3 Reasons Why Go First was forced to file for bankruptcy

by B2B Desk 2023-05-03 06:38:28

Go First recently made headlines by filing for bankruptcy under Section 10 of the Insolvency and Bankruptcy Code (IBC). This is a rare move for a prominent company to file for self-bankruptcy, and it has raised several questions about the airline's financial health. In this article, we will explore the three main reasons why Go First was forced to take this drastic step.

1. Engine Failures Ground Half Its Fleet - Pratt & Whitney Under Fire

Go First was forced to suspend operations and cancel all flights on May 3rd and 4th due to engine failures that grounded 25 of its aircraft, equivalent to 50% of its fleet. Go First CEO, Kaushik Khona, claims that Pratt & Whitney, the engine manufacturer, has refused to comply with an arbitration order issued by the Singapore International Arbitration Centre. Go First has filed a case against Pratt & Whitney in a U.S federal court in Delaware.

Go First flight from Bengaluru takes off without 50+ passengers, allege flyers | Deccan Herald

Go First flight from Bengaluru takes off without 50+ passengers, allege flyers | Deccan Herald

2. Protecting the Company from Legal Actions - Section 10 of the IBC

By filing for bankruptcy under Section 10 of the Insolvency and Bankruptcy Code (IBC), Go First has initiated a corporate insolvency resolution process to protect itself from legal actions by its creditors. Once the application is admitted, the moratorium kicks in, preventing any recovery action against the company by its creditors.

3. Cleaning Up the Balance Sheet - Maximizing Value for Stakeholders

Through the bankruptcy process, Go First can address its financial problems and liabilities, including writing off or restructuring its debts, getting rid of unprofitable business units or assets, and reorganizing its operations to improve efficiency and profitability. The ultimate goal is to achieve a resolution that maximizes the value of the company for all stakeholders involved, including its shareholders, creditors, and employees.

Fun Fact: Go First was planning for an IPO in July 2022 amid the global air travel slowly rebounding. But it came as a shock for the industry as it filed bankruptcy now.

While the bankruptcy process may help Go First in the short term, the future remains uncertain for the airline. It's unclear if the company will be able to find a buyer or if its lenders will oppose the filing. With the aviation industry already facing significant challenges, the demand for airlines may not be strong enough for Go First to find a buyer. The debt for banks is approximately 5600 crore rupees, and the next action will be in the courts.

Go First's decision to file for bankruptcy was not an easy one. The airline has been facing several challenges, including technical issues, passenger inconvenience, and financial troubles. These challenges have made it difficult for the airline to meet its financial obligations, which has forced them to take this drastic step. It remains to be seen what the future holds for Go First, but one thing is clear: the airline industry is facing unprecedented challenges, and companies will have to adapt to survive in these difficult times.

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