BENGALURU, May 2 (Reuters) – Cash-strapped Indian airline Go First filed for bankruptcy on Tuesday, blaming “defective” Pratt & Whitney engines for the grounding of about half its fleet.
The move marks the first major airline collapse in India since Jet Airways filed for bankruptcy in 201[ads1]9, underscoring fierce competition in a sector dominated by IndiGo and the recent merger of Air India and Vistara under the Tata conglomerate.
Go First’s total debt to financial creditors was 65.21 billion rupees as of April 28, it said in a bankruptcy filing with the National Company Law Tribunal.
The company had not defaulted on any of these dues as of April 30, but had defaulted on payments to operational creditors, including 12.02 billion rupees to suppliers and 26.60 billion rupees to aircraft lessors, the filing said.
In a statement, Go First said the filing followed a refusal by Pratt & Whitney, the exclusive engine supplier for the airline’s Airbus A320neo fleet, to comply with an arbitration order to release spare engines that would have allowed the airline to return to full operations.
Grounded aircraft “due to Pratt & Whitney’s faulty engines” ballooned from 7% of its fleet in December 2019 to 50% in December 2022, the airline said, costing it 108 billion rupees ($1.32 billion) in lost revenue and extra expenses .
Pratt & Whitney said in a statement to Reuters that it was “committed to the success of our airline customers and we continue to prioritize delivery schedules for all customers.”
“P&W is following the March 2023 arbitration award relating to Go First. As this is now a matter of litigation, we will not comment further,” it added.
In February, the head of Raytheon Technologies ( RTX.N ), which owns Pratt & Whitney, acknowledged that its GTF engines had had reliability problems.
Pratt & Whitney has also been quoted in Indian media as saying it was affected by supply chain pressures and expects to ease later this year, which will support increased production of new and overhauled engines.
Analysts have said that bigger rival IndiGo has been able to withstand the impact better, thanks to its larger fleet and deeper pockets.
Go First, owned by the Wadia Group and formerly known as GoAir, said on its website that it had canceled flights scheduled from May 3 to May 5 due to “operational reasons”.
“The Government of India has assisted the airline in every possible way,” India’s Civil Aviation Minister Jyotiraditya Scindia said in a statement. “The issue has also been raised with the stakeholders involved.”
The collapse could boost rival airlines as the industry tries to cope with a post-pandemic increase in air travel.
“The sudden shutdown is likely to benefit other players and increase airfares due to supply constraints,” wrote Jinesh Joshi, a research analyst at Prabhudas Lilladher.
The move surprised Go First’s lenders, two bankers familiar with the matter told Reuters.
The lenders met Go First’s management a few weeks ago, but no intimation was given, one of the bankers said. Lenders will meet soon to assess the situation and decide on a future course of action, they said.
“I’m kind of stunned to hear that they’re filing for bankruptcy,” 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 has to be a vehicle and a vehicle for someone new to take over.”
Go First’s problems, which forced it to delay its planned $440 million IPO in 2021, saw its market share erode to 6.9% in March from 8.4% in January, the latest data from India’s aviation regulator showed.
The Wadia Group had been reported to be in talks to either sell its majority stake or exit its shareholding altogether. Wadia Group did not respond to an email seeking comment.
Go First said the groundings had driven some lessors to “take back aircraft, draw down letters of credit and notify further aircraft withdrawals.”
Employees were caught unawares when they first heard about the halt in daily operations from local media, according to three pilots who did not want to be named. They have been receiving their salaries with delay for the past few months, the pilots added.
“We understand that this news is likely to be troubling, and we remain committed to offering our support to all of you during this difficult time,” Go First later said in an email to employees.
($1 = 81.7420 Indian Rupees)
Reporting by Varun Vyas in Bengaluru; Editing by Savio D’Souza
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