Written by Rahul Kumar
Go First, formerly known as Go Air, has encountered a series of challenges that have contributed to its decline in the Indian aviation industry, ultimately leading to its filing for bankruptcy. However, there is an interesting twist in the story. Go First is strategically utilizing its bankruptcy proceedings to make a comeback in the business.
According to a report from ET Prime, the last profitable financial year for Go First was 2018-19, during which the company generated an operating revenue of 6262.44 crore rupees with a net profit of 123.34 crore rupees. However, the situation took a downturn in 2021-22, with Go First experiencing a significant decline in revenue, amounting to 4183.77 crore rupees, and posting a net loss of 1807.91 crore rupees. At the time of the airline's bankruptcy filing, its total liabilities to all creditors stood at 11463 crore rupees.
Go First attributes its bankruptcy primarily to issues with Pratt and Whitney engines. The airline claims that the quality of these engines resulted in a substantial increase in the number of grounded aircraft. The percentage of grounded aircraft rose from 7% of its fleet in December 2019 to 50% in December 2022. According to Go First, this situation cost them a staggering 108 billion rupees in lost revenues and additional expenses.
Despite the challenges, several factors indicate that Go First has the potential to bounce back:
1. Opting for Resolution instead of Liquidation: Go First has chosen the option of resolution rather than liquidation. In the liquidation process, all assets of the company, including infrastructure, real estate, and intellectual property, are sold off to repay the creditors. However, this typically results in substantial losses for the creditors, with only a small percentage of the total amount recovered. Additionally, liquidation leads to the termination of all employees' jobs and the elimination of any remaining value for the shareholders.
2. Deferment of Payments for 6 Months: When a company files for bankruptcy and receives approval from the National Company Law Tribunal, it is granted a period of 180-270 days. During this period, the company is protected from legal actions and recovery proceedings initiated by its creditors. This means that all loans, as well as other payments such as salaries, rent, and debt, are temporarily put on hold. An Interim Resolution Professional (IRP) is appointed to manage the company's affairs during this timeframe, allowing the company to plan how to repay its debts and regain stability. This protection prevents the company from being taken to court or having its assets seized, including leased planes. This superpower enables the company to resume operations and function normally.
3. Debt Restructuring: One of the significant advantages of the resolution process is debt restructuring. With Go First's current debt standing at 11463 crore rupees and an inability to pay rents, the banks will likely classify these loans as non-performing assets. Creditors have two options: wait for 270 days of protection provided to the company and then wait for an additional year for the liquidation process to complete, which would take nearly two years in total to recover their money by selling the assets. However, due to the worsening condition of the airplanes after two years, the recovery would be minimal. Alternatively, creditors can opt for debt restructuring. In this scenario, Go First can leverage its existing loans and request the bank to restructure them in its favor. The company could potentially receive a haircut of 40-50% on the debt and an extension of the loan tenure by the same percentage. Assuming this condition, Go First would only need to pay around 5000-6000 crore rupees at 4-5% interest over a period of 15 years.