Go First Vs Lessors Has Implications For Indian Aviation's Future
The global aviation community will want to see how this plays out, says aviation consultant Rishi Jain.
Global aviation players will closely watch Go First's insolvency and its impact on stakeholders like aircraft lessors and lenders, as it might affect their future business plans in the country.
"Go First may be hoping to do something close to the USA's Chapter 11 Bankruptcy Protection within Indian law," Rishi Jain, managing director at Jain Aviation Consultants, said. Chapter 11 bankruptcy protection is associated with cases where the business continues to operate and the debtor runs the business as usual.
"If so, this would be the first time an Indian carrier has attempted this voluntarily," Jain said. "So, the global aviation community will want to see how this plays out."
The New Delhi bench of the National Company Law Tribunal admitted Go First into insolvency on Wednesday. The NCLT imposed a moratorium and appointed Abhilash Lal from Alvarez and Marsal Holdings LLC as the interim resolution professional.
However, the tribunal suspended the board of directors and asked them to extend support to the IRP to keep Go First as a going concern and run its services smoothly.
While this may help in ensuring that Go First doesn't shut down operations entirely, it may also mean the companies that leased aircraft to the airline may face challenges in getting their aircraft back. They will also not have the option to take any actions against the budget carrier.
Race Against Time
The lessors moved quickly at the first sign of trouble and applied for deregistration and repossession of nearly 45 aircraft out of the 55 in the airline's fleet.
After the admission of Go First's insolvency plea, there is an air of uncertainty as to whether the airline will fly again and with how many of the 55 planes in its fleet.
According to an aviation lawyer, representing one of the lessors, who spoke on the condition of anonymity, they are hoping the request for deregistration will hold even now as a majority of the lease agreements have already been terminated.
SMBC Aviation Capital, one of largest aircraft lessors in the world, moved the National Company Law Appellate Tribunal on Wednesday against the NCLT's decision to allow Go First's petition for voluntary insolvency resolution proceedings.
Other lessors include Narmada Aviation Leasing, Yamuna Aviation Leasing, GY Aviation Lease and GAL MSN.
In its appeal, SMBC said the international aviation industry is seeing the Indian aviation sector as risky business. This becomes especially important, considering the downfall of Kingfisher Airlines and Jet Airways (India) Ltd.
Hence, admitting Go First's petition will shake the confidence of the international aviation industry, according to SMBC.
Risky Market?
In its bid to make India an aviation powerhouse, the Union government has ramped up efforts to encourage everyone, from plane manufacturers and aircraft lessors to parts makers, to set up shop in India. The dream of making India an aircraft leasing hub through GIFT City in Gujarat was along the same lines.
But major players largely stayed away, citing complex regulatory and tax structures, in addition to lack of safeguards when it comes to securing major assets like aircraft. With Go First's insolvency plea admitted, the ghosts of the past have come back to haunt the lessors.
Whenever an airline goes belly up, it's obvious for aircraft owners to repossess their assets, Ram Shankar, managing partner at AeroDef Consulting, said.
With India promoting the International Financial Services Centres Authority to global lessors and financiers, this would be an apt opportunity, according to Shankar.
"However, we do have a proven past," he said. "The Indian government intervened and supported lessors when Jet Airways collapsed."
Every aircraft has strict maintenance compliances and it runs the risk of losing value if it stays grounded under a cash-strapped airline, which makes the repossession of aircraft a time-sensitive issue.
Timely repossession of the aircraft prevents component swapping and cannibalisation, which eventually leave a huge impact on the asset valuation and its airworthiness, Shankar said.
Jain highlighted that a lessor would not want it's asset out of an approved maintenance program and would be concerned in case its not being properly stored, as this could have cost implications when placing it with another operator.