Financial troubles at Indian airline Go First, previously called Go Air, are the latest in a series of challenges to hit the country's aviation sector.
The industry is now bracing itself to deal with the fallout of the bankruptcy of the airline controlled by Indian billionaire Nusli Wadia.
“Airline insolvencies and their resolutions have been extremely complex in India where [the country] has not yet witnessed much success,” says Nadiya Sarguroh, principal associate at Mumbai-based law firm MZM Legal.
As uncertainty hangs over Go First's future, analysts say the airline's woes have already driven up fares, while aircraft leasing costs may rise as a result.
The jolt to the sector comes as India's airline industry has been enjoying record growth in passenger demand following the easing of Covid-19 restrictions.
It therefore came as a shock when Go First this month filed for insolvency and grounded flights, blaming the US engine maker Pratt & Whitney for the debacle.
The company said its financial troubles were “due to the ever-increasing number of failing engines supplied by Pratt & Whitney”. It accused the manufacturer of refusing to supply usable engines under an emergency arbitration award that resulted in cash flow issues.
The airline this month said the “grounding of close to 50 per cent of its A320neo fleet due to the serial failure of Pratt & Whitney's engines, while it continued to incur 100 per cent of its operational costs, has set Go First back by 108 billion rupees ($1.3 billion) in lost revenue and additional expenses”.
Pratt & Whitney has rejected the claims.
In a filing on Thursday, International Aero Engines (IAE), in which Pratt is a shareholder, said the “risks for IAE, which were high to begin with, have increased significantly since Go First’s bankruptcy”.
It accused the carrier of not paying maintenance charges, describing it as an “insolvent airline that materially breached its contractual obligations”.
Go First is majority owned by Wadia Group, which is also known in India for its cookie brand Britannia and its textile company Bombay Dyeing.
The National Company Law Tribunal (NCLT) admitted Go First's bankruptcy plea on Thursday, granting protection to its assets.
But this means that lessors will be unable to repossess planes and this could have implications for the cost of leasing aircraft for India carriers due to the increasing risks associated with the market, analysts say.
“Unlike the normal practice of the financial creditors using the insolvency and bankruptcy code route in case of default by the borrower, in this case the company itself has gone in for the voluntary filing to seek protection available under law to escape sudden total closure”, says Jyoti Prakash Gadia, managing director at investment bank Resurgent India.
Because the case has been admitted by the tribunal, this means “the companies who have leased out the planes will not be able to take them back immediately”, he adds.
The UK-based global aviation leasing watchdog Aviation Working Group has already put India on a negative watch list, Reuters has reported.
The watchdog said this will “have a direct and material impact on future financing and leases to Indian airlines”.
Before the tribunal ordered the freeze on Go First's assets, some lessors had already ended their leases and asked India's aviation regulator to repossess more than 40 planes.
“From an airplanes point of view, we do see impact coming in and it's primarily from the leasing point of view, where we are seeing the cost of capital going up because lessors are going to increasingly look at this as a risk on the lending they do, and somewhere in the models they will have to start building it into their scenarios,” says Shravan Shetty, managing partner at Primus Partners India.
The other impact is on airfares, which have increased by about 25 per cent on some routes as Go First's flights have been cancelled, he says.
The latest issues in the aviation sector could also derail its recovery after it was battered by the fallout of the pandemic.
Amid a surge in demand for travel following the pandemic, India's aviation industry handled about 200 million passengers in the financial year ended March 2023, with that figure set to rise to more than 1.3 billion passengers in the next 20 years, according to the Centre for Asia Pacific Aviation.
Factors including increasing middle class incomes in a country of more than 1.4 billion people and the growth of budget airlines have been driving demand.
India's domestic air travel hit a record daily high of 456,082 passengers travelling on April 30, according to a post on Twitter by India's Civil Aviation Minister Jyotiraditya Scindia.
However, even before the pandemic hamstrung the sector severely, Indian aviation has had a chequered history. Several airlines have struggled to stay afloat and a few went under in what has become an increasingly cut-throat market. Carriers have been competing for passengers for years at prices that severely crimp margins.
In 2019, Jet Airways suddenly collapsed and it has faced a prolonged insolvency process. That followed Kingfisher Airlines' demise in 2012.
"The margins that can be looked at are very low” in India, while costs for airlines in the country are disproportionately high, Mr Shetty says.
“It's a very competitive market since India is a net importer when it comes to fuel, which [accounts for] a large portion of airline costs,” he says.
With newer airlines coming into the market such as Akasa Air, it can become more difficult for older companies to keep up.
“There are a lot of new players who come in and how this impacts is the fact that over the years the quality of aircraft has improved,” says Mr Shetty. "And as new players come in with new operating models, they are able to run at a far lower cost than legacy airlines would have been able to.
“Go First is one of those airlines which have been there for a long time, have been trying to innovate but have not been able to reach the kind of scale where they could justify being part of this competitive market.
Go First “would eventually either go away and merge with one of the entities which are there, or one of the new airlines which are coming up might just acquire them considering that they do have certain slots which are very lucrative”, he adds.
Along with engine problems, Go First in its bankruptcy filing said the had pandemic affected its finances.
Mr Gadia says “despite the fresh opportunities for a bounce back in airlines' business, Go First had to go in for a voluntary insolvency resolution process”.
On Friday, Go First extended the cancellation of flights until May 23, citing “operational reasons”.
It said as “it has filed an application for immediate resolution and revival of operations ... we will be able to resume booking shortly”.
MZM Legal's Ms Sarguroh says “the bid for resolving the liabilities of the airline and the actual implementation shall take several twists and turns and the direction of this insolvency shall be uncovered in the near future”.
Some, however, say the airline still has a chance to take off again.
“The fact that the existing planes on lease will continue to be available to Go First as per the orders of NCLT implies that the operations can resume shortly — provided the company is able to arrange short-term funds and requisite approvals from aviation authorities,” says Mr Gadia.
Key facilities
- Olympic-size swimming pool with a split bulkhead for multi-use configurations, including water polo and 50m/25m training lanes
- Premier League-standard football pitch
- 400m Olympic running track
- NBA-spec basketball court with auditorium
- 600-seat auditorium
- Spaces for historical and cultural exploration
- An elevated football field that doubles as a helipad
- Specialist robotics and science laboratories
- AR and VR-enabled learning centres
- Disruption Lab and Research Centre for developing entrepreneurial skills
Profile
Co-founders of the company: Vilhelm Hedberg and Ravi Bhusari
Launch year: In 2016 ekar launched and signed an agreement with Etihad Airways in Abu Dhabi. In January 2017 ekar launched in Dubai in a partnership with the RTA.
Number of employees: Over 50
Financing stage: Series B currently being finalised
Investors: Series A - Audacia Capital
Sector of operation: Transport
About Seez
Company name/date started: Seez, set up in September 2015 and the app was released in August 2017
Founder/CEO name(s): Tarek Kabrit, co-founder and chief executive, and Andrew Kabrit, co-founder and chief operating officer
Based in: Dubai, with operations also in Kuwait, Saudi Arabia and Lebanon
Sector: Search engine for car buying, selling and leasing
Size: (employees/revenue): 11; undisclosed
Stage of funding: $1.8 million in seed funding; followed by another $1.5m bridge round - in the process of closing Series A
Investors: Wamda Capital, B&Y and Phoenician Funds
Adele: The Stories Behind The Songs
Caroline Sullivan
Carlton Books
COMPANY PROFILE
Name: Mamo Year it started: 2019 Founders: Imad Gharazeddine, Asim Janjua Based: Dubai, UAE Number of employees: 28 Sector: Financial services Investment: $9.5m Funding stage: Pre-Series A Investors: Global Ventures, GFC, 4DX Ventures, AlRajhi Partners, Olive Tree Capital, and prominent Silicon Valley investors. More from Neighbourhood Watch
Specs
Engine: 51.5kW electric motor
Range: 400km
Power: 134bhp
Torque: 175Nm
Price: From Dh98,800
Available: Now
UAE currency: the story behind the money in your pockets
Muguruza's singles career in stats
WTA titles 3
Prize money US$11,128,219 (Dh40,873,133.82)
Wins / losses 293 / 149
Real estate tokenisation project
Dubai launched the pilot phase of its real estate tokenisation project last month.
The initiative focuses on converting real estate assets into digital tokens recorded on blockchain technology and helps in streamlining the process of buying, selling and investing, the Dubai Land Department said.
Dubai’s real estate tokenisation market is projected to reach Dh60 billion ($16.33 billion) by 2033, representing 7 per cent of the emirate’s total property transactions, according to the DLD.
Last 10 winners of African Footballer of the Year
2006: Didier Drogba (Chelsea and Ivory Coast)
2007: Frederic Kanoute (Sevilla and Mali)
2008: Emmanuel Adebayor (Arsenal and Togo)
2009: Didier Drogba (Chelsea and Ivory Coast)
2010: Samuel Eto’o (Inter Milan and Cameroon)
2011: Yaya Toure (Manchester City and Ivory Coast)
2012: Yaya Toure (Manchester City and Ivory Coast)
2013: Yaya Toure (Manchester City and Ivory Coast)
2014: Yaya Toure (Manchester City and Ivory Coast)
2015: Pierre-Emerick Aubameyang (Borussia Dortmund and Gabon)
2016: Riyad Mahrez (Leicester City and Algeria)
F1 The Movie
Starring: Brad Pitt, Damson Idris, Kerry Condon, Javier Bardem
Director: Joseph Kosinski
Rating: 4/5
The specs
Engine: 4.0-litre V8 twin-turbocharged and three electric motors
Power: Combined output 920hp
Torque: 730Nm at 4,000-7,000rpm
Transmission: 8-speed dual-clutch automatic
Fuel consumption: 11.2L/100km
On sale: Now, deliveries expected later in 2025
Price: expected to start at Dh1,432,000
Tree of Hell
Starring: Raed Zeno, Hadi Awada, Dr Mohammad Abdalla
Director: Raed Zeno
Rating: 4/5
Living in...
This article is part of a guide on where to live in the UAE. Our reporters will profile some of the country’s most desirable districts, provide an estimate of rental prices and introduce you to some of the residents who call each area home.
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The specs: 2018 Alfa Romeo Stelvio
Price, base: Dh198,300
Engine: 2.0L in-line four-cylinder
Transmission: Eight-speed automatic
Power: 280hp @ 5,250rpm
Torque: 400Nm @ 2,250rpm
Fuel economy, combined: 7L / 100km
COMPANY%20PROFILE
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My Cat Yugoslavia by Pajtim Statovci
Pushkin Press
About Krews
Founder: Ahmed Al Qubaisi
Based: Abu Dhabi
Founded: January 2019
Number of employees: 10
Sector: Technology/Social media
Funding to date: Estimated $300,000 from Hub71 in-kind support
MATCH INFO
Uefa Champions League semi-final, second leg
Real Madrid (2) v Bayern Munich (1)
Where: Santiago Bernabeu, Madrid
When: 10.45pm, Tuesday
Watch Live: beIN Sports HD
Ruwais timeline
1971 Abu Dhabi National Oil Company established
1980 Ruwais Housing Complex built, located 10 kilometres away from industrial plants
1982 120,000 bpd capacity Ruwais refinery complex officially inaugurated by the founder of the UAE Sheikh Zayed
1984 Second phase of Ruwais Housing Complex built. Today the 7,000-unit complex houses some 24,000 people.
1985 The refinery is expanded with the commissioning of a 27,000 b/d hydro cracker complex
2009 Plans announced to build $1.2 billion fertilizer plant in Ruwais, producing urea
2010 Adnoc awards $10bn contracts for expansion of Ruwais refinery, to double capacity from 415,000 bpd
2014 Ruwais 261-outlet shopping mall opens
2014 Production starts at newly expanded Ruwais refinery, providing jet fuel and diesel and allowing the UAE to be self-sufficient for petrol supplies
2014 Etihad Rail begins transportation of sulphur from Shah and Habshan to Ruwais for export
2017 Aldar Academies to operate Adnoc’s schools including in Ruwais from September. Eight schools operate in total within the housing complex.
2018 Adnoc announces plans to invest $3.1 billion on upgrading its Ruwais refinery
2018 NMC Healthcare selected to manage operations of Ruwais Hospital
2018 Adnoc announces new downstream strategy at event in Abu Dhabi on May 13
Source: The National
Ticket prices
General admission Dh295 (under-three free)
Buy a four-person Family & Friends ticket and pay for only three tickets, so the fourth family member is free
Buy tickets at: wbworldabudhabi.com/en/tickets
Our legal columnist
Name: Yousef Al Bahar
Advocate at Al Bahar & Associate Advocates and Legal Consultants, established in 1994
Education: Mr Al Bahar was born in 1979 and graduated in 2008 from the Judicial Institute. He took after his father, who was one of the first Emirati lawyers
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Six large-scale objects on show
- Concrete wall and windows from the now demolished Robin Hood Gardens housing estate in Poplar
- The 17th Century Agra Colonnade, from the bathhouse of the fort of Agra in India
- A stagecloth for The Ballet Russes that is 10m high – the largest Picasso in the world
- Frank Lloyd Wright’s 1930s Kaufmann Office
- A full-scale Frankfurt Kitchen designed by Margarete Schütte-Lihotzky, which transformed kitchen design in the 20th century
- Torrijos Palace dome
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Company Profile
Name: JustClean
Based: Kuwait with offices in other GCC countries
Launch year: 2016
Number of employees: 130
Sector: online laundry service
Funding: $12.9m from Kuwait-based Faith Capital Holding
UAE currency: the story behind the money in your pockets
COMPANY%20PROFILE
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Killing of Qassem Suleimani
The specs: 2018 Mercedes-Benz S 450
Price, base / as tested Dh525,000 / Dh559,000
Engine: 3.0L V6 biturbo
Transmission: Nine-speed automatic
Power: 369hp at 5,500rpm
Torque: 500Nm at 1,800rpm
Fuel economy, combined: 8.0L / 100km
Volvo ES90 Specs
Engine: Electric single motor (96kW), twin motor (106kW) and twin motor performance (106kW)
Power: 333hp, 449hp, 680hp
Torque: 480Nm, 670Nm, 870Nm
On sale: Later in 2025 or early 2026, depending on region
Price: Exact regional pricing TBA
Killing of Qassem Suleimani
THE BIO
Born: Mukalla, Yemen, 1979
Education: UAE University, Al Ain
Family: Married with two daughters: Asayel, 7, and Sara, 6
Favourite piece of music: Horse Dance by Naseer Shamma
Favourite book: Science and geology
Favourite place to travel to: Washington DC
Best advice you’ve ever been given: If you have a dream, you have to believe it, then you will see it.
Getting there
Flydubai flies direct from Dubai to Tbilisi from Dh1,025 return including taxes
