Cash-strapped Indian airline Go First filed for bankruptcy on Tuesday, blaming "faulty" 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 2019, and underscores the 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 those dues as of April 30, but had defaulted on payments to operational creditors, including 12.02 billion rupees to vendors and 26.60 billion rupees to aircraft lessors, it said in the filing.
In a statement, Go First said its filing followed a refusal by Pratt & Whitney, the exclusive engine supplier for the airline's Airbus A320neo aircraft fleet, to comply with an arbitration order to release spare leased 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 revenues and additional 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 complying with the March 2023 arbitration ruling related to Go First. As this is now a matter of litigation, we will not comment further," it added.
In February, the boss of Raytheon Technologies (RTX.N), which owns Pratt & Whitney, acknowledged that its GTF engines had had reliability issues.
Pratt & Whitney has also been quoted in Indian media as saying it was affected by industry-wide supply chain pressures and that it expects those to ease later this year, which would support increased output of new and overhauled engines.
Analysts have said bigger rival IndiGo has been able to withstand the impact better, thanks to its larger fleet and a deeper pocket.
Go First, owned by the Wadia Group and formerly known as GoAir, said on its website that it had cancelled flights scheduled for May 3 to May 5 due to "operational reasons".
"The government of India has been assisting the airline in every possible manner," India's Civil Aviation Minister Jyotiraditya Scindia said in a statement. "The issue has also been taken up with the stakeholders involved."
The collapse could boost rival airlines as the industry tries to meet a surge in post-pandemic air travel.
"The sudden disruption in operations is likely to benefit other players and increase airfares due to supply constraint," wrote Jinesh Joshi, a research analyst with Prabhudas Lilladher.
SURPRISE MOVE
The move took Go First's lenders by surprise, two bankers aware of 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 am a little stunned to hear of them file for bankruptcy," said Mark Martin, CEO at aviation consulting firm Martin Consulting LLC. "I still feel that this might not be the end of Go First. This must be a vehicle and a means for somebody new to take over."
Go First's problems, which forced it to delay its planned $440 million IPO in 2021, led to an erosion in its market share to 6.9% in March from 8.4% in January, latest data from the Indian aviation regulator showed.
The Wadia Group had been reported to be in talks to either sell its majority stake or completely exit its shareholding. Wadia Group did not respond to an email seeking comment.
Go First said the groundings had driven some lessors to "repossess aircraft, draw down letters of credit and notify further withdrawal of aircraft."
Employees were caught unaware as they heard about the halt in daily operations first from local media, according to three pilots who did not want to be named. They have been receiving their salaries with a delay for the past few months, the pilots added.
"We understand that this news is likely to be distressing, and we remain committed to offer our support to all of you during this difficult time," Go First later said in a email to employees.
($1 = 81.7420 Indian rupees)
