The “ever-increasing” number of failing engines supplied by Pratt & Whitney has forced Go First to file for an insolvency resolution process before the Delhi bench of the National Company Law Tribunal, the airline said on Tuesday.
“GO FIRST has had to take this step due to the ever-increasing number of failing engines supplied by Pratt & Whitney’s International Aero Engines, LLC, which has resulted in GO FIRST having to ground 25 aircraft as of 1 May 2023,” the airline said. This led to grounding of approximately 50% of its Airbus A320neo aircraft fleet as the total fleet consists of 54 planes.
The grounding of close to 50% of its A320neo fleet due to the serial failure of Pratt & Whitney’s engines, while it continued to incur 100% of its operational costs, has set Go First back by ₹10,800 crores in lost revenues and additional expenses.
Moreover, Go First has paid ₹5,657 crores to lessors in the last two years of which approximately ₹1600 crores was paid towards lease rent for non-operational grounded aircraft from the funds infused by the promoters and government of India’s Emergency Credit Line Guarantee Scheme.
To recover these (and other) losses, Go First has sought compensation of approximately ₹8000 crores in the SIAC arbitration. “If GO FIRST is successful in the arbitration, it is hoped that, GO FIRST will be able to address the liabilities of its creditors, small and large. However at this stage, in the absence of Pratt & Whitney not providing the required number of spare leased engines in accordance with the order issued by the emergency arbitrator, GO FIRST is no longer in a position to continue to meet its financial obligations,” the airline said.
Some lessors have also repossessed aircraft, drew down letters of credit and have notified further withdrawal of aircraft.
“The culmination of these actions will result in a severe depletion in the number of aircraft available for GO FIRST to operate going forward, thereby making it further unfeasible for GO FIRST to continue its operation and meet its financial obligations,” the airline said.
Go First is the second airline in the last five years to file for insolvency resolution at NCLT in India after Jet Airways. Full-service carrier Jet Airways is yet to make a comeback to the aviation market despite prolonged NCLT proceedings.
“The percentage of grounded aircraft due to Pratt & Whitney’s faulty engines has grown from 7% in December 2019 to 31% in December 2020 to 50% in December 2022. This is despite Pratt & Whitney making several on-going assurances over the years, which it has repeatedly failed to meet,” GoFIRST said.
Low-cost carrier GoFIRST has also cancelled flights for the next two days. The Wadia Group-backed airline is expected to wait for NCLT and resolution professionals to decide on the future course of the carrier, a person aware of the matter said.
The airline has also informed the regulator Directorate General of Civil Aviation about the flights cancellation on May 3 and May 4.
“The airline does not have any inventory of tickets over the next two days. Hence, fresh bookings for travel over the next two days are not available on ticket booking platforms,” one of the people aware of the matter said.
As per March data from the Directorate General of Civil Aviation, the airline market share stood at 6.9% as compared to 9.8% in the same period a year ago.
The airline has also filed an emergency petition in Delaware Federal court seeking enforcement of two arbitral awards that have ordered engine manufacturer Pratt & Whitney to deliver serviceable engines to GoFIRST immediately.
Pratt & Whitney is the exclusive engine supplier for GO FIRST’s Airbus A320neo aircraft fleet. The airline said that the engine maker refused to comply with the award issued by an emergency arbitrator appointed in accordance with the 2016 Arbitration Rules of the Singapore International Arbitration Centre (SIAC). The order directed Pratt & Whitney to take all reasonable steps to release and dispatch without delay to GO FIRST at least 10 serviceable spare leased engines by 27 April 2023 and a further 10 spare leased engines per month until December 2023, with the objective of GO FIRST returning to full operations and achieving GO FIRST’s financial rehabilitation and survival.
“If Pratt & Whitney were to comply with the orders in the emergency arbitrator’s award, GO FIRST would be able to return to full operations by August/September 2023,” the airline has said.
Despite the emergency arbitrator’s order, however, at the date of this press release, Pratt & Whitney has failed to provide any further serviceable spare leased engines at all, and has stated that there are no further spare leased engines available for it comply with the emergency arbitrator’s award, the airline added.
GO FIRST said that it has taken the step towards insolvency in order to protect the interests of all stakeholders despite the infusion of substantial funds to the tune of ₹3,200 crores by the promoters into the airline in the last three years, out of which ₹2400 crores of which were injected in the last 24 months, and ₹290 crores in April 2023 itself. Hence, the total promoter investment in the airline since its inception to approximately ₹6,500 crores.
“However, even this collective and significant support has not sufficed to prevent the enormous damage caused by Pratt & Whitney’s defective and failing engines,” the airline said.
The airline awaits admission into the NCLT proceedings, and once the NCLT processes GO FIRST’s application under section 10 of IBC, an Interim Resolution Professional (“IRP”) will take over and operate GO FIRST.
“GO FIRST’s management repeatedly sought to engage with Pratt & Whitney on the engine issue, but Pratt & Whitney did not respond constructively. Instead, despite its contractual obligations to provide a spare leased engine within 48 hours of failure, it refused to provide sufficient spare leased engines to GO FIRST and refused to repair GO FIRST’s engines,” the airline said.
By an award dated 30 March 2023, an emergency arbitrator appointed in accordance with the SIAC Rules found that Go First’s current financial position was due in large part, if not wholly, to the number of grounded aircraft caused by the unavailability of Pratt & Whitney’s engines.
Among other things, the emergency arbitrator ordered Pratt & Whitney to take all reasonable steps to release and dispatch without delay to Go First at least 10 serviceable spare leased engines by 27 April 2023, and a further 10 spare leased engines per month until December 2023.
“Pratt & Whitney has refused to comply with the emergency arbitrator’s order and to date, it has provided no spare leased engines at all nor provided any certainty with respect to the timeframe for the provision of spare leased engines in the future. It has also failed to induct faulty engines for repair,” the airline said.