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The Insolvency and Bankruptcy Code can’t resolve airline bankruptcies, according to RK Bansal, CEO and managing director of asset reconstruction company Edelweiss ARG.
Speaking during a panel discussion titled ‘IBC and Banks: Challenges and Solutions’ at the Mint BFSI Summit and Awards 2024, Bansal highlighted a fundamental issue in the Indian aviation sector – most airlines don’t own their planes and other assets. He said the industry requires substantial working capital, but intense competition and ageing aircraft pose significant challenges.
According to Bansal, even if the bankrupt Go First could be revived using the IBC, it would struggle to generate profits. Only Indigo has managed to make profits in India owing to its unique business model, he added. “Even Air India will take time to make money for the Tatas,” he added.
Nikhil Shah, managing director of Alvarez & Marsal, emphasised the importance of having adequate working capital for an airline to continue operating during insolvency. Without this, he said, the chances of finding a resolution diminish.
Bahram Vakil, founder of AZB Partners, said the first six months of insolvency are critical for airlines. He said the delayed attempt to revive Jet Airways resulted in its demise, adding that it was still too early to predict the fate of other insolvent airlines such as go First.
The insolvencies of Jet Airways and Go First underscore the enduring challenges in the Indian aviation industry – high costs, low profits, fierce competition, and a lack of scale. Jet Airways, founded by Naresh Goyal, declared bankruptcy in April 2019, remaining grounded owing to legal disputes with new owners Murari Lal Jalan and Florian Fritsch.
Go First filed for IBC protection in May 2023, blaming Pratt & Whitney engine failures for its financial woes, but has struggled to attract a viable resolution plan owing to legal challenges from lessors.
The panel acknowledged the success of IBC in dealing with non-performing assets (NPAs) in its early years. Vakil praised its positive impact on behavioral and credit culture. However, he pointed out that efficiency has declined since covid, and partly attributed this to judicial decisions that affected the IBC’s functioning.
Nikhil Shah highlighted the role of the IBC in creating fear in the minds of borrowers. He said, “If they decide to get too aggressive or ambitious with leverage, there is now a worry in the back of their minds that they may lose their company.”
Bansal noted that in the initial years of the IBC, recoveries were good, assets were valuable, and there was interest from potential buyers. Most of those cases have been resolved, either through IBC or otherwise. However, many ongoing cases are challenging to resolve as the companies may not hold significant value anymore, making it hard to find potential buyers.
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Published: 11 Jan 2024, 07:02 PM IST
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