Go First dues: IOCL invokes Rs 500-crore bank guarantee by airline, current dues at Rs 50 crore

Country's largest fuel retailer Indian Oil Corporation Ltd (IOCL) has invoked a Rs 500-crore bank guarantee by cash-strapped airlines Go First after it filed an insolvency plea before the National Company Law Tribunal (NCLT) on May 2. With this, IOCL, the lone fuel supplier to Wadia Group-controlled Go First, has an outstanding due of around Rs 50 crore, a report in Moneycontrol said on Thursday.

On Tuesday, the Wadia Group-owned airline said that it has filed an application for voluntary insolvency resolution proceedings before the NCLT, Delhi, due to a severe fund crunch. It also announced that it would temporarily suspend flight operations on May 3 and 4.

The company, in its first official statement after the move, blamed "faulty" Pratt & Whitney (PW) engines for the grounding of about half its fleet.

Jet fuel sales by Indian retailers to airlines are backed by bank guarantees provided by the buyers.

State-run IOCL will be now taking a call on future supplies after the Go First resumes its operations. The report said that in such cases the company opts for a ‘cash-and-carry’ model, wherein the airline company buys aviation fuel with upfront payment so that dues are cleared every day to reduce the risk exposure of the OMC.

Sources quoted in the report said that IOCL has invoked the bank guarantee issued by Bank of Baroda that would look into the major part of Go First’s outstanding dues at present. An IOCL official said, “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.”

In the filing with the National Company Law Tribunal on Tuesday, Go First said it has a debt of Rs 6,521 crore owed to the Bank of Baroda, Central Bank of India, ICICI Bank among others, as of April 28. The airline’s total liabilities to all creditors stood at Rs 11,463 crore, according to the filing with NCLT. This includes dues to banks, financial institutions, vendors, and aircraft lessors.

Go Airlines in its Delaware court filing alleged that new Airbus SE jets were grounded for 17,244 days in the past three years due to engine faults from Pratt & Whitney.

“There have been numerous, persistent, and continuing technical issues with the defective GTF Engines supplied by Pratt," the carrier, which sought insolvency protection this week, said in a filing dated April 28. Pratt has failed to comply with an arbitration order in Singapore that mandated it to supply spare engines and parts to the airline, leading to “a significant risk that Go First will go out of business and be forced to declare bankruptcy," according to its filing.

Go First CEO Kaushik Khona on Wednesday said that the company is confident that is capable of reviving and operating very soon. “We are trying to find a resolution to see that the issues which have affected us due to Pratt & Whitney are getting resolved and till that time we get some relief as a moratorium which is part of the IBC process," he told a TV channel.

Khona added Go First, which operates 55 aircraft in India currently, has loans from lenders that are secured by company assets. Other than company assets, the banks have been provided a 94-acre land parcel at a prime Mumbai location as collateral. “All the bank loans are secured by company assets. The lenders also have collateral of unencumbered land of 94 acres in a price location in Mumbai. This land is valued at a significant amount. If it comes to the recovery of money, the banks are totally covered. The additional security is a huge prime asset. Earlier the value of this asset was assessed at Rs 3,000 crore; however, with the recent changes in real estate etc, the value has gone up even further,” he added.

Also read: Go First CEO assures staff the airline has 'concern for all employees'

Also read: Go First crew stranded in Kuwait, Abu Dhabi, Phuket after airline goes bankrupt: Sources

Also read: Go First crisis : NCLT to hear Go First’s insolvency plea on Thursday