Go First sale hinges on lawsuit, bidders offer little upfront payment

The future of Go First remains cloudy as both potential buyers have presented proposals with payments heavily tied to the outcome of a lawsuit against engine manufacturer Pratt & Whitney, with barely enough upfront payment to cover the insolvency resolution costs, as per information obtained by CNBC-TV18.

Go First has received two bids for the airline: one from a consortium comprising SpiceJet chief Ajay Singh and Nishant Pitti from Busy Bee Airways, and the second from Sharjah-based Sky One, as previously reported by CNBC-TV18.

According to a source familiar with the matter, neither of the bidders— the Ajay Singh-Nishant Pitti consortium and Sky One—has offered any significant upfront payment to cover the airline's Corporate Insolvency Resolution Process (CIRP) costs. These costs, estimated at approximately ₹600 crore as per sources, take priority under India's Insolvency and Bankruptcy Code (IBC) waterfall mechanism for dues recovery.

The Ajay Singh-Nishant Pitti consortium, CNBC-TV18 has learnt, has offered ₹290 crore as an upfront payment. Additionally, the consortium has proposed to repay financial creditors in full from the proceeds they receive from the arbitration proceedings against Pratt & Whitney, said a person in the know.

Sky One, it is understood, has offered ₹410 crore upfront to lenders and another 25% of the proceeds they receive from the arbitration proceedings against Pratt & Whitney as payment to financial creditors.

Neither of the suitors has indicated in their offers how much the expected recovery from Pratt & Whitney would be or when the settlement is expected. However, it is understood that bidders have pencilled in over a billion dollars from this settlement, said a person quoted earlier.

In May 2023, when Go First filed for insolvency proceedings, its then-CEO Kaushik Khona had claimed that the airline expects $1.1 billion in compensation from Pratt & Whitney, which it sued for damages for providing the airline with faulty engines, in international courts.

"Go First has had to take this step (filing for IBC) due to the ever-increasing number of failing engines supplied by Pratt & Whitney’s International Aero Engines, LLC, which has resulted in Go First having to ground 25 aircraft as of 1 May 2023," the airline had told courts in May 2023.

“We are not sure what we even get from his offer,” said an executive at a public sector bank with exposure to the airline, adding, “We have asked the IRP (resolution professional) to prepare a summary of the bids, and then we will call both the bidders to come and present the proposal to negotiate.”

As per the IBC waterfall mechanism for distributing funds during insolvency proceedings in India, the highest priority is given to CIRP Costs, followed by secured financial creditors, employee dues, and then unsecured creditors and shareholders. Only when CIRP costs are fully settled does the additional money flow into secured creditors, and when they are fully repaid, to the others in line.

Thus, with CIRP costs estimated at ₹600 crore, financial creditors may not see any immediate inflows from the proposed upfront payment by the suitors if the offers are considered in their current form.

Financial creditors, including Central Bank of India, Bank of Baroda, and IDBI Bank, have claimed more than ₹3753 crore from the airline under IBC, including ₹1934.4 crore claimed by Central Bank of India, ₹1744.5 crore by Bank of Baroda, and ₹74.4 crore by IDBI Bank.

However, lenders indicated to CNBC-TV18 that these offers will now be negotiated upon, so the final offers may look different by the time they are put to vote.

Sky One and the Ajay Singh consortium’s comments were awaited at the time of publishing this story. The story will be updated if comments are received.