The Finance Ministry’s decision is likely to benefit financially-beleaguered airlines, such as SpiceJet, which have been looking for the Centre’s assistance to run their operations
The Union Finance Ministry on Wednesday allowed airlines to avail of up to Rs 1,500 crore loan under the Emergency Credit Line Guarantee Scheme (ECLGS), to help them tide over their cash flow problems.
Earlier, an airline could avail of a loan of not more than Rs 400 crore under the ECLGS. The Centre had in 2020 started the ECLGS to provide collateral-free and government-guaranteed loans to businesses affected by the Covid pandemic.
The Finance Ministry’s decision is likely to benefit financially-beleaguered airlines, such as SpiceJet, which have been looking for the Centre’s assistance to run their operations. Last month, the airline took a loan of approximately Rs 225 crore under ECLGS.
“It is a positive step and will help airlines secure working capital and funds for operations in these difficult times. I had written to the finance minister, Nirmala Sitharaman, about a month ago to increase the borrowing limit for airlines under the ECLGS and want to thank her for the decision,” Civil Aviation Minister Jyotiraditya Scindia told Business Standard.
The Civil Aviation Ministry’s intervention came as airlines continue to face twin challenges of increased fuel costs and a weaker rupee. While passenger demand has strengthened, higher operating costs have resulted in losses for airlines.
In a statement on Wednesday, the Department of Financial Services (DFS) in the Finance Ministry said that it has enhanced the maximum loan amount eligibility for airlines under the ECLGS to 100 per cent of their total credit outstanding — a combination of their fund and non-fund based credit outstanding — subject to a cap of Rs 1,500 crore. The statement further said Rs 500 crore of the Rs 1500 crore “shall be considered, based on equity contribution by the owners”.
So far, an airline could get a loan of up to 50 per cent of its total credit outstanding across all lending institutions under the ECLGS with a cap of Rs 400 crore.
“The modifications introduced are aimed to give necessary collateral-free liquidity at reasonable interest rates to tide over their present cash flow problems,” the DFS stated on Wednesday.
In a statement, Ajay Singh, chairman and managing director, SpiceJet, said on Wednesday that the speed and urgency with which the aviation and finance ministries have been taking up issues and problems being faced by airlines after the Covid pandemic and due to the record high oil prices is nothing but remarkable.
“I thank the Hon’ble Finance Minister Nirmala Sitharaman and Hon’ble Civil Aviation Minister Jyotiraditya M Scindia for this latest decision of enhancing the ECLGS limit for the troubled airline sector. This will provide a tremendous boost for airlines. I request the government once again for its support for including aviation turbine fuel under GST, which would be a game changer for the entire sector,” he added.
On July 28 last year, the Aviation Ministry told Parliament that SpiceJet and Go First had borrowed Rs 127.51 crore and Rs 25.65 crore, respectively, under the ECLGS.
The aviation sector was significantly impacted when international and domestic travel was curtailed during the peak of the Covid-19 pandemic. While the pandemic’s effect has been waning, the number of passengers travelling on their flights has not reached pre-pandemic levels as yet. Therefore, their balance sheets remain stressed.
Moreover, amid the Russia-Ukraine war, the prices of aviation turbine fuel (ATF) have shown immense volatility in the past several months. The cost of ATF forms around 40 per cent of total operating cost of airlines and impacts their financial viability.
The rupee has been weakening for the last several weeks. This is also impacting the airlines as they have to pay their aircraft lessors monthly lease rental amounts every month in US dollars.