Alarmed by the weak financial state of Indian airlines, the civil aviation ministry is pushing to enhance the credit limit to them under the government’s Emergency Credit Line Guarantee Scheme (ECLGS).
Civil aviation secretary Rajiv Bansal last week wrote to the finance ministry, asking that under the scheme, airlines be allowed to avail of additional debt of up to 100% of their outstanding credit, subject to a cap of Rs 1,500 crore.
Reasoning why an enhanced credit line is important for airlines, Bansal said an unprecedented rise in jet fuel price and devaluation of the rupee against the dollar had increased their operating cost.
“Last three years have been very challenging for the civil aviation sector. Just when the aviation sector was returning to normalcy, the airlines have been hit by an unprecedented rise in jet fuel prices. Jet fuel is a major component in airline operation cost. Further, the devaluation of INR from USD 70 to USD 80 has further aggravated the situation,” Bansal wrote to finance secretary TV Somanathan, seeking to relax the rules for the sector.
ET has seen a copy of the letter. The ministries did not respond to ET’s request for comment.
The ECLGS scheme, announced in 2020, has been designed to provide collateral-free, government-guaranteed loans to mitigate the financial distress caused by Covid on businesses.
Just like other contact-intensive sectors, companies in the aviation sector could refer the highest credit outstanding on any of the three reference dates of February 29, 2020, March 31, 2021 or January 31, 2022 to avail of funding under the scheme.
The aviation industry is facing severe funding roadblocks even as skies are opening up and the impact of Covid-19 is on the wane. Loans for Indian airlines have dried up as banks have become cautious to lend to the sector.
While market leader IndiGo has been 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 to their stressed balance sheets.