Aviation leasing body cuts India's rating amid Go First dispute

Aviation Working Group, a global watchdog representing aircraft makers and leasing firms, has downgraded India's compliance score citing delays in the Go First insolvency proceedings that have prevented lessors from taking back possession of their aircraft.

India's projected compliance category rating has been downgraded to 'low' based on action and inaction in the Go First insolvency proceedings resulting in delays on creditor rights materially beyond those committed under the Cape Town Convention, says AWG.

This is the second time that AWG has cut India's rating and kept the country on a watch list with a negative outlook. AWG issued an updated watch list notice (update 2) for India under the Cape Town Convention (CTC) compliance index, materially lowering India’s compliance category and score.

AWG, a not-for-profit entity comprising aviation manufacturers, leasing companies and financial institutions, says that a further positive change to this rating and scoring requires the adoption and implementation of express primacy legislation, which clearly overrides conflicting provisions in the Indian Bankruptcy and Insolvency Code.

Go First's lessors faced a major setback after the National Company Law Appellate Tribunal (NCLAT) upheld the initiation of insolvency proceedings against the low-cost carrier. The admission of Go First's voluntary insolvency by NCLT Delhi had brought the airline's assets under moratorium. Lessors are seeking de-registration of 54 aircraft operated by Go First.

In May, India's aviation regulator, the Directorate General of Civil Aviation (DGCA) temporarily put on hold requests from lessors to repossess planes from cash-strapped Go First as the airline's insolvency proceedings impose a freeze on such assets.

Go First filed for bankruptcy with the National Company Law Tribunal (NCLT) on May 2, citing the ever-increasing 'failure' of Pratt & Whitney engines that power its fleet. By May 1, the low-cost carrier had grounded its 25 aircraft, or around 50% of its Airbus A320neo fleet, due to 'failing engines' supplied by Pratt & Whitney's International Aero Engines. "The percentage of grounded aircraft due to Pratt & Whitney’s faulty engines has grown from 7% in December 2019 to 31% in December 2020 to 50% in December 2022," the budget carrier said, adding it lost ₹10,800 crore in revenues and additional expenses.

Go First claims it was forced to file for insolvency at the NCLT after Pratt & Whitney refused to comply with an award issued by an emergency arbitrator. The order directed Pratt & Whitney to release and dispatch without delay at least 10 serviceable spare leased engines to Go First by April 27, 2023, and a further 10 spare leased engines per month until December 2023. Go First's lessors, including Pembroke Aircraft Leasing, SMBC Aviation, GY Aviation Leasing, Jackson Square Aviation and BOC Aviation have initiated separate legal action to repossess their planes.