ECLG: Ministry of Aviation pushes to increase airline loan limit under ECLGS

Alarmed by the fragile financial situation of Indian airlines, the Ministry of Civil Aviation is pushing to increase the credit limit granted to them under the government’s Emergency Line of Credit Guarantee (ECLGS) scheme.

Civil Aviation Secretary Rajiv Bansal wrote to the Finance Ministry last week, asking that under the program airlines be allowed to take on additional debt of up to 100% of their outstanding credit , subject to a cap of Rs 1,500 crore.

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 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. Kerosene is a major component of airline operating cost. Moreover, the devaluation of the 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 saw a copy of the letter. The departments did not respond to ET’s request for comment.

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.

In March this year, the Center amended the program to allow the cash-strapped aviation sector to benefit from 50% of its outstanding credit – a combination of its highest total fund and its outstanding credit non-fund based – under the scheme subject to a cap of Rs 400 crore per borrower.

Eight companies in the sector including airlines

and Go First have raised loans under the program. SpiceJet has been guaranteed Rs 127.52 crore, while Go First has raised Rs 25.65 crore under the scheme. People in the know said SpiceJet was likely to raise another Rs 225 crore under the scheme next week.

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 January 31. 2022 to qualify for funding under the program.

The aviation industry faces serious funding hurdles even as the skies open and the impact of Covid-19 wanes. Loans to Indian airlines have dried up as banks have become cautious about lending to the sector.

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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