India’s aviation sector is once again in the limelight after the Indian GoFirst airline filed for bankruptcy on Tuesday. On 2 May 2023, GoFirst Airline filed an application for resolution under Section 10 of the Insolvency and Bankruptcy Code with the National Company Law Tribunal (NCLT) in Delhi. GoFirst is India’s third-largest budget carrier airline, it was rebranded GoAir as GoFirst on 13 May 2021.
History of Aviation in India
Wadia-owned GoFirst is now the second Indian airline to declare bankruptcy in the last 4 years after the major Indian airline Jet Airways filed for bankruptcy in April 2019 with debts of over $1 billion. Another well-known Kingfisher Airlines of India had stopped its operations in February 2013.
The Wadia Group entered the aviation business in 2005 (Wadia Group owns 100% stake in GoFirst) and is also engaged in real estate, chemicals, retail, engineering, and healthcare.
“The company was forced to take the step of filing for bankruptcy due to the ever-increasing number of failed engines supplied by Pratt & Whitney,” Go First said.
Why Go First airline faced Bankruptcy Crisis
Go First Airline blames Pratt & Whitney’s “faulty” engines for the bankruptcy which has resulted in the grounding of 50% of the fleet and is no longer in a position to meet its financial obligations. GoFirst purchased 156 engines in 2019 from Pratt & Whitney.
In December 2019, GoFirst had grounded only 7% of its fleet but after 3 years this number has increased to 50%. According to the report, the GoFirst airline had to ground more than half of its 54 Airbus 320-Neos equipped with Pratt & Whitney engines by April 2023.
In response, Pratt & Whitney stated that we remain committed to the success of our airline customers and we continue to prioritize delivery schedules for all customers. Pratt & Whitney further said that GoFirst blamed faulty Pratt & Whitney engines for the grounding of nearly half its fleet, asking why the airline would buy more engines in 2019 if they were “defective”.
Go First Airline and Pratt & Whitney (American aerospace manufacturer): GoFirst has a total fleet of 59 aircraft including 54 A320-neo and 5 A320-ceo models. Go First ordered 72 narrow-body jet A320neo aircraft fleet GTF engines from Pratt & Whitney in 2016, valued at US$4.1 billion.
Go First Airline receives the first aircraft with A320neo GTF engines from Pratt & Whitney in June 2016. But in 2017 several Indian airlines, including GoFirst and IndiGo, reported associated problems with their A320neo aircraft with GTF engines.
Starting to experience more severe engine failures, a financial dispute broke out between Go First and Pratt & Whitney in 2022, after which Go First filed for emergency arbitration in Singapore in March 2023. The arbitration award dated March 30 in favor of Go First stated that the airline is at risk of irreparable damage if emergency engines are not made available.
But Go First Airline also accused Pratt & Whitney of not complying with the order of the emergency arbitrator and has now moved the US court.
Go First Airline files emergency plea: The airline has filed a lawsuit against US engine maker Pratt & Whitney in Delaware federal court. It has been forced into voluntary bankruptcy resolution proceedings due to “serial failure” of Pratt & Whitney engines, GoFirst Airline said.
Go First abruptly canceled its flights after the bankruptcy filing: The Wadia Group had invested $35.46 million in the airline in April 2023. Wadia-owned Go First has been flying for over 17 years but suspended flights from May 3 to 15 due to outstanding dues of oil companies.
The airline’s financial condition deteriorated due to acute shortage of funds, making it difficult to carry out day-to-day operations as revealed by the company’s annual report.
Indian Civil Aviation Regulator ie DGCA: The Directorate General of Civil Aviation (DGCA) issued a show cause notice to Go First after canceling the booking and directed it to respond within 24 hours. DGCA stated that it has come to its notice that Go First has canceled all the scheduled flights without any prior intimation for such cancellation and hence the notice has been issued.
Go First Airline Financial Condition: Go First has more than $800 million in outstanding liabilities (Includes dues to banks, financial institutions, vendors and aircraft lessors) but was not in default on any of these balances by the end of April 2023, according to its bankruptcy filing. Airlines in India have lost about $ 10 billion from 2021 to 2022, in which Go First Airline lost $ 1.3 billion in revenue due to engine failure.