Govt will help 'unfortunate' Go First, says Scindia as cash-strapped airline cancels flights

May 02, 2023 07:09 PM IST

Go First cancels flights: Airline is owned by the Wadia Group, which is reportedly reluctant to inject further funds after spending over $300bn already.

UPDATE | Go First crisis may benefit rivals IndiGo, SpiceJet: Financial analysts

Union Minister for Civil Aviation Jyotiraditya Scindia (ANI Photo)
Union Minister for Civil Aviation Jyotiraditya Scindia (ANI Photo)

Cash-strapped domestic carrier Go First has received a 'show cause' notice from the Director-General of Civil Aviation after it cancelled May 3, 4 and 5 flights and filed for voluntary insolvency before the National Company Law Tribunal.

The regulator said the airline's actions were not in compliance with the rules - and would lead to 'passenger inconvenience' - as it had 'failed to report in writing the cancellations and reasons thereof.'

Go First has been given 24 hours to respond to the notice, 'failing which, the matter (will) be processed ex-parte', the DGCA said in its statement.

Earlier today Go First chief executive officer Kaushik Khona told news agency PTI the cancellation of flights and the insolvency filing were an 'unfortunate decision' and that it 'had to be done to protect the interests of the company'.

"… facing a financial crunch due to non-supply of engines by Pratt & Whitney, which has forced the company to ground 28 planes, over half of its fleet."

The airline - which employs over 3,000 people according to news agency Reuters - has informed the government and is submitting a report to the DGCA, said suspended flights will resume only after the insolvency application is admitted.

Union aviation minister Jyotiraditya Scindia said the government 'has been assisting the airline in every possible manner' and has spoken to stakeholders.

"… unfortunate that this operational bottleneck has dealt a blow to the airline's financial position. It has come to our knowledge that the airline has applied to the NCLT. It is prudent to wait for the judicial process to run its course," he said.

Go First said it had 'had to take this step due to the ever-increasing number of failing engines' supplied by American manufacturer Pratt & Whitney. The airline said these failures had led to the grounding of 25 aircraft as of May 1.

READ | Go First files for voluntary insolvency. What happened to the airline?

Go First operates on a cash-and-carry model - which means it pays oil marketing companies daily per flight it operates - and, given the grounding of flights due to the engine issue, it lacks funds to pay OMCs their dues.

The airline said it had been 'forced' to apply for insolvency as P&W had 'refused to comply with an award issued by an emergency arbitrator', which directed the supply of 10 engines by April 27 and 10 more per month till end-2023.

Go First also said P&W had so far 'failed to provide any further serviceable spare leased engines'; P&W said they had no engines available at this time.

The cash-strapped airline has been struggling to raise funds since posting its biggest annual loss in fiscal 2022. Last month Reuters reported owners Wadia Group were in talks with partners to either sell a majority stake or exit the firm.

Go First later denied rumours it plans to exit the business; a senior official told news agency ANI there were 'no plans to shed stake or exit the aviation business' and that the promoters were 'committed (to) infusing further funds…'

In its statement today the airline today said 'substantial funds' - 3,200 crore - had been made available over the past 36 months; 2,400 crore of this amount was injected in the last 24 months and 290 crore in April alone.

According to the airline, the engine supply issue has cost it 10,800 crore in lost revenues and additional expenses and 'to recover these (and other) losses' it had sought compensation of 8,000 crores from a Singapore tribunal.

Go First has also sued Pratt & Whitney in a US federal court over the non-supply of engines and has sought enforcement of the Singapore arbitral award.

A P&W official told ANI in February 'global supply chain challenges' are 'limiting the availability of structural castings and other parts (needed to manufacture the jet engines)'.

The grounded flights - this is not the first time - led to Go First's market share falling to 6.9 per cent in March from 8.4 per cent in January, according to the national aviation regulator DGCA.

With input from agencies

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