In a much-needed respite for smaller airlines like SpiceJet and Go First, the Indian Finance Ministry has expanded the scope of the Emergency Credit Line Guarantee Scheme (ECLGS) to enhance the maximum loan amount eligibility for airlines under ECLGS 3.0. With this measure, airlines can avail of the necessary collateral-free liquidity at reasonable interest rates to tide over their present cash flow problems, according to an official statement by the ministry.
Under the latest modification, 100% of the fund-based or non-fund-based loan outstanding as on the reference dates or INR 15bn, whichever is lower; and of the above, INR 5bn shall be considered. This would be based on equity contribution by the owners.
Previously, Indian civil aviation firms were allowed to borrow up to 50% of their highest fund-based credit outstanding, subject to a maximum of INR 4bn per borrower, as against 40% of their credit outstanding as part of earlier iterations of the ECLGS scheme.
Under the ECLGS, banks will provide additional loans to existing borrowers without asking for extra collateral to help them cope with the liquidity crunch resulting from COVID-19 curbs. These loans are also fully guaranteed by the government against credit losses.
Most Indian airlines are still facing issues such as high fuel costs and limited domestic passenger operations, coupled with a weakening rupee. Many airlines are yet to restore employee salaries to pre-pandemic levels. SpiceJet, which has been struggling with financial problems for a long time, hopes to make the most of this opportunity. SpiceJet plans on receiving an additional $100 million through the modified scheme. The airline is already looking at a fundraiser of $200 million and this new funding will help the airline clear all statutory dues, and lessor payments, as per sources.
Ajay Singh, Chairman and Managing Director, SpiceJet, said: “This latest decision of enhancing the ECLGS limit for the troubled airline sector 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.”
Sources have also claimed that, with the additional funds, SpiceJet plans to induct additional MAX jets with an aim to operate a younger and more fuel-efficient fleet to help gain profits.