The Union Finance Ministry has allowed airlines to avail of up to Rs 1,500 crore loan under the Emergency Credit Line Guarantee Scheme (ECLGS), to help them tide over their cash flow problems.
Changes
- The Department of Financial Services (DFS) has modified the Emergency Credit Line Guarantee Scheme (ECLGS) for the aviation sector, raising the scheme’s cheaper loan limit to ₹1,500 crore from ₹400 crore to help the sector tide over cash-flow problems.
- The airline would be eligible for 100% of its fund-based or non-fund-based loan outstanding or ₹1,500 crores.
- It was earlier extended beyond March 2022 to March 2023.
About ECLGS
- ECLGS was launched in May 2020 as part of the Centre’s Aatmanirbhar package in response to the Covid-19 crisis. It is aimed at giving the necessary collateral-free liquidity loans at reasonable interest rates (and 4-year timeline for reimbursement) to support small businesses struggling and other sectors including aviation.
- 100% guarantee is provided by the National Credit Guarantee Trustee Company (NCGTC) to Member Lending Institutions (MLIs) – banks, financial institutions and Non-Banking Financial Companies (NBFCs).
- First-time borrowers and Non-Performing Asset (NPA) accounts cannot raise funds under the scheme.
So far, an airline could get a loan of up to 50 per cent of its total credit outstanding across all lending institutions under the ECLGS with a cap of Rs 400 crore.
The aviation sector was significantly impacted when international and domestic travel was curtailed during the peak of the Covid-19 pandemic. While the pandemic’s effect has been waning, the number of passengers travelling on their flights has not reached pre-pandemic levels as yet. Therefore, their balance sheets remain stressed.
Moreover, amid the Russia-Ukraine war, the prices of aviation turbine fuel (ATF) have shown immense volatility in the past several months. The cost of ATF forms around 40 per cent of total operating cost of airlines and impacts their financial viability.
The rupee has been weakening for the last several weeks. This is also impacting the airlines as they have to pay their aircraft lessors monthly lease rental amounts every month in US dollars.