Loss-making budget carrier GoFirst was burning cash at a rate of approximately Rs 200 crore per month since November and could no longer afford it, so it filed for insolvency before the National Company Law Tribunal (NCLT), CEO Kaushik Khona told Moneycontrol in an exclusive phone call shortly after the announcement.
“The purpose of filing for insolvency is not to liquidate the company, but rather to preserve its remaining assets so that we can quickly resume operations,” Khona explained.
GoFirst has suffered from the double whammy of grounded airlines due to defective engines and accumulating debts with vendors and lessors.
The cash-strapped airline owned by the Wadia Group initially announced on May 2 that it would temporarily suspend flight operations on May 3 and 4. Due to a “severe lack of funds,” the company announced later in the day that it had filed an application for voluntary insolvency resolution proceedings with the NCLT, Delhi.
“GoFirst is currently compelled to cease operations because it is no longer feasible for us to continue paying our vendors and squandering cash. “At this point, all we can do is hope that justice prevails and the court system makes the right decision,” said Khona.
The airline anticipates resuming operations once NCLT approves the application.
Khona, who is viewed as a Wadia loyalist, was branded by fire when he was appointed CEO in August 2020, when the airline industry was severely affected by the pandemic. After his brief tenure at GoFirst, he replaced industry veteran Vinay Dubey, who left to join the newly founded Akasa Air.
Hoping to Launch
Khona stated that GoFirst requires at least 20 aircraft to return to service and achieve profitability on a daily basis.
“We have requested that the insolvency of GoFirst be expedited by the NCLT. We are hopeful that the NCLT will assist in resolving GoFirst’s cash flow issues caused by P&W’s noncompliance,” said Khona.
Khona noted that GoFirst would be able to resume full-scale operations by September 2023 if Pratt & Whitney delivers the engines as required by the SIAC order.
“We only need engines; the sooner we receive engines, the sooner we can resume operations,” he said.
Due to faulty engines supplied by Pratt & Whitney, GoFirst was compelled to ground half of its fleet. While the airline sought compensation from Pratt & Whitney for defective engines, its market share decreased due to fewer operating aircraft, resulting in revenue loss and delayed reimbursements to vendors.
GoFirst reported that fifty percent of its fleet, or 25 aircraft, are suspended while awaiting engines.
The airline blames Pratt & Whitney for the company’s feeble financial position, as the American aerospace manufacturer has refused to comply with the Singapore International Arbitration Centre’s (SIAC) arbitral award in the airline’s favor.
In an order issued on March 30, the SIAC requested that P&W supply GoFirst with 10 serviceable engines by April 27, 2023, and 10 engines per month until December of this year. Nevertheless, P&W has refused to comply with the directive.
The number of grounded aircraft due to the powerplant issue increased from 7% of the fleet in December 2019 to 31% in December 2020 to 50% in December 2022. This has led to a revenue loss of approximately Rs 10,800 billion.
“Until now, P&W has refused to acknowledge any error on their part…”It has become impossible for GoFirst to continue operations while paying full lessor fees and other operational expenses,” said Khona.
The airline had also petitioned the Delaware court for enforcement of the Singapore arbitration panel’s award on April 28.
Khona stated, “We hope the Delaware Federal Court upholds the Singapore International Arbitration Centre’s decision.”
Stay with Me
The troubled airline is hopeful that its suppliers and employees will remain loyal until operations resume. “I hope my employees will continue to remain with us,” said Khona.
Directorate General of Civil Aviation (DGCA), the sector regulator, issued a show cause notice to the airline after it canceled new reservations from 3-4 May. Passengers turned to social media to vent their frustrations.
In the meantime, the Minister of Civil Aviation, Jyotiraditya Scindia, issued an official statement in which he stated, “GoFirst has been confronted with critical supply chain concerns concerning their engines. The government of India has been assisting the airline in every way imaginable. The issue has also been discussed with the relevant parties.”
He added that it is regrettable that this operational bottleneck has harmed the airline’s financial standing and that it is judicious for the judicial process to run its course in response to the NCLT application.