Lessors taking steps to secure aircraft they leased to Go First

With Go First declaring insolvency, lessors are taking steps to secure the aircraft they leased to the airline.

At least two US-based lessors have applied to the Directorate General of Civil Aviation (DGCA) to deregister three Airbus A320 aircraft leased to Go First.

Lessors are also issuing notices terminating the leases as the airline has been struggling to make payments.

On Tuesday, the airline filed an application under Section 10 of the Insolvency and Bankruptcy Code (IBC) in the National Company Law Tribunal (NCLT).

The application will be heard on Thursday. Once approved, a moratorium will kick in that prohibits institution or continuation of suits and recovery of property by an owner or lessor.

“The main concern of lessors is to secure their aircraft before securing their dues. They are reviewing their options should a moratorium be declared. This looks likely now,” said Ravi Nath, managing partner of RNC Legal, which specialises in aviation matters.

“An airline filing for insolvency voluntarily is treated as an event of default in lease agreements and this can result in termination of leases,” an aviation consultant added.

Executives of leasing companies have been in conversation with their legal advisors following Go First management’s insolvency announcement on Tuesday. “We are still assessing the situation,” said an executive of a leasing company with exposure to Go First.

A few weeks ago leasing company AerCap pulled out four of its aircraft from Go First. This was more like a mutual termination of lease.

“Probably the Go First management realised that more and more lessors would want to take back their aircraft. Also, the firm would not be able to sustain operations. They have planes on ground and are obligated to pay lease rent, which is causing a cash crunch. The promoters had two options — pump in more money or declare insolvency. They opted for the latter, which has made lessors nervous. No one saw it coming,” an industry executive said.

Go First did not respond to an email query.

The airline’s insolvency application said that it has defaulted on payments of Rs 2,660 crore to lessors, Reuters said in a report.

It added that the airline has received notices from lessors for termination of aircraft lease agreements. Some have started actions to ground or repossess aircraft.

In an interview with CNBC, the airline’s CEO Kaushik Khona said it has not received intimation from DGCA regarding aircraft de-registration applications. “We are engaged with lessors. They have been very co-operative and realise that this problem has not been created by us,” he said.