Go Air / Go First - Lessors win against DGCA, or have they?

Legal Eagles rejoice (especially so for enforcement of Cape Town Convention rights), but with supply chain constraints these planes may still be going nowhere fast.

**Nothing in this article is intended to be or should be construed as legal or financial advice**

2005 - Engine & Pandemic Woes

Go Air (rebranded Go First) was once a promising low cost carrier founded by Wadia Group and was profitable between 2012 to 2018. However, over-reliance on PW engines which turned out to face a multitude of technical challenges and COVID-19 conditions crippled the airline.

May 2023 - A Moratorium to Seek Rescue Financing

Go First ceased flight operations on May 3 following the submission of an insolvency application to the National Company Law Tribunal. On May 10, the tribunal imposed a 330 day moratorium on the airline’s assets, effectively preventing lessors from reclaiming their approximately 45 aircraft (and engines on them) from the carrier. https://www.business-standard.com/companies/news/scarred-egregious-global-lessors-express-frustration-over-go-first-case-124022701077_1.html

July 2023 - P&W Matters Complicate

Singapore International Arbitration Centre award had directed P&W to dispatch around 20 engines to Go First by December 2023, but PW subsequently challenged it citing payment failure by the airline and the ongoing global supply chain shortage. P&W also claimed that the airline owes it over $100 million.

July 2023 - Lessors Step in to Maintain Aircraft

Delhi HC On July 5, 2023, the court had permitted the lessors to carry out inspection and interim maintenance tasks of their aircrafts, twice a month until final disposal of their pleas to de-register their planes from the airline.

Sept 2023 - India’s jurisdiction risk is Highlighted

Aviation Working Group (AWG), a UK-based non-profit organization that monitors global aircraft leasing practices and laws, has downgraded India in its compliance rating following the disputes of Go First with its lessors. India's score has now come down to 2 from 3.5 out of 5. https://simpleflying.com/india-rating-aviation-working-group-downgraded/

October 4, 2023 - Moratorium regulations now exclude Cape Town rules

The Ministry of Corporate Affairs issued a notification exempting transactions concerning aircraft, aircraft engines, airframes, and helicopters from section 14(1) of the Insolvency and Bankruptcy Code, 2016 (IBC). In response, the DGCA filed an affidavit in the Delhi High Court, affirming that the notification exempting aviation leases from the moratorium under the IBC should also apply to pending cases.

January to Early April 2024 - Debt Moratorium is Extended

Go Air’s lenders sought a moratorium extension by 60 days (beyond the original 330 day moratorium mentioned above) which was approved by the National Company Law Tribunal in early April 2024, impeding Lessor’s attempts to deregister and export their aircraft.

26 April 2024 - The Final Episode?

Delhi High Court issues decision confirming that:

• Cape Town Compliant Deregistration & Export - DGCA is required to process the deregister action applications within the next 5 working days. DGCA’s prior refusal to deregister and export the aircraft (in conflict with the provisions of the Cape Town Convention) can now be ignored

• Maintenance Tasks for aircraft will be handled by lessors until deregistration and export

• Resolution Professionals must provide up to date information on the aircraft

• Airport Authorities are to notify dues owed to Lessors within 3 days

• Lessors who previously did not seek deregistration and export are not prevented from seeking remedies now.

For a full copy of the latest Delhi HC judgment rendered on 26 April 2024, drop us an email at HL@huilinglawoffice.com

Beyond 24 April 2024 - Even with deregistration and export rights now fully exercisable, Lessors may still struggle to find over 100 PW-GTF engines to fly these aircraft out. It is estimated that some of these engines have a waiting period of 14 months to gain access to.

Therefore even while the judgment is being hailed as a big win for Lessors, the great expectation and solution of the Cape Town Convention being a non-court assisted and almost guaranteed route of seizing a secured asset has in reality, turned out to be much more difficult.

💡Notably, for risk, pricing and legal teams, the AWG’s jurisdiction compliance rating is only 1 guiding point to the risk in a particular jurisdiction. We must learn from this experience and include in our risk assessment:

• whether there are MRO services for all critical aircraft components based on the engine selections made

• Risk and known issues with particular engine types

• Whether carrier’s own order books or lessor’s order books contain rights to swap one engine type for another if technical issues arise, and any liquidated damages impact that may arise for early termination of a purchase order

• Regardless of what the lease agreement states pertaining to lessee’s responsibility to maintain the aircraft until termination of the leasing of the aircraft, an insolvent lessee could well continue in breach of such obligations (hence again highlighting the importance of accessible MRO services)

💡With new engine types coming into reality, open-fan blade designs, alternative propulsion (eg. Hydrogen / Hydrogen - Electric) and scarcity in supply of SAF, SAF credits and the certainty of oncoming SAF mandates, more factors come into consideration.

Merely living in the idealistic assumption that the Cape Town Convention + reliance on a jurisdiction risk analysis as a cure-all is a naive state of mind many legal advisers continue to live in.

We now have to look beyond the present to be prepared for the shifting nature of:

• import export control (especially since aviation components can sometimes be dual-use civilian and military)

• Supply chains

• Fuels, alternative fuels, electric charging infrastructure

• MRO services availability

These questions are particularly challenging within developing economics and within the APAC region where MRO services and support infrastructure can be patchy. That said, APAC continues to be the anticipated growth engine for the world in the coming years, at Beyond Horizons, we prepare you to seize the opportunities that the APAC region has to offer.

**Nothing in this article is intended to be or should be construed as legal or financial advice**