NCLT orders Go First’s liquidation in absence of a viable resolution plan
- The airline owes approximately ₹6,200 crore to creditors, with significant claims from the Central Bank of India ( ₹1,934 crore), Bank of Baroda ( ₹1,744 crore), and IDBI Bank ( ₹75 crore), besides claims from vendors and travel agents.
The National Company Law Tribunal (NCLT) on Monday ordered the liquidation of debt-laden Go First, bringing to an end a 20-month-long insolvency process after the grounded budget carrier failed to get any viable resolution plan.
Go First, which initiated a voluntary insolvency resolution process in May 2023, had a 6.9% share in India’s domestic aviation market at the time. However, the airline’s assets were effectively wiped out and revival became a distant possibility after the Delhi High Court allowed lessors to repossess its fleet of 54 planes.
The airline owes approximately ₹6,200 crore to creditors, with significant claims from the Central Bank of India ( ₹1,934 crore), Bank of Baroda ( ₹1,744 crore), and IDBI Bank ( ₹75 crore), besides claims from vendors and travel agents. Liquidation is the process of shutting down a business or a company and selling its assets to pay its creditors and shareholders in order of priority.
While Go First is the second major airline to go bust in the past 6 years, along with Jet Airways, the development is unlikely to dampen growth prospects for the country's aviation sector. India's aviation growth story remains intact on the back of robust domestic demand and expansion by players like Air India, IndiGo, and Akasa. Indian airlines have placed orders for more than 1,500 aircraft, as demand for air travel is set to soar in the world's fifth-largest economy.
Experts believe the government needs to ensure the business environment for the sector is healthy, with ATF (aviation turbine fuel) brought under GST purview. CEO of Avialaz Consultants Sanjay Lazar told Mint, "The closure of Go First has put a slight dampener on the aviation market in India, which has become a duopoly. However, there is ample interest from foreign investors in the Indian aviation sector, given necessary protections. There should be a more amiable environment for airlines that can then flourish and pass on the benefits to passengers."
Lazar added that India is a huge aviation market and that there is still a great opportunity for at least one more full-service carrier (FSC) and two ultra-low-cost carriers (ULCC). "The government must bring ATF under a uniform GST and rationalize taxes and levies for airlines. The approval by the Union cabinet of the 'Protection and Enforcement of Interests in Aircraft Objects Bill, 2024' will add a lot of comfort to foreign lessors and investors, as it aims to enforce the provisions of the Cape Town Convention."
ATF, considered a variant of kerosene, accounts for about 40% of an airline's operational cost. It is currently subject to a variety of state and centgral government levies, including excise duty and value-added tax, raising the fuel's price. Levying a uniform GST is expected to bring down the price by eliminating cascading taxes.
On 16 January, the Union Cabinet approved the Protection and Enforcement of Interests in Aircraft Objects Bill, which will enable aircraft leasing companies to repossess aircraft in the event of non-payment of lease rentals by an airline. The bill will prioritize the Cape Town Convention in case of any conflict with local laws, particularly the Insolvency and Bankruptcy Code, 2016, and will be tabled in the upcoming session of Parliament.
The Cape Town Convention, adopted on 16 November 2001, is an international treaty that standardizes transactions for moveable property, including aircraft, engines, and helicopters. While India acceded to the convention in 2008, there has been no domestic law to enforce its provisions. As a result, in conflicts with domestic laws, local laws prevail, which has diminished the effectiveness of the convention for lessors.
Financial woes and consumer protection concerns
Go First’s financial troubles deepened when its former promoter, the Wadia Group, filed for voluntary bankruptcy, citing delays in securing engines from Pratt & Whitney.
The major reason why Go First was unable to revive is the Delhi High Court's decision on 26 April 2023. The court directed the Directorate General of Civil Aviation (DGCA) to deregister the airline’s leased planes, following a plea by lessors who sought to reclaim their assets.
This left Go First without any planes, and as a result, an interested buyer—a consortium including SpiceJet’s Ajay Singh and EaseMyTrip’s Nishant Pitti—withdrew their bid.
As the airline is now in liquidation, many passengers are still waiting for refunds. An industry executive who did not wish to be named revealed that Go Air owes travel agents in India ₹150-300 crore.
Travel Agents Federation of India (TAFI) president Ajay Prakash said that the government needs to act to protect consumers in case of an airline failure. He said, "The government needs to look at a mandatory insurance scheme on tickets. There can be a small charge on every ticket. This can act as a safety net if the travel agent or airline fails. A consumer needs that protection so that passengers are able to recover their money."
Prakash added that there were signs for a long time that Go First would not survive. He said, "While the financial losses will be much less in comparison to the bankruptcy of the other two airlines, the government needs to ensure there is a healthy environment for airlines in India. The market is growing, domestic demand is robust, and we definitely need more airlines. We need an environment that makes it viable for airlines to fly in the country. The government should figure out a way to bring Air Turbine Fuel (ATF) under GST. There need to be some concrete steps by the central government on this."
According to legal experts, passengers who had booked tickets on Go First will find it difficult to get a refund.
“The refunds of the passengers shall fall under operational debt, which under the waterfall mechanism falls quite low in the hierarchy of the debt’s repayment sequence under Section 53 of the IBC, so chances of passengers receiving their money are slim,” said Daizy Chawla, Managing Partner at S&A Law Offices.
"The refund process for passengers may vary depending on direct bookings as compared to bookings through third-party platforms. Generally, the claims from creditors in liquidation proceedings are required to be filed separately before the liquidator is appointed," said Yogendra Aldak, partner, Lakshmikumaran & Sridharan attorneys.
In September 2023, Go First filed for liquidation, stating that it had no viable assets and no feasible plan for revival. Later, NCLT appointed Dinkar Venkatasubramanian as the new liquidator, who took charge of the affairs from the previous resolution professional, Shailendra Ajmera.
Meanwhile, Go First has engaged a US-based litigation finance firm, Burford Capital, to finance its arbitration case against Pratt & Whitney, the engine manufacturer.
The airline is seeking over $1 billion in damages from Pratt & Whitney, citing faulty engines that led to the grounding of its planes. Burford Capital is prepared to provide $20 million in the first tranche to finance the arbitration.
In addition, the lenders are looking to recover a big part of their dues through the sale of a 94.7-acre land parcel in Thane, Mumbai, owned by the Wadias.
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First Published:20 Jan 2025, 11:43 AM IST
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