Go First vs Aircraft Lessors: Who Will Have the Last Word?

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India’s aviation sector is the third largest in the world, after the United States and China. It is a major driver of economic growth, and is expected to continue to grow rapidly in the coming years.

One of the key factors driving the growth of India’s aviation sector is the increasing popularity of aircraft leasing. In India, 80% of commercial aircraft are leased, compared to the global average of 53%.

There are a number of reasons why airlines in India prefer to lease aircraft rather than buy them. One reason is the cost of buying an aircraft. A new aircraft can cost hundreds of millions of dollars, and airlines often do not have the cash on hand to make such a large purchase. Leasing an aircraft allows airlines to spread the cost of ownership over a longer period of time, making it more affordable.

Another reason why airlines lease aircraft is flexibility. Leasing allows airlines to quickly adjust their fleet size to meet changes in demand. For example, if an airline sees an increase in demand for flights to a particular destination, it can lease additional aircraft to meet that demand.

Finally, leasing can provide airlines with access to the latest technology. Airlines that lease their aircraft can often get the latest models, which are more fuel-efficient and have a longer range. This can help airlines to reduce their operating costs and improve their environmental performance.

The Case of Go First

In recent months, the Indian aviation sector has been rocked by the bankruptcy of Go First, one of the country’s largest airlines. Go First filed for bankruptcy in May 2023, citing financial difficulties. The airline’s bankruptcy has had a ripple effect throughout the Indian aviation sector, as lessors have begun to repossess aircraft that were leased to Go First.

The ongoing dispute between Go First and its aircraft lessors is a complex one, with no easy answers. On one side, Go First is arguing that it is not in default on its lease payments and that the lessors are trying to take advantage of the airline’s financial difficulties. On the other side, the lessors are arguing that Go First has breached its lease agreements and that they are entitled to repossess the aircraft.

The case is currently being heard by the National Company Law Tribunal (NCLT), and it is unclear how the tribunal will rule. However, the outcome of the case could have a significant impact on the Indian aviation industry.

If the NCLT rules in favor of the lessors, it could make it more difficult for Indian airlines to lease aircraft in the future. This could lead to higher airfares and could make it more difficult for airlines to compete with foreign carriers. If the NCLT rules in favor of Go First, it could set a precedent that would make it more difficult for lessors to repossess aircraft from airlines that are in financial difficulty. This could make it more risky for lessors to do business with Indian airlines, and it could lead to higher lease rates. The outcome of the case could have a significant impact on the Indian aviation industry.

Global repercussions

The Go First bankruptcy has also had a ripple effect on the global aviation industry. The global aviation leasing watchdog, the International Air Transport Association (IATA), has put India on a watchlist with a negative outlook. This is due to the fact that the Indian government has not yet ratified the Cape Town Convention, an international treaty that would make it easier for lessors to repossess aircraft in the event of bankruptcy.

The ratification of the Cape Town Convention would be a major step towards resolving the dispute between Go First and its aircraft lessors. It would also send a positive signal to the global aviation industry that India is committed to creating a fair and predictable legal environment for aircraft leasing.

The Go First bankruptcy is a major challenge for the Indian aviation industry. The outcome of the case could have a significant impact on the industry, and it is important for the Indian government to take steps to resolve the dispute and to create a more favorable environment for aircraft leasing.