Explained: What’s happening at Go First and what is voluntary insolvency?

Cash-strapped airline Go First which was formerly known as Go Air, on Tuesday announced voluntary insolvency. It blamed “faulty” Pratt and Whitney engines for the company's financial woes.

Hyderabad: Cash-strapped Maharashtra-based Indian airline Go First which was formerly known as Go Air, on Tuesday announced that the company which was already going through financial troubles has decided to file for voluntary insolvency with the National Company Law Tribunal (NCLT).

What is voluntary insolvency?

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Voluntary insolvency is basically accepting that a business is insolvent or has failed. In a situation when running the company becomes impossible, companies voluntarily agree to liquefy the assets in order to pay off the creditors.

This is usually regarded as the best option when companies reach that stage, as one may have more control in voluntary insolvency than in compulsory insolvency.

And while insolvency and bankruptcy may sound the same, they are not. Insolvency is a financial state whereas bankruptcy is a legal declaration. If you are insolvent, you may still have other options to consider.

What led to the Go First crisis?

Go First Airlines is owned by Wadia Group and the CEO is Kaushik Khona. It has been in the airline business for around 17 years now.

The company says that it was forced to file for voluntary insolvency because of “faulty” Pratt and Whitney engines which then led to the airless grounding majority of their flights. The CEO said that the insolvency was to revive the airline and not to sell it and confirmed that the owners had no plans to exit the airline.

Cancelled flights and refunds

The airline on Wednesday abruptly cancelled all its flights after declaring insolvency. They announced that the sale of flight tickets will also be suspended until May 15.

The move forced the Directorate General of Civil Aviation (DGCA) to issue a notice which asked the airline to work on a refund of rescheduled flights for future dates. It also said that it is closely observing the ongoing arbitrations. However, many flyers complained that they did not receive a refund or have received only partial refunds.

Employees, the worst hit

The employees of the company had been aware of the financial state of the airlines since they received delayed paychecks and reimbursements on multiple occasions over the years, reported Business Today. The airline has around 5,000 employees according to reports, most of whom are now trying to find jobs at other airlines.

Effect on the aviation industry

Go First’s crisis has also impacted the Indian aviation industry which is already battling high demand for pilots. In March, air travel became costlier by up to 12.82 pc as the government raised caps on domestic airfares. Now, the shortage of flights on domestic routes is another concern.

In addition to that, because Go First’s multiple flights were cancelled, there is a huge possibility of an airfare hike in the coming days. According to reports, many passengers who were affected because of Go First’s abrupt cancellation already had to pay double the amount.