Hope is dimming for lenders of Go First as Jindal Power Ltd, the only company whose expression of interest to take over the airline was accepted by creditors, has reportedly decided not to bid.
After this, the chances of the airline heading for liquidation are high, jeopardising over Rs 6,500 crore loans extended by lenders.
The Central Bank of India, Bank of Baroda, IDBI Bank and Deutsche Bank are among the top creditors to the airline.
The Committee of Creditors will likely meet on Wednesday to decide the future course of action, reports said.
Lessors make take aircraft
Also, recent changes to Indian laws that exclude leased aircraft from assets subject to freezing during an airline’s bankruptcy proceedings could have retrospective implications.
The clarification surrounding the recent amendment to India’s insolvency law potentially opens the door for lessors of the bankrupt budget carrier Go First to reclaim their aircraft. Go First filed for bankruptcy in May, and its lessors faced obstacles in repossessing planes due to a moratorium imposed by Indian courts. This situation had garnered the attention of the world’s second-largest lessor, SMBC Aviation Capital, which expressed concerns that it could undermine industry confidence, especially when India is in the process of acquiring a significant number of new aircraft.
In a highly anticipated move, India amended its insolvency law in October, with the primary objective of harmonizing global and local regulations to support the growth of its rapidly expanding airline sector and address discrepancies that had caused issues, such as the Go First bankruptcy dispute.
The rule change was designed to align India’s laws with the Cape Town Convention, a treaty that safeguards the rights of foreign lessors, particularly relevant following the Go First bankruptcy dispute.
Further hit
If Go First’s situation goes the Jet Airways way and its bankruptcy proceedings extend for a prolonged period, it could potentially cost banks around Rs 3,000 crore. This estimate does not account for aircraft lease payments, which would only further burden the financial situation of the banks.
Go First has extended the deadline for potential investors to express their interest in purchasing the airline until September 28. However, investors are awaiting the resolution of the legal issues before committing. The airline is promoting its available slots, operational aircraft, and valid aircraft orders as attractive propositions for potential investors. It has also filed an arbitration case against Pratt & Whitney, seeking $1.2 billion in damages for alleged faulty engines. While the outcome of this arbitration will take time, it could impact the airline’s valuation.
Go First’s path to recovery is laden with complexity. The airline must overcome legal challenges, meet the demands of creditors, and attract investor interest to take off again. This situation highlights the intricate nature of bankruptcy proceedings in the aviation industry and the substantial financial toll they can exact on all stakeholders involved.
