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By Arpan Chaturvedi, Aditi Shah and Aditya Kalra
NEW DELHI (Reuters) -Go Airlines (India) Ltd was granted bankruptcy protection on Wednesday, bolstering the country's fourth largest carrier's chances of getting back on its feet, but lessors have started mounting legal challenges to repossess planes.
The low-cost carrier, recently rebranded as Go First, was plunged into financial crisis this year, sparked by what it called "faulty" Pratt & Whitney engines that grounded about half its 54 Airbus A320neos.
The U.S. engine maker, part of Raytheon Technologies, in a statement said Go First's allegations were "without merit".
In granting bankruptcy protection, the National Company Law Tribunal in New Delhi ordered a moratorium on Go First's assets and leases and appointed Abhilash Lal of Alvarez & Marsal as the interim resolution professional to take over management with immediate effect.
The resolution professional "shall ensure that retrenchment of employees is not resorted to as a matter of course", the tribunal's 41-page order said. Go First has a staff of around 7,000.
The bankruptcy move adds to headaches for lessors, which have filed requests with India's aviation regulator for the return of about 40 Go First planes after rental payments were missed.
India made it easier for lessors to take back planes if airlines default on payments after joining an international treaty known as the Cape Town Convention in 2008. But bankruptcy protection supersedes lessors' repossession requests.
"The next step for lessors is to approach the appellate tribunal... It will be a prolonged legal battle," said Ajay Kumar, managing partner at India's KLA Legal, which represents Go First lessors including Jackson Square Aviation and Bank of China Aviation.
He added that Go First's woes will lead to higher lease premiums for Indian airlines.
That could prove to be a pain point for the sector at a time when Indian Prime Minister Narendra Modi is touting the country's emergence as an aviation powerhouse, with bigger rivals IndiGo and Tata Group's Air India expanding aggressively.
Go First's lessors also include SMBC Aviation Capital and CDB Aviation's GY Aviation Leasing.
They did not immediately respond to a request for comment. However, according to a filing seen by Reuters, SBMC Aviation Capital has already approached India's appeals tribunal seeking to quash the bankruptcy order.
'HISTORIC' DECISION
Go First's voluntary pursuit of bankruptcy protection to renegotiate contracts and debt marks a first for an Indian airline. CEO Kaushik Khona, who was present as the order was read, hailed the tribunal's decision as "historic".