Lenders reject Go First’s pleas for undrawn funds

Lenders to the distressed Go First airline have rejected pleas by its management to release undrawn funds to
the company citing processes to be followed under the Insolvency and Bankruptcy Code (IBC).Banks have informally conveyed to the airline that any release of funds will now be subject to approvals from all lenders through a committee of creditors (CoC) meeting later next week, people aware of the development said.

Go First has undrawn limits of about Rs 200 crore under the government’s emergency credit line guarantee scheme (ECLGS), which was introduced to support sectors like travel and tourism that were hit hard by the Covid-19 pandemic disruptions, they said. The banks’ decision not to release more money is likely to further delay any chances of the airline resuming operations.

“As far as banks are concerned, this company has now entered insolvency and hence is not a standard account,” a person familiar with the process told ET. “So, the question of releasing any more funds does not arise. Any decision of releasing any funds will be collectively taken by lenders when they meet in a CoC after evaluating the company’s position and taking the resolution professionals inputs into account,” the person said.

Go First owes an aggregate of about Rs 11,400 crore, of which Rs 6,520 crore are owed to financial creditors, court documents filed by the company in early May show.

Central Bank of India has Rs 1,987 crore outstanding loans including about Rs 650 crore of post-Covid emergency lines. Other large lenders include Bank of Baroda (Rs 1,430 crore) and Deutsche Bank (Rs 1,320 crore), which have lent mostly in foreign currency abroad.

“Go First has undrawn limits of about Rs 200 crore under ECLGS mostly through Bank of Baroda and also including Central Bank of India and IDBI Bank,” said a second person aware of the matter. “It is this money that the company wants released because it will help it restart operations. But banks are not inclined to give in,” the person said.

Emails sent to lead lender Central Bank of India and Bank of Baroda did not elicit a response until press time Wednesday. Go First and resolution professional Abhilash Lal, too, did not reply to separate emails seeking comment.

Bankers said the issues with the airlines are mostly to do with Pratt and Whitney (P&W) engines, which led to the grounding of half the airline’s 56 A320 Neo aircraft fleet.

“So, it’s not that funding will solve the airlines problems. The key is to resolve this engine issue,” said the second person cited above.

Meanwhile, a person close to the company said Go First does not require immediate funds after the promoters had infused Rs 300 crore in the company a few days before filing for voluntary insolvency in April.

However, continuing business was unsustainable as the airline would not be having any opportunity to increase capacity in a peak season which will increase losses, the person said. “Resumption is meaningless unless it ensures profitability. Losses cannot increase in between an insolvency process,” this person said.

The airline had earlier informed its pilots that it intended to restart business in the last week of May, but has subsequently cancelled flights till June 4.

Go First has filed a lawsuit against the US-based P&W in a Delaware federal court, seeking enforcement of an arbitration award that directed the engine maker to provide the airline with engines, failing which there is a risk of the carrier shutting down. However, last week the engine maker’s counsel told the court that it has no engines available to be sent to Go First as the leases have been terminated and that the airline has no right to them.

Civil aviation regulator DGCA had earlier directed the airline to immediately stop ticket sales and asked to submit a resumption plan with a number of available aircraft and pilots.