Alarmed by the weak financial situation of Indian airlines, the Civil Aviation Ministry is pushing to increase the credit limit granted to them under the government’s Emergency Line of Credit Guarantee (ECLGS) scheme. , according to a report by The Economic Times.
Civil Aviation Secretary Rajiv Bansal wrote to the Finance Ministry last week demanding that under the program airlines be allowed to take on additional debt of up to 100% of their outstanding debt. credit, subject to a cap of INR 1,500 crore.
“The last three years have been very difficult for the civil aviation sector. Just as the aviation sector was returning to normal, airlines were hit by an unprecedented rise in jet fuel prices. Jet fuel is a major component of airline operating costs. Moreover, the devaluation of the INR from 70 USD to 80 USD has aggravated the situation.
Rajiv Bansal, Civil Aviation Secretary
Reasoning why an enhanced line of credit is important for airlines, Bansal said an unprecedented rise in the price of jet fuel and the devaluation of the rupee against the dollar had increased their operating costs.
The ECLGS scheme, announced in 2020, was designed to provide unsecured and government guaranteed loans to alleviate the financial distress caused by Covid on businesses.
Similar to other contact-intensive sectors, companies in the aviation sector could refer the highest outstanding credit to one of three reference dates of February 29, 2020, March 31, 2021, or March 31, 2020. January 2022, to qualify for funding under the program. .
The aviation industry is facing serious funding hurdles even as the skies are opening and the impact of Covid-19 is waning. Loans to Indian airlines have dried up as banks have become cautious about lending to the sector.
The program raised loans for eight companies in the sector, including SpiceJet and Go First. SpiceJet received a guarantee of INR 127.52 crore, while Go First received INR 25.65 crore from the scheme.
While market leader IndiGo was able to tap banks to raise loans due to its strong cash position, it has become difficult for smaller airlines like SpiceJet and Go First to get loans from banks due of their strained balance sheets.
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SpiceJet is expected to receive around INR 225 crore next week under the Emergency Credit Line Guarantee Scheme (ECLGS). The funds will be used to pay legal dues and lessor payments. SpiceJet had applied for loans of INR 280 crore under the ECLGS.
Launched by the central government as a special scheme in the wake of Covid-19 in 2020, the scheme aimed to provide guarantee cover to banks and NBFCs to enable them to extend emergency credit to various industries to meet their working capital needs.
Within the framework of the ECLGS, a company in the aeronautical sector can obtain a loan of up to 50% of its total outstanding credit from all credit institutions. However, the amount borrowed by the company cannot exceed INR 400 crore.
(With entries from The economic period)
