Civil aviation ministry pushing to enhance airlines’ credit limit under ECLGS


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), According to a report published by The Economic Times.

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 INR 1,500 crore.

“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 of airline operating costs. Further, the devaluation of INR from USD 70 to USD 80 has aggravated the situation.”

Rajiv Bansal, Civil Aviation Secretary

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.

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.

Civil aviation ministry pushing to enhance airlines’ credit limit under ECLGS

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.

The programme has raised loans for eight companies in the industry, including SpiceJet and Go First. SpiceJet has received a guarantee of INR 127.52 crore, while Go First received INR 25.65 crore from the programme.

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.

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SpiceJet is likely to receive around INR 225 crore next week as a part of the ECLGS

SpiceJet is likely to receive around INR 225 crore next week as a part of the Emergency Credit Line Guarantee Scheme (ECLGS). The funds will be used to clear statutory dues and lessor payments. SpiceJet had applied for INR 280 crore loans under the ECLGS.

Launched by the central government as a special scheme in wake of Covid-19 in 2020, the programme intended to provide guarantee coverage to banks and NBFCs to enable them to extend emergency credit to various industries to meet their working capital requirements.

Under ECLGS, an aviation sector company can get a loan of up to 50% of its total credit outstanding across all lending institutions. However, the amount borrowed by the company can not be more than INR 400 crore.

(With Inputs from The Economic Times)