Aviation firms in talks with banks to raise debt under modified ECLGS

On Sunday govt allowed firms in civil aviation sector that are facing headwinds to borrow up to Rs 200 cr fresh loan under the scheme

Companies providing support services to airlines have initiated discussions with banks to raise debt under the modified Emergency Credit Line Guarantee Scheme (ECLGS).

On Sunday the government announced that companies in the civil aviation sector which are facing headwinds would be able to borrow up to Rs 200 crore of fresh loans under the scheme.

Aviation sector sources and bankers say that the expanded scheme could address the financing requirements of ancillary units in the civil aviation sector whose financing requirements are lower than those of airlines.

“Since ECLGS scheme has been made available to the civil aviation sector, we are evaluating the funding options and our team is in discussion with banks to understand the modified scheme. We will be able to take a call once we have more clarity on the terms. The sector should be given another round of bank moratorium,” said Murali Ramachandran, India CEO of Celebi Aviation which provides ground handling services to airlines at major airports.

“Our business is at 20 per cent of the pre-Covid level but our costhave reduced only marginally. We have not received any relief on airport charges, rent or interest payments and we still need to

service those with a substantially depleted revenue inflow,” he added.

A spokesperson of the Bird group which also provides ground handling services said business has been a challenge as it is operating at only 30 per cent of its pre-Covid capacity. “We haven’t opted for restructuring of our loans and shall consider the ECLGS scheme,” he added.

Domestic air traffic fell 27 per cent in April on a sequential basis and contracted further in May as states tightened Covid-19 restrictions and enforced lockdowns. Rating agency ICRA estimates that domestic traffic in May fell sequentially by around 65-67 per cent to 1.9-2 million.

Subodh Rai, chief ratings officer, CRISIL Ratings said “ It will take at least two quarters for demand to recover to January-March 2021 levels. The move to include civil aviation in the scheme will provide the sector much-needed liquidity support amid materially constrained cash generation ability due to several localized lockdowns.”

“The continued inclusion of aviation in the ECLGS 3.0 with extended benefits of a six year period and two year moratorium will undoubtedly help a lot of aviation firms including us to maintain liquidity and overcome the acute headwinds emanating from the second wave of Covid-19,” said D Anand Bhaskar, managing director of Air Works, an aircraft maintenance repair and overhaul firm.

Airline executives said that the emergency credit line of Rs 200 crore will not have any material impact on their financials and instead the government should focus on giving waiver in dues and do structural changes like including Air Turbine Fuel (ATF) under GST.

“A Rs 200 crore of credit line means virtually nothing for an airline,” said a CEO of a private carrier.

Listed airlines IndiGo and SpiceJet earned revenue of Rs 1,714 crore and Rs 635 crore during October-December quarter.” In such a scheme of things, Rs 200 crore will not make any material impact,” the CEO said.

“Currently, most of the airline debt is owed to operational creditors like lessors and airports and not banks. So a credit line of Rs 200 crore will allow airlines to pay pending charges to those operational creditors and buy more time. Lessors are now daily asking to clear past dues. So if a company is able to clear a portion of the dues, it will help the airline to buy more time from the lessor,” an aviation source said.

Executives of airlines instead said that the companies should be given a waiver in terms of charges from landing and parking charges of airports. “Passenger numbers in flights are depleting because of government-induced lockdown and curfews. Hence, we have been forced to ground and park our aircraft in airports owned by the Airport Authority of India, which is a government organisation. But we are being forced to pay Rs 9 per minute for parking those. Government should

waive off those charges,” a CFO of a private airline said.