Centre enhances collateral-free loan limit of airlines to tide over their cash crunch

With operating costs of airlines rising post an unprecedented rise in jet fuel price and devaluation of the rupee against the dollar, the Centre on Wednesday allowed them to avail more collateral-free loans to tide over their cash flow issues.

The credit limit to them has been enhanced under the government's Emergency Credit Line Guarantee Scheme (ECLGS) that was started during the Covid-19 pandemic.

The airlines have been allowed to avail additional debt of upto 100 per cent of their outstanding credit, subject to a cap of Rs 1,500 crore.

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The aviation industry is facing a fund crunch after they took to the skies post the pandemic. Banks have been cautious to lend to sectors that may face further problems in servicing such loans. Since contract-intensive services such as airlines have still not fully gathered momentum, securing loans for such entities has become difficult.

The problem has been aggravated for the smaller airlines whose balance sheets are still under stress.

In March, the centre modified the ECLGS to allow airlines to avail 50 per cent of their outstanding credit to a cap of Rs 400 crore per borrower. The same scheme was further modified on Wednesday, the finance ministry said.

“Recognising that an efficient and strong civil aviation sector is vital for the economic development of the country, the Department of Financial Services (DFS), Ministry of Finance, has modified the Emergency Credit Line Guarantee Scheme (ECLGS) to enhance the maximum loan amount eligibility for airlines under ECLGS 3.0 to 100 per cent of their fund based or non-fund-based loan outstanding as on the reference dates or Rs. 1,500 crore, whichever is lower; and of the above, Rs 500 crore shall be considered, based on equity contribution by the owners,” the ministry said in a statement.