According to reports, Indian Oil Corp Ltd. will recover $61.14 million in jet fuel sales to cash-strapped Go First by cashing in bank guarantees, and it is hopeful that it will also recover $6.11 million in recent unsecured sales.
One of the sources stated that, “IOC has already approached the banks for encashment of bank guarantees of 5 billion rupees($61.14 million) and that has been accepted by the banks.”
According to a second source, the Central Bank of India and the government-run Bank of Baroda both offered bank guarantees.
Prior to this Go First had filed for bankruptcy protection on Tuesday, received all of its jet fuel from IOC, the largest fuel supplier in the nation. Go First attributed the grounding of approximately half of its aircraft to “faulty” Pratt & Whitney engines when it filed for bankruptcy protection.
The buyers’ bank guarantees are mainly used by Indian retailers to support their sales of jet fuel to airlines.
After Go First filed for insolvency before the National Company Law Tribunal (NCLT) on May 2, the government-run Indian Oil Corporation Ltd (IOCL) revoked a bank guarantee worth Rs 500 crore given by the budget airline, according to two sources familiar with the situation said.
According to the sources, IOCL, Go First’s sole fuel supplier, has a balance that has not of almost Rs 50 crore at this time.
Due to a serious financial crisis, the airline controlled by the cash-strapped Wadia Group first declared on May 2 that it would temporarily stop flying operations on May 3 and May 4. Later that day, the business disclosed that a “severe fund crunch” had prompted it to submit an application for voluntary insolvency resolution procedures before the NCLT, Delhi.
An official from the OMC stated, “IOCL requested for the bank guarantee to be revoked yesterday (May 2) and it was accepted by the bank. Now only a small sum of around Rs 50 crore.
“Unlike some other airlines which suffered due to corporate governance and mismanagement issues, this seems to be a case of faulty engines. Once that is fixed, the problems can be resolved,” another IOCL official stated.
According to sources, IOCL will decide on future supplies after the aircraft begins operations, but normally in such situations, the corporation chooses a “cash-and-carry” strategy. This strategy calls for the buyer, in this case Go First, to purchase aviation fuel with an upfront payment in order to decrease the risk exposure of the OMC by requiring daily payment of dues.
According to sources, IOCL cancelled the bank guarantee provided by Bank of Baroda, which would have covered the majority of Go First’s current unpaid debts. A question made through email to IOCL and Go First did not receive a response until after this article was published.
“We have a 15-year-long relationship with Go First. We are hopeful that the airline will recover and restart operations and we will get our money since the main problem it seems is the faulty engines,” an IOCL spokesperson stated.
Go First’s CEO, Kaushik Khona, disclosed that on May 3 that the airline has been burning through cash at a rate of about Rs 200 crore per month since November and was unable to continue doing so, forcing it to file for insolvency. The voluntary insolvency of the airline will be heard by the NCLT in Delhi on May 4. As soon as NCLT accepts the application, the airline plans to resume operations.
While the pandemic’s impact on travel and the subsequent increase in fuel prices presented difficulties for most airlines, Go First also had to deal with faulty engines.
Go First was forced to halt half of its fleet due to Pratt & Whitney engines that were considered defective. As fewer aircraft were in service and the airline sought compensation from Pratt & Whitney for defective engines, its market share decreased, causing a loss of revenue and late payments to suppliers.
Because the American aerospace company refused to abide by the arbitral award made in the airline’s favour by the Singapore International Arbitration Centre (SIAC), the airline has placed the blame for its position on Pratt & Whitney.
According to a March 30 mandate from the SIAC, P&W must deliver 10 operational engines to Go First by April 27, 2023, and an additional 10 engines per month until December of this year. P&W, however, has declined to carry out the directive.
Go First filed a lawsuit with the Delaware court on April 28 asking for the execution of the Singapore arbitration panel’s award.
According to Khona, Go First requires at least 20 aircraft to restart operations and achieve a profit.
Pratt & Whitney, meanwhile, declared in a statement on May 3 that it is dedicated to the success of its airline clients. “We continue to prioritize delivery schedules for all customers. P&W is complying with the March 2023 arbitration ruling related to Go First. As this is now a matter of litigation, we will not comment further.”