Just a week after Reserve Bank of India (RBI) Governor Shaktikanta Das said that bad loans of Indian banks have fallen substantially to 4.4% of total assets, Wadia Group-owned Go First filed for bankruptcy.

This has put lenders in active meetings on Wednesday as the exposure to the airline is Rs 6,521 crore. 

Though the budget carrier has not defaulted on any of its loans till April, it has said that defaults to financial creditors would be imminent due to its prevailing financial situation. 

“Considering the present financial situation of the corporate applicant, defaults to financial creditors would be imminent,’’ Go First (earlier known as Go Air) said in its insolvency filing with the National Company Law Tribunal (NCLT).

The financial creditors of the airline include Central Bank of India, Bank of Baroda, IDBI Bank and Deutsche Bank.

As per the NCLT filing, Central Bank of India had an exposure of Rs 1,300 crore. Quoting an official from the bank, Reuters reported the total exposure of the lender at Rs 2,000 crore.

Bank of Baroda’s exposure is around Rs 1,400 crore and IDBI Bank’s about Rs 50 crore.

Axis Bank clarified that it has no outstanding exposure to the airline.  "As on date, Axis Bank has nil (fund-based and non-fund based) outstanding from Go Airlines,’’ the bank told the stock exchanges.

The possibility of banks taking a deep haircut looms large. Reviving Go First would be difficult and the Indian aviation sector could move towards a duopoly led by IndiGo and the Tatas, analysts said.

The collapse of Jet Airways is fresh in the minds of lenders. The existing airline operators are also unlikely to participate in the bankruptcy process.

Go First's total liabilities to all creditors, including banks, financial institutions, vendors and aircraft lessors, stand at Rs 11,463 crore.

"Currently, the assets of the company are not sufficient to meet its liabilities," Go First said in the filing.

Go First has defaulted on payments to operational creditors. These include Rs 1,202 crore to vendors and Rs 2,660 crore to aircraft lessors. The airline, suffering cash crunch, had also received notices from lessors for termination of aircraft lease agreements and some have started actions against the company to ground or repossess aircraft, the filing said.

Six lessors have invoked letters of credit issued to them by lenders, it said.

Stocks of the lenders came under pressure on Wednesday as investors feared the banks would have to take a haircut. While Central Bank of India lost 5.13%, Bank of Baroda shed 1.86%, IDBI Bank 1.76% and Axis Bank 1.22%.

Meanwhile, NCLT will hear Go First’s voluntary insolvency resolution plea on Thursday.

Lenders’ options

Lenders could go for debt recast while stopping additional finance to the airline. This will make it difficult for Go First to source fresh credit.

Banks may agree to extend the tenure for repayments.

Wadias not to exit

The Wadia Group has said that it has no intention to exit the airline business while blaming US company Pratt & Whitney's "faulty engines" for the current fleet crisis.

The airline has also announced that it would suspend all flights for three days from May 3 to May 5.

“The Wadia group, in particular Nusli Wadia, has always tried to see that the company and the airline operations go on, on a normal basis, in spite of the fact that we are completely disabled to that extent by Pratt & Whitney,” the airline’s CEO Kaushik Khona told Reuters.

“There is no question of Wadia group having any intention to exit or move out.”

“The Indian government is very keen we should not fail,” Khona said.

On insolvency filing, the airline in a statement said: "Go First has had to take this step due to the ever-increasing number of failing engines supplied by Pratt & Whitney’s International Aero Engines, LLC, which has resulted in Go First having to ground 25 aircraft (equivalent to approximately 50% of its Airbus A320neo aircraft fleet) as of 1 May 2023. The percentage of grounded aircraft due to Pratt & Whitney’s faulty engines has grown from 7% in December 2019 to 31% in December 2020 to 50% in December 2022. This is despite Pratt & Whitney making several on-going assurances over the years, which it has repeatedly failed to meet."

It also said if Pratt & Whitney were to comply with the orders in the emergency arbitrator’s award, the airlines would be able to return to full operations by August/September 2023.

"Go First deeply regrets the current situation, which has forced it to apply to the NCLT. With Pratt & Whitney failing to abide by the directions in the emergency arbitrator’s award by providing spare leased engines, and with further engine failures expected in the next 3-4 months, the operations of Go First will be made unviable," the company said.