The Department of Financial Services (DFS) of the Union Ministry of Finance has expanded the scope of the Emergency Line of Credit Guarantee Scheme (ECLGS) to improve eligibility for the maximum loan amount for airlines in the framework of the ECLGS 3.0.
This was done to give airlines the necessary unsecured liquidity at reasonable interest rates to overcome their current cash flow problems, according to an official statement on October 5.
The change will allow cash-strapped airlines like SpiceJetand Go there first to get more unsecured loans under the program. On July 28 last year, the Ministry of Aviation told Parliament that SpiceJet and Go First had borrowed INR 127.51 crore and INR 25.65 crore, respectively, under the ECLGS.
According to the latest amendment, 100% of the fund-based or non-fund-based loan outstanding at the reference dates or INR 1,500 crore, whichever is lower; and from the above, INR 500 crore should be considered. This would be based on the capital contribution of the owners.
Previously, civil aviation companies were allowed to borrow up to 50% of their highest outstanding credit, subject to a maximum of INR 400 crore per borrower, compared to 40% of their outstanding credit under previous iterations of the ECLGS program. .
All other parameters of the criteria terms and conditions prescribed in the ECLGS Operational Guidelines as of August 30 will apply as is. Earlier in March 2022, the Emergency Line of Credit Guarantee (ECLGS) program was extended from March 2022 to March 2023.
The ECLGS was announced in May 2020 in the wake of the COVID-19 outbreak to help various sectors, especially in the MSME segment, to obtain credit at a concessional rate of 7%.
After the announcement, the scheme was changed several times based on demand from various industries. In addition, the program deadline has been extended several times to support various sectors of the economy hard hit by the outbreak of the pandemic.
On August 17, the Union Cabinet approved the increase of the ECLGS limit from INR 50,000 crore to INR 5 lakh crore. The additional amount is reserved exclusively for companies in the hospitality sector and related sectors, including the aviation sector. Loans worth around INR 3.67 lakh crore have been sanctioned under the ECLGS till August 5, 2022.
Under the ECLGS, banks provide additional loans to existing borrowers without asking for additional collateral to help them cope with the liquidity shortage resulting from COVID restrictions. These loans are also fully guaranteed by the government against credit losses.
Most Indian airlines are still facing issues such as high fuel costs and limited domestic passenger operations, and have yet to restore their employee salaries to pre-COVID levels.
Ravaged by Covid, airlines here had been reeling from record jet fuel prices in recent months, which have recently started to cool. But now the free fall of the rupee – with much of airline spending being denominated in dollars – is hurting them.
Whereas, Indigo is expected to restore wages for its pilots, cabin crew and ground handling staff to pre-COVID levels by September, SpiceJet employees are struggling to pay backlogs.
Several Indian airlines are struggling to survive. SpiceJet has been failing to file employee TDS and pay them PF for several months now.
Although it has not yet agreed to the airlines’ request for a reduction in excise duties on the ATF, the Ministry of Finance had in March 2022 extended the ECLGS.
SpiceJet sighs with relief
Low-cost airline SpiceJet has welcomed changes to the Emergency Credit Line Guarantee Scheme (ECLGS) for the civil aviation sector, but called on the government to extend support to jet fuel as well.
In a statement, Ajay Singh, chairman and chief executive of SpiceJet, said on Wednesday (October 5th) that the speed and urgency with which the ministries of aviation and finance have addressed the problems and problems faced by airlines after the Covid pandemic and due to record oil prices is nothing short of remarkable.
“I thank the Honorable Minister of Finance Nirmala Sitharaman and the Honorable Minister of Civil Aviation Jyotiraditya M Scindia for this latest decision to increase the ECLGS limit for the struggling aviation sector. This will give a tremendous boost to airlines I once again ask for the government’s support in including jet fuel in the GST, which would be a game-changer for the entire industry.
Ajay Singh, Chairman and CEO, SpiceJet
The airline is expecting an additional INR 1000 crore under the Modified Emergency Credit Line Guarantee Scheme (ECLGS). The airline needs funds to bear the heavy cost burden and pay the pending dues. The airline is also in talks with bankers to raise $200 million.