MUMBAI- In a bid to assess the potential diversion of funds, banks are set to conduct a forensic audit of the cash-strapped Go First Airline (G8), which recently filed for bankruptcy protection.
The airline, backed by the Wadias, voluntarily filed for insolvency resolution proceedings before the Delhi bench of the National Company Law Tribunal (NCLT) on May 2. Subsequently, on May 10, the tribunal admitted the filing.
Go First Audit by Banks
Approval for the appointment of Shailendra Ajmera from EY as the resolution professional (RP) for the debt-ridden airline is granted by the NCLT on June 15, as requested by the Committee of Creditors (CoC).
Previously, the NCLT appointed Abhilash Lal, backed by Alvarez and Marsal, as the interim resolution professional (IRP) based on the airline’s recommendation.
As of April 28, 2023, Go First Airlines’ outstanding debt to various lenders, including Bank of Baroda, Central Bank of India, IDBI Bank, and Deutsche Bank, amounted to Rs 6,521 crore.
Banks have faced significant losses in the past due to the collapse of Kingfisher Air and Jet Airways. Both are burdened with substantial debt.
A source stated, “Now that the resolution professional has been appointed, he will conduct a transaction audit. Once the transaction audit is completed, lenders could go for a forensic audit of the airline’s book. Further Lenders are likely to take a call on this in a week’s time.”
Purpose and Classification of Audits
The commissioning of transaction and forensic audits is crucial to examine the utilization of loans provided to firms or individuals. These audits play a vital role in helping lenders identify any fraud. Further, the misreporting or diversion of funds by borrowers.
The airline is expected to be classified as a non-performing asset (NPA) by lenders in the upcoming quarter of this fiscal year, according to a source familiar with the matter.
The newly-appointed resolution professional is anticipated to present a fresh revival plan for Go First Airlines to the Directorate General of Civil Aviation (DGCA) and the CoC.
This plan will also include an assessment of the airline’s funding requirements. Based on the viability of the revival plan, the CoC will make decisions regarding interim funding.
Previously, Lal submitted a revival plan to the DGCA, proposing the resumption of operations with 26 planes and 152 daily flights. As part of this plan, the airline has sought funding of Rs 400 crore from its lenders.
As of March 31, 2023, the Central Bank of India, consortium leader among the lenders, revealed an outstanding exposure of Rs 1,987 crore to Go First Airlines. Including Rs 682 crore sanctioned under the government’s emergency line of credit guaranteed scheme (ECLGS).
Bank of Baroda’s exposure to the airline amounts to nearly Rs 1,300 crore, while IDBI Bank’s outstanding loan stands at approximately Rs 50 crore.
Go First Airlines intends to utilize its undrawn credit limit under the ECLGS as part of the interim funding. However, sources indicate that banks are unlikely to release any funds under the scheme. Due to uncertainties regarding the National Credit Guarantee Trustee Company (NCGTC) credit guarantees.
Crucial Days Ahead for Revival
Experts in the aviation industry stress the significance of the next ten days for the revival of grounded Go First. It halted its operations on May 3.
Recently, the airline extended the cancellation of flights until June 19, citing operational reasons. An aviation sector analyst remarked, “It would be difficult to revive the airline unless a concrete revival plan comes up in the next seven or ten days.”
During the first meeting of the CoC following the airline’s admission to the bankruptcy court on June 9. A proposal is put forth to replace Lal with Ajmera as the RP. On June 15, the NCLT granted approval for Ajmera’s appointment, as requested by the CoC.
With banks gearing up for a forensic audit. The resolution professional preparing a fresh revival plan. The fate of Go First Airlines remains uncertain. The airline’s stakeholders, lenders, and industry experts eagerly await the outcomes that will determine its future.
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