Go First bankruptcy: Faulty Pratt and Whitney Engines or airline’s financial slip-up?

Go Airlines (India) Ltd (Go First), said that it was filing for voluntary insolvency proceedings with the National Company Law Tribunal (NCLT), blaming US-based engine manufacturer Pratt & Whitney (P&W) for its dire situation.

The announcement came as a jolt for employees, passengers, and the sector.

The airline’s top executive explained it was “forced to apply to the NCLT” after “the ever-increasing number of failing engines supplied by Pratt & Whitney” which led to the grounding of 25 aircraft, or half its fleet of Airbus A320neo planes, and major financial crisis.

However, the fall was not abrupt. The airline was already under severe financial loss due to the prolonged faulty engine and subsequently, the grounding of its large fleet of aircraft.

More so, because of the grounding of a large number of aircraft and huge concurrent losses, it went into the arbitration at Singapore International Arbitration Centre.  The arbitration award was rendered in favour of Go First. But cracks remained open as Go First claimed the other party—Pratt and Whitney—failed to oblige it.

What went wrong?

Pratt and Whitney’s GTF engine Vs Airlines

Go First said P&W — the exclusive supplier of engines for A320neos — failed to meet contractual obligations and refused to comply with an arbitration award from the Singapore International Arbitration Centre (SIAC). It added that more likely engine failures over the next three-four months would have made its operations “unviable”.

Go First’s airlines are powered by Pratt and Whitney’s PW-1100G geared turbofan (GTF) engines. Go First has been one of the first operators of the GTF PW1100G when the A320neo entered service with the airline in 2016. It currently has a fleet of 56 aircraft, with 88 more on order from Airbus.

The PM-1100G is facing reliability issues. This has resulted in half of Go First’s fleet being grounded.

“The issue was already brewing for a long time,” said an aviation expert, adding, it only exacerbated the multiplying financial burden with the stalled engines.”

That indication came out last month as the airline, which is owned by Wadia Group, expressed that it is suffering significantly from the constant issues with the GTFs. It fears that the continued grounding of aircraft could impact its operation severely.

According to the official from Go First, the company has still been obliged to pay 100% of its fixed costs, including lease rental payments to its lessors of over $200 million, aircraft maintenance charges, parking charges, and employee costs,” it said.

In fact, because of the engine malfunctioning, other airlines have also reported grounded aircraft. The aircraft engine is highly complex in terms of design and functionality. In case of persistent issues with its design and core functionality, it might take months before engines are returned from the repair shops.

As Raytheon CEO Greg Hayes said recently that while staffing issues are expected to have been overcome by the end of this year, it will take some five years to get the reliability of the GTF to that of the V2500 engine that powers the A320ceo family.

So Go First had plans to sue Pratt & Whitney’s parent company Raytheon Technologies over compensation for financial damages it suffers from the continuous grounding and repairs of the Geared Turbofan engines on its Airbus A320neo fleet.

The question remains as to why the airline did not receive compensation as reported?

Despite the fact that other airlines, for example, IndiGo, which has suffered identical issues with its P&W’s GTF engines, received financial compensation a few years ago.

In fact, the issues go beyond India, as a major US-based ultra-low-cost airline, Spirit Airlines raised a similar concern in February that its unit costs and profitability are continuing to be negatively affected by significant reliability problems posed by Pratt & Whitney Geared Turbofans (GTF) for its 70-strong Airbus A320neo fleet. 

It was reported in the aviation publication that due to such persistent technical issues around the engine, Spirit Airlines had to remove its “30 plus” engines from the wing over the last six years from the fleet, well exceeding the average of six-to-eight years before removal, noting the vast majority of neos have been delivered just over the previous two years.

How is then Pratt and Whitney looking at the issue which has impacted the airline to the tilt, leading to its bankruptcy?

“P&W is complying with the March 2023 arbitration ruling related to Go First. As this is now a matter of litigation, we will not comment further,” said Pratt & Whitney spokesperson.

Other sources in the P&W also pointed out the missing financial payment to the company, said: “GoFirst – the Wadia Group– has a lengthy history of missing its financial obligations to Pratt.”

However, Raytheon Technologies CEO Gregory Hayes did acknowledge the severity of the problem which is affecting airlines negatively worldwide while he was speaking at a Barclays investor conference in Feb. “Our customers are not particularly happy with the fact that we can’t get engines to them in time because of the large numbers that are coming in for all of these retrofits,” Hayes said.

“So that will be a challenge for us all year long,” Hayes adds.

The arbitration: Outcome

On faulty engines and prolonged repair and maintenance issues engines, Go First sought an emergency arbitration at the Singapore International Arbitration Centre on March 13. The grounding of a large number of aircraft was leading to huge losses and becoming increasingly difficult to cover the daily operational cost.

The arbitration award was rendered in favour of Go First. The arbitrator ordered Pratt to dispatch at least 10 serviceable spare engines within 28 days and a further 10 every month until the end of the year. In a statement, the arbitrator said Go First urgently required the engines to reduce the number of aircraft on the ground and if emergency relief wasn’t given, there was a risk of irreparable harm. 

Despite this, P&W only committed to the three engines, according to the Go First official. As reports suggest, Go First then approached the District Court of Delaware in the United States, and filed an application, seeking enforcement of the awards.

In the plea, Go First declared that If P&W does not immediately comply with the arbitration award, there is a significant risk that the company will go out of business and be forced to declare bankruptcy.

“That is exactly what happened,” said a senior aviation expert while the question over its financial commitments to the engine maker P&W remains unclear.