Loan limit for airlines under ECLGS raised to ₹1,500 cr

In a huge relief to the aviation industry, the finance ministry has enhanced the credit limit to airlines under the Emergency Credit Line Guarantee Scheme (ECLGS), making them eligible for 100% of their fund-based or non-fund-based loan outstanding debt, up to ₹1,500 crore.

Earlier, the scheme allowed the airlines to borrow up to 50% of their credit outstanding up to ₹400 crore but now they can avail of up to 100% of the credit.

Revising the ECLGS scheme for the aviation sector for the 2nd time, the ministry says the current decision will give the aviation industry necessary collateral-free liquidity at reasonable interest rates to tide over present cash flow problems.

Reacting to the development, the stocks of both the listed airlines IndiGo and SpiceJet are trading in green. While InterGlobe Aviation Ltd stock is up 0.17% to ₹1,852.35, SpiceJet Ltd has risen 6.11% to ₹40.80 on the National Stock Exchange. In contrast, the BSE benchmark Sensex is trading 0.68% up at 58,459.16, while Nifty 50 is up 0.69% at 17,394.20.

India's airline industry is struggling with high aviation fuel prices, rising input costs and a weak rupee. Ajay Singh-led SpiceJet, specifically, has of late been in the news for all the wrong reasons. From repeated technical snags to non-payment of dues, DGCA ban on a number of flights, increasing pilot resignations and mounting losses -- its troubles refuse to recede.

For the June quarter (Q1 FY23), SpiceJet reported a net loss of ₹789 crore on record high fuel prices and a depreciating rupee. The revenue, however, rose to ₹2,478 crore as against ₹1,266 crore in the same quarter last year.

Other airlines' losses are also mounting as well. AirAsia India’s loss grew 42% on a year-on-year basis to ₹2,178 crore, its revenue rose nearly 39% to ₹1,887 crore in FY22. Vistara’s loss rose by 35% on a year-on-year basis to ₹2,031 crore, while its revenue touched ₹5,226 crore in FY22.

Sources say market leader IndiGo, which also has red ink all over its books, is also feeling the stress as is erstwhile Air India. Many of the airlines had confirmed to Fortune India in August that they have been flying far below their approved schedules for some weeks now, primarily due to how unviable many routes have become. The rupee has already depreciated 9% against the US dollar in 2022 so far. The current ATF prices in Delhi stand at ₹115,520.27/kl as of October 1, 2022.

The ministry, meanwhile, says all other criteria terms and conditions under the ECLGS will remain. In March 2022, the ECLGS was extended beyond March 2022 till March 2023 to implement the Budget 2022-23 announcement by finance minister Nirmala Sitharaman.

Keeping in view the high proportion of non-fund-based credit in the overall credit of the civil aviation sector, the eligible borrowers were permitted to avail up to 50% of the highest total fund and non-fund-based credit outstanding, up to ₹400 crore per borrower.