Effects of Increased ECLGS Borrowing Limits for Indian Carriers

In an effort to alleviate the liquidity crunch of Indian carriers, the Department of Financial Services of the Ministry of Finance (MoF) has amended the Emergency Line of Credit Guarantee Scheme (ECLGS). This move will allow Indian carriers to continue to access unsecured cash to overcome their current cash flow problems.

Indian carriers continue to face a complex operating environment and rising input costs, which have impacted their efforts to return to profitability. The sharp rise further hampered them in ATF prices and the depreciation of INR against the US dollar, and they expected to record net losses of up to INR 17,000 crore for FY22-23 .

In a report released by ICRA in September, its vice president and sector head, Suprio Banerjee, said a rapid recovery in domestic passenger traffic is expected in FY23, aided by improved demand in the leisure and business travel segments. Despite an expected improvement in passenger traffic, the industry is estimated to be reporting a net loss of ~INR. 150-170 billion in FY23 (vs. INR 230 billion in FY22) due to high ATF prices and the recent depreciation of INR against the US dollar, which have both have a major impact on the cost structure of airlines. The report also noted that the industry’s debt levels are expected to be around INR 100,000 crore (including lease debts) as of March 31, 2023.

Bearing in mind these continuing challenges for India’s commercial aviation sector, the government has now increased the eligibility of the maximum loan amount for airlines under the ECLGS 3.0 to 100% of the outstanding amount. of their fund-based or non-fund-based loans on the reference dates or INR 1,500 crore, whichever is lower. Of this amount, INR 500 crore will be considered, based on the owners’ capital contribution, according to a statement from the Ministry of Finance. The ECLGS amendments aim to provide unsecured liquidity to cash-strapped entities in the Indian civil aviation sector at reasonable interest rates to overcome their current cash flow problems.

Under earlier ECLGS standards announced in March last year, eligible borrowers were allowed to qualify for up to 50% of their highest total funds and non-funds-based credit outstanding, subject to a maximum of INR 400 crore per borrower. It was also announced last year that to further reduce their cost of accessing non-funds based credit, bank guarantees, letters of credit and other non-funds based facilities sanctioned by ECLGS 3.0 would be issued without any cash margin and subject to a cap of 0.5% per annum on fees/commissions. The Ministry of Finance has also extended the ECLGS scheme until March 2023. Loans sanctioned under the ECLGS exceeded INR 3.19 lakh crore (as of March 25), with approximately 95% of guarantees issued for sanctioned loans micro, small and medium-sized enterprises (MSMEs).

Growth returns but challenges abound

Despite the challenging high cost environment, Indian carriers are witnessing an upsurge in air traffic demand, with 777.7 lakh passengers carried by domestic airlines from January to August 2022 compared to 460.45 lakh in the same period last year. This corresponds to an annual growth of 67.38% and a monthly growth of 50.96%. As of October 5, there were 5,367 domestic airport movements at Indian airports, with 2,683 departing flights and over 350,000 passengers traveling. For international travel, there were 895 international aircraft movements at Indian airports, with nearly 500 inbound flights and over 71,000 inbound passengers.

Summary of the story

According to data provided by the DGCA, IndiGo was the leading Indian carrier in August with a market share of 57.7%, followed by Vistara at 9.7%, then Go First and Air India at 8.6% and 8, 5%, respectively. SpiceJet’s market share was 7.9%, followed by Air Asia at 5.8%. According to data provided by the Ministry of Civil Aviation as of October 5, Air India had the highest load factor at 85.3%, followed by Go First and Air Asia India at 84.3% and 83.4%. , respectively. Vistara had a load factor of 78.5%, followed by IndiGo which brought up the rear at 78.4%. However, Air Asia India and Air India led on-time performance on October 5 with 100% and 97% respectively. Next come Vistara, Go First, IndiGo and SpiceJet at 94.2%, 93%, 92.5% and 90.2%, respectively.

Rising operating costs continue to pose an existential challenge to Indian carriers, and ATF prices are unlikely to fall in the short to medium term due to the ongoing conflict between Ukraine and Russia. According to the ICRA report, ATF prices in September averaged INR 124,400/KL, which was about 60% more expensive than the FY2022 average of INR 74,171/KL. The report also indicates that the depreciation of the INR against the US dollar would have a major impact on the cost structure of Indian carriers since 35-50% of their operating expenses – including operating lease payments, Fuel expenses and a significant portion of aircraft and engine maintenance expenses are in dollars.

SpiceJet stays in the air

SpiceJet remains in operation despite continued losses and a reduction in the number of planes in its fleet. The carrier is expected to be one of the main beneficiaries of the recently amended ECLGS scheme. “This latest decision to increase the ECLGS limit for the struggling airline industry will be a huge boost to airlines. I am once again asking the government for their support in including ATF in the GST as a game changer. for the entire industry,” said Ajay Singh, Chairman and CEO of SpiceJet, as quoted in the Hindu Business Line. SpiceJet has also sought to attract new investment in the airline to the tune of INR 1,600 crore.

SpiceJet had announced a net loss of INR 789 crore in Q1FY23 compared to a net loss of INR 729 crore in the same quarter a year ago. Company officials attributed the losses to record fuel prices and the depreciation of the rupee. SpiceJet’s total revenue for the reported quarter was INR 2,478 crore, nearly double its revenue in the same quarter a year earlier at INR 1,266 crore. SpiceJet had reported a net loss of INR 1,725 ​​crore for FY22 compared to INR 998.3 crore for FY21. The carrier’s cargo operations division, SpiceXpress, has given it a much needed boost and is expected to introduce additional cargo aircraft in FY23.

Air India accelerates

The Tata Group is slowly turning around the Air India Group juggernaut, although it will take years to return to profitability. The most recent announcement regarding this aspect was “Vihaan.AI”, the transformational roadmap plan for the next five years, focusing on the growth of its network and fleet, the development of a completely revamped customer proposition and improving reliability and timeliness. Air India was aggressively boosting its international presence and announced in September that it would add 20 additional weekly flights to Birmingham, London and San Francisco in phases from October.

Air India A320

Campbell Wilson, CEO and Managing Director of Air India, said: “As Air India reinvents itself under the Vihaan.AI transformation program, increasing frequency and improving connectivity to major cities Indians to more international destinations is an important goal. This significant increase in frequency to the US and UK, along with the addition of new city pairs and aircraft cabin interior upgrades, comes just ten months after the acquisition of Air India by the Tata group. It is a clear signal of our intention and a first step towards a much greater aspiration.

IndiGo turns to freight

IndiGo took delivery of its first A321P2F aircraft at the end of September, marking a major milestone in the carrier’s growing cargo aspirations. Mahesh Malik, Commercial Director of CarGo, IndiGo, said: “CarGo has always been a success story for us, especially in evidence during the pandemic. The CarGo business generated revenue when scheduled commercial flights were at a standstill. Our partnership with the Airbus program for freight will further strengthen our activities in the CarGo segment and act as a powerful engine of economic growth for the country. We clearly remain optimistic about the future of Indian aviation and CarGo’s place within it – and the expansion to a full-fledged freighter fleet demonstrates this confidence. “The A321P2F (passenger-to-freighter conversion) is a passenger jet converted to a full freighter configuration and can carry a payload of up to 27 tonnes with 24 container slots on offer. IndiGo’s A321PF fleet will use the the airline’s existing pool of pilots and engineers IndiGo leased the aircraft from funds managed by Castlelake Aviation Holdings (Ireland) Limited.

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