Go First Insolvency: Carrier faces bleak future as lenders assess fund infusion plans

Lenders to the financially troubled Go First are set to convene on Monday, November 6, to evaluate a previous fund-infusion proposal for the grounded carrier, which grapples with outstanding payments of approximately ₹6,500 crore, as per a report by The Economic Times.

Regulatory clearance for lessors to repossess leased aircraft has made it impractical for banks to commit fresh capital in the maiden instance of voluntary bankruptcy in Indian aviation, it said.

Also Read: Go First Lessors Demand Aircraft Deregistration Post Bankruptcy Code Changes

DGCA's Ruling Dealt a Severe Blow

The Directorate General of Civil Aviation (DGCA) informed the Delhi High Court via an affidavit that the recent directive exempting aviation leases from the bankruptcy moratorium should be applicable even to companies undergoing insolvency proceedings. This significantly diminishes the likelihood of the airline's revival, potentially causing a loss of ₹6,500 crore to creditors, the report said.

Bankers thus voiced concerns that if lessors are allowed to reclaim aircraft, it would render the airline's revival virtually impossible. "It seems as though Go First's fate is sealed. With the DGCA's stance, restarting operations appears highly unlikely, as the aircraft will likely be repossessed. While lenders maintain that this new law cannot have a retrospective application, the protracted legal proceedings make a resolution nearly unattainable.," a stakeholder told the paper.

Also Read | Go First case: Govt may clarify on amendments in IBC on leased aircraft

Decision Awaited

Central Bank of India and Bank of Baroda hold the top two positions among the airline's creditors, with dues amounting to ₹1,987 crore and ₹1,430 crore, respectively, the report said.

Although the DGCA's affidavit endorses the application of the notification exempting aviation leases from the moratorium to Go First, it places the onus on the High Court to determine the case's course.

Banks have contested the claims of aircraft and engine lessors of the defunct airline, arguing that a bankruptcy moratorium does not permit lessors to assume control of assets undergoing resolution.

"The DGCA's decision aligns with international law and the Cape Town Convention. Nevertheless, for banks, this appears to be an uphill battle. They can contest it in the HC and may also find favor with the NCLT, which is concurrently reviewing this case, but it is undeniably a substantial setback to the resolution process," Bishwajit Dubey, SC counsel and an expert in bankruptcy laws told ET.

Also Read: Go First cancels all flights until 30 November, cites operational reasons

Limited Interest

Last month, it was reported that Naveen Jindal, the promoter of Jindal Steel and Power, is the sole expression of interest (EoI) that met the financial criteria to bid for Go First. Two other potential bidders failed to meet the lenders' financial parameters.

Bankers emphasized that if the aircraft does not remain with the airline, the company's survival prospects are bleak.

"Lending to an aviation company is fraught with risk, as the primary assets of most airlines are leased, not owned by the company. This risk has materialized in the past with Kingfisher and Jet Airways, and now with Go First. It appears that Go First is heading towards liquidation," one source said.