Credit line

eclg: the government strengthens the line of credit for airlines

The government has expanded the scope of the Emergency Line of Credit Guarantee Scheme (ECLGS) to improve eligibility for the maximum loan amount for airlines under ECLGS 3.0.

The change will allow cash-strapped airlines like SpiceJet, Go First to get more unsecured loans under the scheme.

Alarmed by the poor financial condition of Indian airlines, the Ministry of Civil Aviation had lobbied to increase the credit limit granted to them under the ECLGS scheme.

The scheme, announced in 2020, was designed to provide unsecured, government-guaranteed loans to ease the financial distress caused by Covid on businesses.

“The changes introduced are aimed at providing the necessary unsecured liquidity at reasonable interest rates to overcome their current cash flow problems,” a statement from the Ministry of Finance said.

Sources said SpiceJet is likely to get an additional loan of around Rs 1,000 crore due to the change, which will significantly boost the airline’s efforts to raise the Rs 2,500 crore target. Airline executives said the fund will be used to make the lease payment to induct the new Boeing 737 Max plane, settle unpaid statutory dues like the employee provident fund. “This will settle the airline’s survivability issue once and for all,” an airline executive said.

SpiceJet was guaranteed Rs 352 crore under the scheme while Wadia-owned Go First raised Rs 25.65 crore.

Earlier this month, Civil Aviation Secretary Rajiv Bansal wrote to the Ministry of Finance 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. ET reported on the development in its September 6 edition.

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.

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 speed and urgency with which the Ministries of Aviation and Finance have addressed the issues and problems faced by airlines post Covid and due to record oil prices is nothing short of remarkable,” said Ajay Singh , promoter and CMD at SpiceJet.