Go First Episode Raises Concerns Over Possible Spike In Risk Premium

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Go First Episode Raises Concerns Over Possible Spike In Risk Premium

| Updated: May 15, 2023 13:19

An air of uncertainty hangs over a couple of Indian airlines after Go First sought insolvency. There have been petitions from lessors who have been trying to enforce rights under international norms and concerns over a potential spike in the risk premium for leasing aircraft for domestic carriers, media outlets have reported.

In less than two weeks, there have been approximately 50 requests to take back as many leased planes from two Indian airlines. India boasts the third-largest aviation market, but it’s plagued by concerns like high operating costs, technical snags, uncivil behaviour of airline staff, and failure to adapt to a price-sensitive market.

For those who came in late, Go First has approximately 55 aircraft. Twenty-eight of them are grounded due to the non-availability of Pratt & Whitney engines. Facing fund crises, the airlines applied for insolvency proceedings.

In an incisive article, Fortuneindia.com has said, “One player going bust makes bankers, lessors, vendors and all other stakeholders wary as the Indian aviation space is getting a reputation for frequent airline failures. This translates to higher interest rates on any money lent to the sector and more stringent contracts for all – be it with lessors or MRO vendors.”

Since most of the commercial aircraft in the country function through the sale and lease-back model, there are concerns that the Go First issue could further raise leasing costs.

“This means higher lease rentals for domestic carriers and an increase in the cost of doing business implying higher costs being passed onto passengers in the form of high-ticket prices, thereby making it more difficult for Indian airlines to compete with their international counterparts,” Advisory firm Primus Partners’ Co-Founder & CEO, Public Policy Realisation, Nilaya Varma, was quoted as saying.

The general apprehension, as the report highlighted, is that lessors could be hurt by rulings. Airline companies might move court. Lessors could ask for more deregistration of planes leased to some other airline, fearing they could get stuck in litigation.

Reports added that lessors have already communicated to the Directorate General of Civil Aviation (DGCA) for the deregistration of 45 Go First planes and five SpiceJet planes under the Cape Town Convention (CTC). According to the CTC, if a lessor has invoked the Irrevocable De-registration and Export Request Authorisation (IDERA), then the plane concerned must be deregistered.

According to the regulations, this must be done in five working days but with NCLT ordering a moratorium under insolvency proceedings, Go First planes are secure as of now.

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