Go First bankruptcy | Pratt & Whitney: Go First CEO blames Pratt & Whitney for bankruptcy; sees huge potential to revive and operate again

Well, we were reading a lot of brokerage notes this morning and the biggest question they were asking is will Go First fly again? What is your take on that? Also the Street was a bit surprised given the fact fund infusion was made by promoters 10-15 days ago. What changed materially in the last 15 days?
Thanks for the opportunity to explain what happened. Well, I believe – and that is the reason why we have filed an application under Section 10 – that Go First has a huge potential to revive and operate again very soon. We are confident because a) we have been working with the best operating parameters comparable to the industry and we were only affected by the non-availability of engines by Pratt & Whitney. Had Pratt & Whitney complied with their obligations under the contract, we would not have faced this problem for the last three years. Had Pratt & Whitney, even after not complying with the obligation under the contract, had complied with the arbitration award, which we were forced to go into and which was rendered on March 30, we would have been home and growing our operating fleet.

I hope you are aware but I would just like to give you some short summary of what happened. In March, we applied for emergency arbitration because Pratt & Whitney was not complying with any of the contractual obligations. Finally, we got an award which was very favourable and it also was very clear and unambiguously asked Pratt & Whitney to provide 10 serviceable leased engines per month starting from April 20.

Just to give you a context, immediately after that, Pratt & Whitney wrote to the arbitrator that they will comply with the order in full. That gave us a lot of confidence that finally Pratt & Whitney, which is a part of the $150-billion Raytheon group, and which has exposure in defence and aerospace, would now comply with the award. That is why the promoters committed further funds apart from what they had committed earlier. They gave another Rs 290 crore in the last 10 days of April.

Finally, in spite of what Pratt & Whitney said, when we found that it was trying to find loopholes, again we went to the arbitrator who gave a confirmation that Pratt & Whitney should not only give 10 engines as per the past order for every month, but also induct the 20 engines which are lying with them in their MRO for last more than eight to nine months. Further, they should pick up the 44 failed engines which are lying with us in India and that also should be inducted soon.

Having got this award and that too with a clear finding that no security was required from Go First, Pratt & Whitney was obliged to follow that order. When we found that it was trying to deny to abide by that, we went again and got a fresh order and that also was favourable. So we thought that by April 20, they will provide the 10 engines and that is the reason why promoters were committed – and they still are committed – and provided Rs 290 crore in the last 10 days. After having seen that Pratt & Whitney is trying to again defy, we had to go for the process of what we already filed and simultaneously we also filed for the execution of the award and the US Delaware court has admitted and issued a notice to Pratt & Whitney to comply within three days by Friday or reply.

The turn of events which has happened since April 28 has pushed us to file this application and the board of the directors of our company after evaluating various options have found it necessary that this Section 10 is required. Otherwise the Pratt & Whitney issue may also affect the other events of the company including the aircraft which are available with us. That is the reason why this action has been taken and I would be happy to explain that Section 10 is actually a process whereby we are trying to find a resolution to see that the issues which have affected us due to Pratt & Whitney are getting resolved and till that time we get some relief as a moratorium which is part of the IBC process.

Were there any other operational issues other than the Pratt & Whitney engine issues because given the fact that the aviation industry is going through very strong times with high fares and strong domestic demand, why was such an extreme decision of shutting the operations taken? Could not the promoters infuse some more funds and wait for the engines to come in?
That is a very relevant question which everybody perhaps would have in their mind but I would just like to give you a little context. Pratt & Whitney has been defying their obligations since the last three years. It is not that and we have been quite patient, we have been quite cooperative with them. They were trying to represent that there are some issues but finally we need our engines. In the meanwhile, the promoters had to fund the liquidity gap and they funded Rs 3,200 crore in the last 24 months. In this process, Indian aviation went through very difficult times. The Government of India came up with the ECLGS scheme and we were one of the beneficiaries of that scheme where we got a sanction of Rs 1,500 crore, of which we have already drawn Rs 1,300 crore.

So effectively, the promoters and the bank through the government support have infused almost Rs 4,500-4,600 crore in the last 24 months. The promoters have never defied or denied that they would infuse further funds but the question is for how long? Will the promoters continue to fund the losses because Pratt & Whitney is not giving engines? It is not the end, it is a static position. The engines keep on failing. Today I have only 27 operational aircraft, out of a total fleet of 55 and tomorrow with the kind of performance issues, the further engines will fail.

If I have a depleting fleet, the losses will increase further and therefore it is necessary that Pratt & Whitney provides the engines which they are obliged to provide in any case. The matter was debated and discussed for almost three board meetings in the last five-seven days.

Finally, after taking consultation of various experts, the board decided and evaluated various options. They decided to protect the company as lessors are also getting a little impatient as to why the engines are not coming. Therefore, we decided that we should at least protect the company and not let the situation falter further. That is the reason why we thought it is necessary to take this position.

For an airline, slots are one of the most priced assets. Is there any arrangement with the Government of India that you will get them back as soon as you start your operations or will these slots be given to any other airlines for now?
Effectively in India, right now we have 55 aircraft and therefore we have a parking slot for all the 55 aircrafts. We also have operational slots for the flights which we operate. The slots are not taken away immediately just because I cancelled the flights for two days or five days. The slots are basically an enabling for any airline to plan its affairs for a long-term basis, and therefore, I do not expect or I do not foresee that the slots being taken away.

I would say it is a force majeure issue which has affected us and therefore we firmly believe that the airport operators would not take away the slots as it is a temporary issue and we will be able to resume the operations very soon. We are not looking at the grounding of the aircraft or the fleet forever.

For now, you have stopped taking any ticket bookings till May 15. But it is highly unlikely that the issue would get resolved by that date. So, any timelines that you have planned that at least by this date this issue needs to get resolved and we need to get back on flying again?
We are hoping that operations will resume soon and therefore, we are taking short-term calls. And once we get a NCLT order, we will be again taking a call as to when we can resume immediately, subject to the process which has to be followed. Therefore, we have taken a call right now till May 15. However, we understand that we will be reviewing the position every three to four days, looking at the emerging situation on how the applications have been now treated under NCLT.

We will be keeping not only the travel partners, but we will be keeping all of our passengers also informed as to how we are planning and how the operations can resume once we get the order.

I am sure you are talking about a best-case scenario wherein we are expecting a resolution to happen. But in the five to seven days you talked about, with multiple board meetings happening, what was the worst-case scenario that was discussed? How long can the airlines stay grounded because the Street is worried if it is going to go the Jet Airways way?
Well, I do not think that is the situation right now because we have been operating under the most efficient parameters and the least cost. So, we are not building up the cost. We are trying to remain within the affordable limits. You have a very relevant question. How long can this take place? Well, obviously, it is subject to the process. I cannot comment on whether it will take one week or one month, but I am looking at the criticality of the situation, I am sure we will be able to perhaps take this sooner than later. We will update with the progress which we will have.

So, the debt is around Rs 6500 crore. Should the lenders be worried? Is there any promoter guarantee towards this debt?
I think all the bank loans are not only secured by the company assets, but what is more relevant is that over and above the company assets, the bankers have a collateral in the form of unencumbered land of more than 94 acres in a prime location in Bombay which is valued at a significant amount. If at all it comes to the situation of recovering the money, the banks are completely covered and I do not think banks are therefore concerned and should be concerned. Earlier the value of this asset was assessed at around Rs 3,000 crore. I believe with the recent changes in the real estate and the improvement in the development potential, the value will be further increased. If we were to securitise that, it will be more than the bank exposure.

But the worry is also that the lenders have been caught a bit unaware because they have not made any provisions. They did not have any inkling of perhaps the operations being halted, at least at this point of time. Have you been servicing your debt regularly? Could you talk to us about what is due and what is the expectation with respect to servicing that debt?
First of all, almost all the major bank loans. except for the ECLGS, are working capital facilities. There is only the interest which is to be funded or serviced every month. The repayment pressure is very limited. The repayment is only in respect of the ECLGS and that also has a moratorium of two years and balance repayment has to be done in four years. The present monthly repayment is only in the range of around Rs 50 lakh, 60 lakh.

First of all, the repayment pressure is not significant. If we talk about the bank’s future liability for the next two to three months, that is, limited to the interest and the repayment exposure which is small. I believe that if the resolution process is immediately started, we will be able to at least meet those demands once we start operations. Although it all depends on how soon we are able to get the engines because finally, to be viable, engines are the key.

We continue to fund through the promoters’ fund, through the government guaranteed ECLGS fund, but as a long-term viability, engines are required and if Pratt & Whitney comes back and honours its contract and its award, that should be a better way to work.

Want some clarification on the land assets that you were just talking about. Has this guarantee been given by the Wadia Group promoters or Bombay Burmah, which is a separately listed company?
No, it is all Wadia Group promoters. There is no public limited company exposure on guarantee. Basically, it is a security and it is a privately held land into a separate SPV, which has no other exposure, no other liability and therefore it is a completely clean security provided to the banks.

Now we have data of around Rs 6,500 crore plus operational credit. What are your expectations from NCLT?
I think it will be too premature for me to think about it. We are right now trying to get the revival of the operations sooner. The immediate task is to get the Pratt & Whitney engine and therefore, we are going all out to see that the award gets executed and the engines are available, which will be the surety to at least the airline becoming more sustainable in the long run.

What are the various options available when you are talking about the resolution? Is a stake sale by the promoter on the cards? Are you looking for any strategic investors? Are you reaching out to other airlines?
Frankly, it is not my resolution plan. It is not the company’s resolution plan. We will be going by the process. Section 10 means the company and the promoters are willing to give away the management to the resolution professional and the promoters have therefore shown their willingness that if there is anything which requires as per the resolution and as required and authorised by the committee of creditors, which is a normal process, the promoters are willing to take any call on this matter.

Right now, it will be a little premature for me to give any kind of resolution plan because it is still early days. It is not even admitted. So let us take the process step by step. The first step we expect is the admission and then the resolution professional has to take a call. By that time, as a company, the most important thing for me is Pratt & Whitney engines award and its execution.

Does NCLT really have powers over Pratt & Whitney because the Singapore arbitration was already out and it was already in your favour. What is now needed to get Pratt & Whitney to honour their commitments or the arbitration because I am not sure if NCLT would have any legal sanctity over Pratt & Whitney?
No, what we are doing at is execution of the award in the respective jurisdiction. The first jurisdiction as I already told you is that we have filed this award for execution with the Delaware court in the US. We are identifying various other jurisdictions which can be spread across various jurisdictions in the US, Europe and Japan. Therefore our endeavour will be to get execution done through those jurisdictions and get the engines because ultimately there are three sources of getting engines; one is the spare lease engines. Second are our own repaired engines and third is the sale engines because ultimately Pratt & Whitney, in its own admission, have also mentioned that they are going to provide for more than 40 engines for the spare during this calendar of 2023. We have to therefore pursue that by way of execution of their own.

India must be a bigger customer for Pratt & Whitney overall because there are many other airlines which are using those engines. Have you spoken to the government of India or are you expecting any support from the government of India to resolve this issue?
Well, the government has been very supportive. I would not like to deal into what discussions we had on the Pratt & Whitney issue but I would really acknowledge the fact that the government has been very proactive. They have been trying to see if things can be resolved very soon. I really give huge credit to the entire ministry for helping us on this whole process. I believe that the process is more to do with the kind of corporate governance of Raytheon Group and I hope that they come to senses.

We understand that Pratt & Whitney engine issue is one of the major reasons why the company has shut its operations. But lack of funds is also one of the reasons why the company’s promoters are not willing to put in more funds and hence the company cannot operate going forward. How is your case different from the Jet Airways situation that we had seen earlier?
There is one thing which we should perhaps analyse and understand. The aircraft on ground has been in the range of around 35% for the last two years 2020-21 and 2021-22. If you look at 2020 to 2023 on an average, it has been 40%. In the last six months, it has been more than 40%. If I have a fleet which is supposed to operate and I have 40%-50% of the fleet grounded, it is impossible to make money and therefore, the fund issue is a separate issue. The fund issue has been created by Pratt & Whitney engine issue.

Had Pratt & Whitney not behaved like this and complied with their obligations in time, this issue would not have arisen and we would have been far more profitable. I would just like to give you an indication as to what is the impact of this loss because of the engines. A very well known firm has evaluated the loss which we have suffered till date starting from June 2020. April-May 2020 was anyways non operational period. Even if we calculate from June 2020 till date, we have lost almost $1 billion because of the aircraft on ground compensation, which we should be getting.

So the losses are tremendous and it is only because of Pratt & Whitney. I do not think there is any different reason for losses, and if at all, we had these engines available, we would have been far more profitable; the claim of compensation alone is around Rs 8,000 crore. So it is a huge dent on Indian aviation caused by Pratt & Whitney. You also referred to some other airlines in India, I would not like to comment on it but the fact is, based on Pratt & Whitney performance, I think every airline in India has been suffering.