Hope is fading for lenders to Go First as Jindal Power Ltd, the only company whose interest in taking over the airline has been accepted by creditors, has reportedly decided not to bid.
After this, the chances of the airline heading for liquidation are high, jeopardizing over Rs 6,500 crore of loans extended by lenders.
The Central Bank of India, Bank of Baroda, IDBI Bank and Deutsche Bank are among the airline’s main creditors.
The Committee of Creditors is likely to meet on Wednesday to decide the future course of action, reports said.
Tenants do take planes
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 may open the door for lessees of bankrupt budget carrier Go First to repossess their planes. Go First filed for bankruptcy in May, and its lessors have faced hurdles in repossessing planes due to a moratorium imposed by Indian courts. This situation has garnered the attention of the world’s second largest lessor, SMBC Aviation Capital, which has 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 much-anticipated move, India amended its insolvency law in October, with the primary aim of harmonizing global and local regulations to support the growth of its rapidly expanding airline sector and address differences that have caused problems, 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 protects the rights of foreign landlords, particularly significant after the Go First bankruptcy dispute.
More success
If Go First’s situation goes according to Jet Airways and its bankruptcy proceedings drag on for a prolonged period, it could potentially cost banks around Rs 3,000 crore. This assessment 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 buying the airline until September 28. However, investors are waiting for the solution of the legal issues before committing. The airline promotes its available slots, operational aircraft and valid aircraft orders as attractive propositions for potential investors. It also filed an arbitration case against Pratt & Whitney, seeking $1.2 billion in damages for alleged defective engines. Although the outcome of this arbitration will take time, it could affect the airline’s valuation.
Go First’s road 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 complicated nature of bankruptcy proceedings in the aviation industry and the large financial toll they can exact on all stakeholders involved.