NCLT saves India’s third largest carrier from Bankruptcy, approves Protection Insurance to “Go Frist” airlines

On Wednesday, the National Company Law Tribunal (NCLT) bench in New Delhi provided Go First, the third largest airline in the country, with the opportunity to survive by granting it bankruptcy protection.

Abhilash Lal from Alvarez & Marsal has been designated as the interim resolution professional to assume control of the management and board of Go First. The company’s suspended board has also been instructed to collaborate with Lal to guarantee that no employees are laid off. Go First, which was established by textile magnate Nusli Wadia, employs 7,000 individuals.

Additionally, a moratorium has been imposed by the NCLT on the assets and leases of the carrier. The most significant form of relief granted to Go First by the NCLT is the prohibition on any owner or lessor from reclaiming any property that is currently in the possession of the corporate debtor. This particular measure will prevent the 45 aircraft, for which the lessors had submitted repossession applications with the DGCA, from being taken back for a minimum of six months.

SBMC Aviation Capital, a major lessor, has reportedly challenged the aforementioned order in the NCLAT, and it’s possible that other lessors may do the same. Go First, which currently has a fleet of 55 aircraft, filed for bankruptcy protection following a financial crisis for which it held US engine manufacturer Pratt & Whitney responsible. The airline has since ceased all flights, and it remains unclear if and when it will resume operations, and with what size of a fleet. The DGCA has prohibited the airline from selling tickets in light of the uncertain situation.

It has been reported that Go First is planning to recommence its flight operations on May 24, albeit with a smaller fleet consisting of 23 planes. However, the airline will require approval from the DGCA before resuming operations. To obtain this approval, the airline must demonstrate to the regulator that it possesses sufficient financial resources to operate safely. Additionally, the new management team must address the show-cause notice, which will serve as a basis for the regulator’s decision on the airline’s license.

According to Ashish Pyasi, the associate partner at Dhir and Dhir Associates, once the resolution professional takes control of Go First’s affairs, they must invite claims from creditors to establish the committee of creditors. Additionally, the resolution professional must ensure that the company remains viable and its business operations continue smoothly, leading to the maximization of asset value. Pyasi also noted that the resolution professional must expedite other related procedures to facilitate the early submission of resolution plans.

The NCLT has issued a 41-page order stating that due to the outstanding debt exceeding Rs 1 crore and the corresponding default, and since Go (First) has not been disqualified under Section 11 of IBC, the NCLT has no choice but to accept the current application.

For immediate expenses the management has also been asked to deposit Rs 5 crore.

According to its application filed with the NCLT, Go First claimed to have won an arbitration case against P&W in Singapore, which mandated the American company to provide spare engines to the airline. However, P&W did not comply with the order. As a result, Go First took legal action against P&W in a Delaware court and other relevant jurisdictions to enforce the arbitration award. P&W is expected to contest this action, as per a court filing in Delaware cited by Reuters. The NCLT has directed the resolution professional to take all necessary measures, including executing the arbitral award, to ensure that Go First continues to operate successfully and offer uninterrupted services.