In a relief to the struggling Indian airlines, the government has decided to increase the credit limit for the aviation sector under a special scheme that was announced during the COVID pandemic. Voices from the industry had been pushing for these modifications as some carriers were in a difficult position due to the pandemic and the rising fuel costs.
Loan limit raised
On October 5th, India’s Ministry of Finance amended the Emergency Credit Line Guarantee Scheme (ECLGS) for the aviation sector in India and increased the credit limit available to cash-strapped carriers.
Announced in May 2020, when the pandemic halted flight operations around the world, the ECLGS intended to offer financial support to sectors hit the hardest by lockdowns. The credit available under this scheme was at a reduced rate of 7%.
Airlines can now borrow up to 100% of their outstanding debts up to $183 million. Photo: Getty Images
But earlier, eligible borrowers could only take up to 50% of their credit outstanding up to $48 million. With the latest modifications, airlines can now borrow up to 100% of their outstanding debts up to $183 million.
The scheme has been modified for the second time, given the fragility of the aviation sector and to provide airlines collateral-free liquidity during these tricky times.
Requests were made weeks ago
The Ministry of Civil Aviation started pushing for modification in ECLGS weeks ago after looking at the precarious finances of some airlines. Civil aviation secretary Rajiv Bansal had written to the finance ministry earlier, stating,
“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.”
Thankfully, the finance ministry finally listened to the aviation ministry and relaxed the rules to the terms and conditions wanted by the sector.
Naturally, airlines welcomed the decision, as some airlines that have seen their finances deteriorate sharply during the pandemic see the government lifeline given to them. The last few months have witnessed agitated airline employees protesting low or delayed salaries and operations being affected due to weak finances.
SpiceJet, in particular, is happy with the latest decision, with its Managing Director Ajay Singh commenting,
“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.”
The airline has already raised millions under the scheme and plans to borrow more to stay afloat. Go First is another candidate likely to benefit from the latest announcement, having previously raised around $3 million under the scheme.
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