have set a reserve price of approximately ₹1,960 crore for the property, and the formal auction process is expected to commence following newspaper advertisements this week, according to sources familiar with the matter.
“The formal auction process will begin after advertisements are published in a few newspapers later this week. All lenders have approved the release of the ads. Potential bidders will have about 60 days to submit an offer for the land,” said a person knowledgeable about the process.
Located in a prime area in Thane, the land parcel has been valued by lenders at around ₹1,200 crore on a standalone basis. However, factoring in future development potential and cash flows, the value could rise to at least ₹2,500 crore.
The land was used as collateral by the Wadia group for loans taken by Go First and is owned by the group’s realty arm. Lenders aim to ensure that recovery from this land is not mixed with other plans being considered for the airline.
The land is likely to be offered on an as-is, where-is basis, meaning potential bidders will need to handle any future tax and government or other liabilities associated with the land. Of the 94 acres, about four acres have been acquired by the Thane Municipal Corporation for road widening and beautification purposes, which will need to be factored into the final considerations.
No Ray Of Hope For Go First
Lenders are moving to extract value from the land even though the Delhi High Court’s order allowing lessors to deregister and repossess planes leaves very little of the airline to sell as a going concern.
Creditors are still deliberating the future course of action as the extended deadline of June 4 approaches.
They are likely to seek another extension next month while the two bidders in the running—a consortium of Nishant Pitti, CEO of EaseMyTrip, and Ajay Singh, chairman of SpiceJet, and the second bidder, Sharjah-based Sky One Aviation—continue evaluating their options in light of the court order.
Both bidders have factored future arbitration claims from Go First’s proceedings against engine maker Pratt & Whitney (P&W) into their resolution plans.
Sky One Aviation has offered ₹735 crore upfront in cash and up to 20% of future arbitration claims, while Ajay Singh has proposed paying ₹650 crore over 12 months and 10% of arbitration claims.
Go First owes creditors over ₹6,200 crore. The secured creditors include Central Bank of India with ₹1,934 crore, Bank of Baroda with ₹1,744 crore, and IDBI Bank with ₹75 crore of admitted claims.
In 2005, when the Wadia Group, known for companies like Britannia and Bombay Dyeing, ventured into the airline business, they must have been aware of the high risks. As Richard Branson famously said, “If you want to be a millionaire, start with a billion dollars and launch an airline.”
However, despite the odds, the Wadias believed they could succeed, and for a time, the airline performed reasonably well.
While Go First might not have been a favorite airline for many, it held a market share of 10%, reliably transporting passengers.
It expanded to international routes, and its income in FY20 was comparable to IndiGo‘s, adjusted for fleet size. Additionally, Go First managed to keep its operating and maintenance costs at reasonable levels.
There weren’t any warning signs indicating imminent doom.
Until 2023, when people noticed that Go First routes were no longer available for booking tickets. Then, the company shocked everyone by announcing its bankruptcy.
So, where did it all go wrong for Go First?
The official statement blames engine troubles.
The airline business relies heavily on multiple external parties. To set up an airline, you don’t build your own fleet; you buy or lease aircraft from Airbus or Boeing.
Then, you get engines from suppliers like Rolls Royce and Pratt & Whitney (P&W). Once these components are in place, your main task is to run the airline efficiently—flying profitable routes, managing costs, and hiring great pilots and staff.
Unfortunately for Go First, their P&W engines began to fail.
Consequently, Go First had to ground aircraft with these problematic engines. By December 2018, around 10% of Go First’s fleet was grounded, which increased to 30% by December 2021. At last count, 50% of its 54 aircraft were unflyable.
Unsurprisingly, business came to a halt. The company’s losses doubled from ₹870 crore in FY21 to over ₹1,800 crore in FY22.
While the industry was thriving, Go First was preparing for its downfall.
The sad part is that it wasn’t entirely Go First’s fault. The airline didn’t expand recklessly or fail to control costs. The primary issue was external.
But could Go First have done something differently? Could the airline and its management have anticipated this earlier?
Consider its rival IndiGo, which also faced P&W engine failures.
IndiGo had to ground its fleet in 2016. However, it didn’t remain idle. Realizing the scale of the problem, IndiGo quickly switched its engine supplier and, in 2019, signed a $20 billion deal with CFM International for engines in its new aircraft. IndiGo didn’t want to take any chances.
Oh, and IndiGo also managed to get P&W to compensate them for the losses incurred due to faulty engines.
While little is known about the specifics of their respective contracts, Go First had to fight hard.
It had to push for compensation and drag P&W to an emergency court just to try and get some replacement engines. Even though P&W was ordered to provide 10 such engines by April 2023, they apparently never delivered.
P&W did issue a statement claiming they were in the process of sending the spare engines.
So, what happened next?
The company declared bankruptcy to buy some time.
It couldn’t pay off its debts because half its fleet was no longer flying, and it didn’t have enough money to keep operating.
It needed a massive infusion of cash, but that did not happen either. As a result, it opted to sell off its assets and repay creditors, as seen with the major land parcel in Thane.
Delhi High Court Order
In May 2024, Go First stated that it would not challenge the Delhi High Court order directing the Directorate General of Civil Aviation (DGCA) to deregister all its 54 aircraft by Friday (May 3), heading towards liquidation.
Lenders stated that liquidation was the only remaining option. They expect to lose money since the value of the airline’s assets has decreased due to prolonged litigation.
“The resolution plan aimed to revive the airline. The bids were made because it was seen as a going concern. With the aircraft deregistered, we doubt it will remain one. Without the aircraft, only the slots are left, which aren’t of much value,” said a bank official with exposure to Go First.
The DGCA deregistered all 54 aircraft leased to the bankrupt airline Go First on Wednesday, following an order from the Delhi High Court on April 26. Advocate Diwakar Maheshwari, representing the airline’s Resolution Professional, requested the court to delay the order, but the court refused.
Hence, this seems to signal the end of the road for the low-budget carrier, which launched commercial flights in November 2005, just 10 months before IndiGo.
However, IndiGo has emerged as India’s largest airline, commanding about 60% of the domestic passenger market. With a fleet of around 370 planes, IndiGo is the world’s third-most valuable airline by market capitalization.
A lessor noted that many repossessed planes had missing engines, making it difficult to return them to flying condition due to a shortage of Pratt & Whitney engines. The aircraft were in poor condition, with “greenish deposits” and “rust,” as shown in photos provided by the lessors, which “spoke for themselves.”
The Delhi High Court directed the DGCA on April 26 to deregister planes leased to Go First within five working days, providing much-needed relief to the lessors. With the regulator complying with the court order, the lessors have now reclaimed their aircraft.
Go First had sought a third extension from the National Company Law Tribunal (NCLT) to complete its insolvency process, and was granted 60 days on April 8. The NCLT had previously extended the insolvency process by 90 days on November 23, 2023.
The extension was a relief for Go First, embroiled in a legal battle over control of its aircraft with its lessors since May last year.
However, the Ministry of Corporate Affairs issued a notification on October 3 last year, exempting aircraft, engines, airframes, and helicopters from the moratorium under Section 14(1) of the Insolvency and Bankruptcy Code (IBC), 2016.
The DGCA filed an affidavit at the Delhi High Court, arguing that the exemption for aviation leases from the IBC moratorium should apply to pending cases as well.
Sharjah-based Sky One Aviation and domestic airline SpiceJet promoter Ajay Singh, along with Busy Bee Airways owned by Nishant Pitti of EaseMyTrip, are the bidders for the airline.
However, with all 54 aircraft deregistered, any chance of revival seems over, according to sources.
Go First ceased flights on May 3 last year, following the submission of an insolvency application to the NCLT.
On May 10, 2023, the tribunal imposed a moratorium on the airline’s assets, preventing lessors from reclaiming their aircraft and engines, leaving them deeply discontented.
And just like that, Go First was forced to join India’s Airline Graveyard list!
