By Staff Correspondent
In a surprising turn of events, Go First, the Mumbai-based low-cost carrier (LCC), filed for voluntary insolvency, sending shockwaves through the global aviation industry. The airline’s bankruptcy filing has raised concerns about the Indian aviation market’s stability and has prompted calls for regulatory alignment with international frameworks.
Rémi Maillard, President of Airbus India and MD of South Asia, described Go First’s bankruptcy filing as a “depressing development” during the announcement of Wings India 2024, Asia’s largest civil aviation event. Maillard’s somber assessment contrasted with the typically optimistic outlook Airbus holds for India, the world’s fastest-growing aviation market.
Go First, owned by the venerable Wadia Group, grounded its entire fleet, citing issues with Pratt & Whitney’s next-generation engines as the primary reason. With over 40 leased aircraft still under its possession, Go First’s bankruptcy has left leasing firms anxiously awaiting the opportunity to repossess their assets.
Addressing the aftermath of Go First’s demise, Maillard emphasised the need for India’s regulations to align with international conventions, stating that “the industry hopes the Government of India will expedite the alignment of domestic laws with international conventions and treaties to ensure that the [aircraft] lessors’ confidence in the market does not dip.”
Unfortunately, the National Company Law Tribunal’s (NCLT) moratorium on Go First’s financial obligations and asset transfer has prevented lessors from deregistering and retrieving their aircraft. Despite a challenge by the lessors in the National Company Law Appellate Tribunal (NCLAT), the plea was dismissed, forcing leasing firms to seek an urgent hearing from the Supreme Court to safeguard their assets from potential cannibalisation.
Ajay Kumar, Managing Partner at law firm KLA Legal, pointed out the discrepancy between the lengthy moratorium under the Insolvency and Bankruptcy Code and the provisions outlined in the Aircraft Protocol of the Cape Town Convention. Concerns have also been raised regarding India’s commitment to international obligations under the Convention, further highlighting the perceived risks associated with aircraft leasing and financing in the country.
These developments not only result in Indian carriers potentially paying higher risk premiums but also cast doubt on the country’s aspirations to establish GIFT City near Ahmedabad as a global aircraft leasing and financing hub.
On May 12, the Aviation Working Group (AWG), a Bermuda-based nonprofit comprising aviation equipment manufacturers, leasing firms, and financial institutions, issued a watch list notice for Go First.
Go First’s bankruptcy comes on the heels of Jet Airways’ collapse in 2019. The consecutive failures of these airlines, despite India’s robust recovery post-Covid-19, indicate underlying issues within the nation’s aviation sector.
Passengers traveling on sectors previously serviced by Go First are already experiencing exorbitant ticket prices. The absence of competition has allowed market leaders IndiGo and Air India to enjoy a virtual duopoly, resulting in soaring fares. Jyoti Mayal, President of the Travel Agents Association of India (TAAI), noted that airfares have doubled or even tripled, leading to numerous booking cancellations due to the unaffordability of alternative options.
Go First employees are also heavily impacted, as the airline demands notice periods ranging from six to 12 months before relieving its personnel. Pilots, viewed as assets by the airline, face significant challenges, while ground staff members are left in precarious situations.
Despite these setbacks, experts predict that India’s aviation growth story will continue, with a steady increase in air traffic expected in the coming years. They believe the current surge in ticket prices is a temporary phenomenon that will normalise as demand and supply find equilibrium.
Jagannarayan Padmanabhan, Senior Director at CRISIL Market Intelligence, anticipates that lessors might introduce additional risk pricing for Indian carriers in the medium term. Moreover, efforts to develop the aviation ecosystem, such as MRO hubs and promoting aircraft leasing origination in India, may experience a slowdown. This crisis serves as a valuable lesson for the government and regulators to address the underlying issues and strengthen the industry’s resilience.