BENGALURU (Reuters) – India’s cash-strapped airline Go First filed for bankruptcy on Tuesday, blaming “faulty” Pratt & Whitney engines for crippling about half of its fleet.
The move marks the first major collapse of an airline in India since Jet Airways filed for bankruptcy in 2019, and underscores fierce competition in a sector dominated by IndiGo and the recent merger of Air India and Vistara under the Tata conglomerate.
Go First’s debt to financial creditors totaled 65.21 billion rupees as of April 28, it said in a bankruptcy filing with the National Companies Law Tribunal.
The company had not defaulted on any of those dues as of April 30, but it had defaulted on payments to operating creditors, including 12.02 billion rupees to sellers and 26.60 billion rupees to aircraft lessors, the company said in the filing.
In a statement, Go First said its filing came after Pratt & Whitney, the exclusive engine supplier for the airline’s Airbus A320neo fleet, refused to comply with an arbitration order releasing spare leased engines that would have allowed the airline to return in full. operations.
The airline said ground planes “due to malfunctioning Pratt & Whitney engines” swelled from 7% of its fleet in December 2019 to 50% in December 2022, costing it 108 billion rupees ($1.32 billion) in lost revenue and additional expenses.
Pratt & Whitney said in a statement to Reuters that it is “committed to the success of our airline customers, and we continue to prioritize delivery schedules for all customers.”
It added, “P&W is in compliance with the March 2023 arbitration award relating to Go First. As this is a matter of litigation now, we will not comment further.”
In February, the head of Raytheon Technologies (RTX.N), which owns Pratt & Whitney, acknowledged that GTF engines had reliability issues.
Indian media also quoted Pratt & Whitney as saying that it has been affected by supply chain pressures across the industry and that it expects these pressures to ease later this year, which will support increased production of new and refurbished engines.
Analysts said larger competitor IndiGo was better able to withstand the impact, thanks to its larger fleet and deeper enclave.
Go First, owned by Wadia Group and formerly GoAir, said on its website that it had canceled flights scheduled for May 3 to May 5 due to “operational reasons”.
“The government of India is helping the airline in every way possible,” Indian Civil Aviation Minister Jyotiraditya Scindia said in a statement. “This issue has also been taken up with relevant stakeholders.”
The crash could boost rival airlines as the industry tries to cope with a post-pandemic surge in air travel.
“The sudden disruption in operations is likely to benefit other players and increase air ticket prices due to supply constraints,” wrote Jinesh Joshi, research analyst with Prabhudas Lilader.
Surprise move
Two bankers familiar with the matter told Reuters the move took Go First lenders by surprise.
One banker said the lenders met with Go First management a few weeks ago, but no alert was given. They said the lenders would meet soon to assess the situation and decide on a future course of action.
“I’m a little surprised to hear about their bankruptcy filing,” said Mark Martin, CEO of aviation consulting firm Martin Consulting LLC. “I still feel that this may not be the end of Go First. This should be a way and a means for someone new to take over.”
Go First’s troubles, which forced it to delay its planned $440 million initial public offering in 2021, eroded its market share to 6.9% in March from 8.4% in January, the most recent data From the Indian aviation regulator showed.
It was reported that Wadia Group is in talks to either sell its majority stake or exit entirely from its stake. Wadia Group did not respond to an email seeking comment.
Go First said the facts prompted some lessors to “repossess aircraft, withdraw letters of credit and give notice of further aircraft withdrawal”.
Employees were caught in the dark when they first heard of the halt in daily operations from local media, according to three pilots who did not wish to be named. The pilots added that they have been receiving their salaries in arrears for the past few months.
Go First later said in an email to staff: “We understand that this news has the potential to be sad, and we remain committed to offering all of you our support during this difficult time.”
($1 = 81.7420 Indian rupees)
Additional reporting by Varun Vyas in Bengaluru; Editing by Savio D’Souza
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