Foreign loan limit on airlines likely to be lifted

The civil aviation ministry has sought approval of the finance ministry to increase the $300-million cap for raising of foreign funds for working capital requirements by individual airline companies.

This follows a request from Jet Airways. It wishes to raise more funds for this need through external commercial borrowing (ECB), government sources said.

These are commercial loans taken by companies from non-resident lenders. The cap for a scheduled airline is $300 mn and the aviation sector as a whole can raise a maximum of $1 billion, according to Reserve Bank of India (RBI) guidelines.

Jet already has $300 mn of ECB. "We do not wish to comment on this issue," a spokesperson said in response to an e-mailed questionnaire. Airlines avail of this facility because of the interest rate difference between domestic loans and debt taken from abroad.

"Domestic airlines have not been able to collectively raise funds to the extent of $1 bn allocated for the whole industry. Airlines such as Jet which want more funds through ECB are not able to do so and the balance ECB remains unutilised," said a senior aviation ministry official.

Jet and GoAir have together availed $350 mn as ECB, sources said. Government-owned Air India (AI) recently issued a global tender for raising $300 mn through ECB. If it can do so, $350 mn will be left for the sector.

A GoAir spokesperson said since it was not a listed company it would not like to disclose numbers. An AI spokesperson said they were raising ECB mainly for aircraft engines and spares.

The last date for raising ECB ended on March 31 and an extension in the window has also been sought, sources said.

This also comes at a time when a government-appointed panel (the M S Sahoo panel report) has recommended removal of sector-specific and company-specific caps on ECB.

"The overall ECB ceiling limit for the sector and for individual airlines is inadequate. We welcome the Sahoo panel's recommendation," said Kapil Kaul, chief executive, South Asia, at the Centre for Asia Pacific Aviation.

The facility of raising ECB for working capital requirements was introduced in the Union Budget for 2012-13. RBI has since extended the window for airlines to raise ECB twice, with the most recent deadline being March 2015.