Go First Airline’s Viability at Stake: Lenders Demand a Concrete Resolution Plan 2023
Go First Airline’s Viability at Stake: Lenders Demand a Concrete Resolution Plan 2023
Go First’s proposed resurrection plan calls for sending 22 aircraft for operations while holding four in reserve to handle unforeseen circumstances.
Lenders recently requested that Go First, a well-known Indian airline, provide a practical plan to overcome financial difficulties. This comes as the aviation industry continues, and they are still grappling with the effects of the pandemic.
Go First, formerly known as GoAir, is pressured to devise a comprehensive strategy that addresses its financial woes and ensures its long-term sustainability.
Lenders to Go First have requested that Shailendra Ajmera, a resolution specialist, produce a “viable resolution plan” before they approach their respective boards to request authorization for providing the interim airline funding of around 450 crores.
Banking sources say the RP has not yet developed a “concrete, viable plan”. “There will eventually be a viability discussion, and that is how we evaluate any firm; if it is viable, you should support it. At this point, it is too early, according to financial sources. “At the end of the day, the airline experienced a close call with death.
It is also true that the sooner it takes off again, the better; nevertheless, you must first determine the operation’s feasibility, namely its size and configuration; after that, all possibilities are available, according to the sources.
Go First has been one of India’s leading low-cost carriers, serving domestic and international destinations with a focus on affordability and quality service. However, like many other airlines worldwide, it has faced significant setbacks due to the global health crisis. The pandemic-induced travel restrictions, reduced passenger demand, and increased operating costs have severely impacted the aviation sector, leading to financial strain for many airlines, including Go First.
The committee of creditors agrees in principle with the amount requested, but it can only release the funds with the boards of the relevant institutions’ approval. The CoC’s approval of the airlines’ resolution plan is required before the directorate general of civil aviation (DGCA) would consider the carrier’s request to resume operations.
The CoC includes the Central Bank of India, Bank of Baroda, IDBI Bank, and Deutsche Bank as its members.
Lenders, including financial institutions and banks, have expressed growing concerns over Go First’s financial stability. As the airline’s debts continue to mount and revenue struggles to recover, lenders seek reassurance that the company has a viable plan to overcome its challenges. They are keen on understanding how Go First intends to address its financial obligations, sustain operations, and generate sufficient revenue in the coming months.
According to its National Company Law Tribunal documents, Go First, which filed for voluntary insolvency on May 3, owes Rs 6,521 crore to its financial creditors. Under the government’s emergency credit line guarantee scheme (ECLGS), Rs. 1,300 crores have been borrowed. The airline owes Rs 11,463 crore after accounting for vendor debt.
Till June 28, the airline’s activities are on hold.
Go First’s proposed resurrection plan calls for sending 22 aircraft for operations while holding four in reserve to handle unforeseen circumstances.
The airline has stated that it may launch chartered flights between Delhi-Srinagar and Delhi-Leh immediately by deploying two aircraft provided the DGCA approves its resurrection plan. It will be able to restore regular service in the coming days, mainly on the Pune, Bardogra, and Goa lines. The airline has said that it will be able to deploy 8–10 planes for the scheduled services. Ajmera, the RP for Go First, met with DGCA representatives last week to inform them of the CoC sessions that were taking place. According to sources, he will meet with the aviation watchdog again on Wednesday.
Go First has also disclosed to the DGCA that it now employs 400 pilots and has extended a retention bonus to first officers and pilots. It has proposed to increase the first officers’ and captains’ monthly wages by 50,000 and 100,000 rupees, respectively. Captains currently make an average of Rs 530,000 each month. Beginning on June 1, the new salary will be in effect.
The NCLT has ordered Go First, which employs 7,000 people, not to lay off any workers.
Additionally, the carrier announced that oil marketing businesses had pledged their assistance. OMCs had put the carrier’s operation on cash and carry terms before the airline filed for insolvency, which required it to pay its debts daily. Additionally, it was stated that travel agencies have volunteered their assistance with ticketing services.
However, the airline’s primary obstacle is to keep its aircraft since 45 have been targeted for deregistration by lessors who have applied to the DGCA. Although their appeal was denied by the NCLT and National Company Law Appellate Tribunal, the lessors filed a petition with the Delhi High Court, where the case is now pending.
There are 54 aircraft in the airline’s fleet overall. Of these, 26 are flying, and 28 are grounded because of problems with Pratt & Whitney engines.
To restore confidence among its lenders and secure their support, Go First must present a comprehensive resolution plan addressing critical aspects of its financial distress. Some of the key areas that lenders expect the project to cover include:
- Debt restructuring: Lenders will look for a clear strategy for restructuring Go First’s debts, including repayment schedules, interest rates, and potential haircuts. The airline must demonstrate a realistic and sustainable approach to manage its debt burden effectively.
- Cost optimization: Lenders expect to Go First to outline specific measures to reduce costs and improve operational efficiency. This may involve renegotiating contracts with suppliers, optimizing fuel consumption, streamlining maintenance processes, and exploring workforce restructuring if necessary.
- Revenue generation: The resolution plan should highlight how Go First intends to boost revenue streams in a challenging market. This could involve focusing on profitable routes, revising pricing strategies, exploring new partnerships, and enhancing ancillary services to increase non-ticket revenue.
- Capital infusion: Lenders may require to Go First to present a plan to secure additional capital to meet immediate financial requirements and support future growth. This could involve attracting new investors, issuing fresh equity, or exploring strategic partnerships in the aviation industry.
- Business sustainability: Lenders will seek a clear vision for the airline’s long-term sustainability. Go First must demonstrate its ability to adapt to changing market dynamics, stay competitive, and mitigate risks that could impact its future financial stability.
As lenders press Go First for a viable resolution plan, the airline finds itself at a critical juncture in its journey towards financial recovery. The aviation industry faces challenges due to the ongoing pandemic and changing travel patterns. Therefore, Go First must present a well-structured and credible plan that addresses lenders’ concerns and outlines a clear path towards stability. The successful implementation of such a plan can help Go First secure the necessary financial support, restore confidence among stakeholders, and position itself for a sustainable future in the highly competitive aviation sector
