An Indian tribunal on Wednesday granted bankruptcy protection to Go Airlines (India) Ltd, a move that will help the country's fourth-largest carrier attempt to revive itself but complicate foreign lessors' efforts to repossess their planes.
The low-cost carrier, recently rebranded as Go First, has said its financial crisis was sparked by what it called "faulty" Pratt & Whitney engines that grounded about half its 54 Airbus A320neos. The U.S. engine maker, part of Raytheon Technologies, has said the claims are without evidence.
The National Company Law Tribunal in New Delhi ordered a moratorium on Go First's assets and leases. It also appointed Abhilash Lal of Alvarez & Marsal as the interim resolution professional who will takeover management of the airline with immediate effect.
Go First's Chief Executive Officer Kaushik Khona, who was present as the order was read, told reporters the decision was "historic".
This is the first time an Indian airline has voluntarily sought bankruptcy protection to renegotiate contracts and debt.
The move could, however, complicate repossession efforts by lessors, which have in recent days filed requests with India's aviation regulator for the return of about 40 Go First planes after rental payments were missed.
India has made it easier for lessors to take back planes if airlines default on payments after joining an international treaty known as the Cape Town Convention. But if bankruptcy protection is granted, those laws supersede lessors' repossession requests.
"Lessors must be very, very concerned right now. The repossession requests will be of no consequence as the insolvency and bankruptcy process has kicked in," said Abhirup Dasgupta, a partner at HSA Advocates who specialises in insolvency law but is not involved in Go First's proceedings.
Go First's lessors include major global names such as Jackson Square Aviation, SMBC Aviation Capital and CDB Aviation's GY Aviation Leasing.
Two advisers to some lessors said there were major concerns that the granting of bankruptcy protection for Go First could force the lessors to embark on lengthy litigation to repossess planes.
The lessors are nervous about getting their assets stuck in the country with no clarity on repossession, said one of the advisers, declining to be identified as they are not authorised to speak to media. The person added that the development could lead to higher lease rates for Indian airlines in the future.
"The next step for lessors is to approach the appelate tribunal ... It will be a prolonged legal battle" said Ajay Kumar, managing partner at India's KLA Legal which is advising some of the leasing companies.