The Centre's decision to extend the sovereign-backed Emergency Credit Line Guarantee Scheme (ECLGS) programme to the aviation sector could be of too little benefit for the sector and is likely to benefit only some of the players.

Mark D Martin MRAeS, CEO of Martin Consulting said, "Inclusion of the aviation sector into ECGLS is encouraging as it acknowledges the Government's acceptance of the deep financial impact with regard to air transport and airports in India.”

Koushik Jagathalaprathaban, Independent Consultant at consultancy AT-TV, saidthat airlines like Vistara and Indigo have already infused equity and/or have cash reserves to weather the storm. “Air India can get a sole sovereign guarantee whereas Spice jet and GoAir can benefit from the scheme but will add to their debt levels.”

BusinessLine had reported that SpiceJet had approached its lenders for a one-time debt restructuring and ₹500 crore working capital. According to sources, that proposal is moving at a snail’s pace.

Short-term impact

However, Ameya Joshi, aviation blogger, and founder of Network Thoughts, said that the ECLGS will have a short-term positive impact on airlines. While a loan of ₹ 200 crore will only help the airline for 3-6 months, this could go a long way as a stop-gap arrangement for somebody who is looking for ways to obtain funding in the medium term.

Also read: Multiplex, hospitality sector hope to get some relief from modification in ECLGS scheme

Ambit Capital’s Varun Ginodia explained that SpiceJet’s total borrowings at the end of September 20 was ₹420 crore implying they are eligible for additional funding of ₹170 crore . “As per our calculation, annual cash loss for SpiceJet based on 9M FY21 results was ₹1000 crore implying daily cash burn of ₹2.7 crore. Hence, the additional funding gives headroom for 65 days to SpiceJet.”

But this does not mean that all would soon be well for the aviation industry, According to Martin, at best, ECGLS should be taken as a cover and used to manage salaries. “The ₹200 crore amounts to just about $26 million, which does not offer any major financial support,"he said.

On the flip side, according to Ginodia, this step also delays the sector consolidation and is incrementally negative for airlines with strong balance sheet/promoters like Indigo and Vistara.

Anshuman Deb, an analyst at ICICI Securities suggested that it would be better if there could be more help under ECLGS in the future and if the government could also allow cuts in GST rate on ATF, which has been a longstanding demand and can increase the structural competitiveness of Indian airlines.

Whereas, Martin added that priority should be given to the airports including those airports that are under modernization and development and helicopter services engaged in Oil & Gas Essential Transport services.