Go First: The DGCA has given an in-principle go ahead to start operations of its airline business. However, they will first need the approval of the COC (Committee of Creditors). Can it really work ou
June 14, 2023
Go First Revival
Even if it resumes, how will it finance the running of the airline?
The DGCA has given an in-principle go ahead to start operations of its
airline business. However, they will first need the approval of the COC
(Committee of Creditors). Can it really work out?
Background to the grounding
The decision by Go First to ground its operations in early May was
almost a sudden decision. It had been forced to idle half its fleet due to the
faulty Pratt & Whitney engines. With that much of capacity lost, the
airline could not run as a profitable concern. Also, its cash flow situation
had been worsening and it had by then stopped getting aviation turbine fuel
(ATF) on credit; which meant they were on cash and carry basis. That had made
it impossible for the airline to run the airline without piling up big losses.
Smart move at NCLT
One of the big concerns for Go First was that at the first sign of
financial trouble, the aircraft lessors would move in to repossess their
aircraft. Once that was done, the revival was going to be an exercise in
futility. We have seen that in the case of other airlines. Fortunately for Go
First, NCLT even accepted the voluntary liquidation. The net result was that
the aircraft lessors did not have any option but to go through the normal NCLT
process. It did leave the aircraft lessors fuming, but it ensured that Go First
did not go the way of other airline companies. But there is a challenge!
Getting the COC clearance
In an interesting move, the DGCA said that Go First can resume
operations, but it is subject to approval of COCO. If the COC has to clear the
proposal, they must first meet and decide upon some very basic issues like
meeting the costs of the airline, how will the revenues be treated and
apportioned, who bears any operating or running losses etc. These may sound
very elementary on paper but in reality, they are complex issues to handle.
Quite often, the COC finds it much easier to tarry the issue than to arrive at
any consensus. Also, Go First is a consistently loss-making model, and running
the airline will deepen losses.
Who is going to bell the cat?
NCLT decision to admit Go First to voluntary insolvency was just the start of a
long list of problems. At the time of the company filing for insolvency, IOCL
was not giving them fuel credit and had limited to cash and carry basis. In the
last few weeks, it is reported that large number of pilots and senior staff
from Go First had shifted to Indigo and Tata Airlines. Manpower will be an
issue. The third big challenge is that some of the assets must already be under
litigation in various jurisdictions. With so many litigations, it is hard to
see how Go First will be able to resume operations. Even assuming that the COC
approves the resumption of services, the operational challenges will be just
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