India's bankruptcy court, the National Company Law Tribunal (NCLT), has ordered defunct South Indian low-cost carrier Air Costa (LEP, Vijayawada) to undergo a corporate insolvency resolution process, the Economic Times reported.

The carrier launched in 2012 and expanded to pan-Indian operations in October 2016. However, it suspended all flights in February 2017 due to unresolved "financial issues" with its lessor GECAS, from which it leased three E190s. Plans to restart operations were scuppered in June 2017 when India's Directorate General of Civil Aviation (DGCA) suspended its Air Operator's Certificate (AOC) following three months of inactivity.

Air Costa is now the second Indian airline, after Jet Airways (9W, Mumbai Int'l), to undergo a court-monitored debt resolution process under the Insolvency and Bankruptcy Code, the country's bankruptcy law passed in 2016.

German aircraft maintenance firm MTU Maintenance Berlin-Brandenburg GmbH declared itself to the Amaravati bench of the NCLT to be a creditor, saying that the LCC had failed to make the required payments for the lease and maintenance of its engines.

However, Air Costa representative Ramesh Lingamaneni - the airline is owned by the Lingamaneni family’s construction and infrastructure firm LEPL Projects - alleged that the German firm had supplied faulty engines, causing losses to the carrier.

In September 2016, the Indian company signed a settlement agreement with MTU Maintenance Canada for USD1.99 million, but MTU testified that it had not received any part of this amount. Air Costa claimed it had been coerced into an unreasonable settlement that should be treated as null and void.

Nevertheless, the NCLT noted that Air Costa had not raised the issue of a defective engine in the settlement agreement, nor had it questioned the settlement in any appropriate forum until it received a legal notice from MTU in July 2017.