Allegations Arise: Insolvency Petition or Loan Write-Off Scheme? Bank Union to Oppose Go Airlines’ Write-Offs
According to a prominent official, the All India Bank Employees Association (AIBEA) intends to resist any attempt by banks to write off a portion of their loans to Go Airlines (India) Ltd, which belongs to the Wadia group, if the airline files a voluntary insolvency petition for that purpose.
Expressing strong disapproval, C.H. Venkatachalam, the General Secretary, stated, “If the airline resorts to filing a voluntary insolvency petition to obtain loan write-offs, we would deem it unethical and immoral.” The AIBEA will actively oppose such a move.”
Venkatachalam further emphasized the potential repercussions, stating, “If we allow this practice, it may encourage other companies to file voluntary insolvency petitions to secure loan write-offs. It is imperative for the Reserve Bank of India (RBI) and the Indian government to prevent this from happening.”
According to Venkatachalam, the Go Airlines loan account is not classified as a non-performing asset (NPA) for the banks as of April 30, 2023.
However, If the company proceeds with filing an insolvency petition, it will compel the banks to declare the account as an NPA and account for it in their financial records. This change will be evident in the first quarter results, explained Venkatachalam.
On May 2, Go Air voluntarily approached the National Company Law Tribunal (NCLT) with an insolvency petition, attributing their troubles to the engine supplier Pratt & Whitney. This development raised immediate concerns about whether it was a strategic move to secure loan write-offs.
The airline’s decision to seek insolvency while placing blame on the engine supplier caught its lenders, creditors, staff, credit rating agency, and others completely off guard.
Go Airlines
Brickwork Ratings, a credit rating agency, subsequently announced a downgrade of Go Airlines’ bank loan facilities totaling Rs 2,918.33 crore to ‘BWR D’. We made this decision based on the best available information since the issuer did not cooperate.
“In its report, Brickwork Ratings stated that the lenders have expressed opposition to any moratorium on the repayment of debt obligations, based on initial reports.
However, a leading financial daily reported that the promoters of Go Airlines might withdraw their insolvency petition if the lenders agree to reduce their loans.
Despite this, bankers appear to be more inclined to provide additional loans and extend the repayment period rather than accepting a reduction in their receivables.
According to the news report, since Go Airlines’ loan account is still considered a standard account, the promoters are eligible to submit a bid for the airline. On the other hand, promoters of companies with a non-performing asset (NPA) loan account cannot submit a bid to retain control.
Reports indicate that the airline’s total liability, including dues to banks, creditors, and vendors, amounts to approximately Rs 11,463 crore.
The Central Bank of India, which is government-owned, stated that its outstanding exposure to Go Air as of March 31, 2023, is Rs 1,305 crore. Additionally, an extra amount of Rs 682 crore was sanctioned under the Emergency line of credit guaranteed by the Government of India.
In a regulatory filing, Axis Bank, a private lender, clarified that it does not have any funded or non-funded exposure to the financially-troubled Go Airlines.”
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