SpiceJet And GoAir Take Emergency Government Loan

As Indian airlines continue to battle the storm, some have reached out to the government for emergency aid. Under the program, SpiceJet is guaranteed ₹127.5 crores ($17.1mn), while GoAir will get 25.6 crores ($3.45mn). The news comes as the government steps up efforts to help the aviation industry, although still remaining far from any direct stimulus.

SpiceJet 737
SpiceJet and GoAir have both been facing serious financial headwinds due to COVID-19. Photo: Getty Images

Quick

In a statement before Parliament, seen in Mint, Civil Aviation Minister of State VK Singh spoke about the ongoing aid to the aviation industry. Under the Emergency Credit Line Guarantee Scheme (ECLGS), which was only extended to aviation in late May, the government has given out ₹349 crores ($46.9mn) in loans.

Only two airlines have opted to receive funding from the program, SpiceJet and GoAir. SpiceJet’s request was the most recent, under Phase 3.0 of ECLGS, and the struggling low-carrier is guaranteed ₹127.5 crores ($17.1mn) to help support it through the crisis.

GoAir A320 SpiceJet
With the second wave crippling airlines in May, both carriers have jumped at the chance for extra capital. Photo: Getty Images

Meanwhile, GoAir has taken a much smaller loan under Phase 2 of ECLGS, amounting to 25.6 crores ($3.45mn). However, this could be in addition to the massive ₹800 crore ($108.6mn) credit line from banks that is backed by the same program.

However, it isn’t only airlines that are benefitting from this emergency loan scheme. Smaller companies in the aviation industry like ground handling firm Bird Flight Services Mumbai (₹8.5 crores/$1.1mn), CAE Simulation Training (18.4 crore/$2.5mn), and eight others have received varying amounts of funding to survive the prolonged downturn.

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Important

The government extended coverage of emergency loans to nearly all aviation-related companies in May of this year. The decision came after passenger traffic fell to its lowest level in over a year amid a catastrophic second wave of COVID-19. To ensure companies could survive the fallout, ECLGS became far more accessible to the industry.

These loans will be beneficial in the short term, mainly in helping carriers survive the pandemic. SpiceJet has had to “defer” salaries for two months and institute huge pay cuts to keep flying, and has lost substantial market share.

GoAir A320 engine Getty
GoAir has made a loss for a few years now and began the pandemic with a rapidly growing debt pile. Photo: Getty Images

Meanwhile, GoAir’s mounting debt has become a huge concern for the airline. While the carrier is planning an IPO to help pay off its massive dues, an ongoing pause means it could be a while before it gets adequate funding. Until then, every penny will count towards continuing to fly.

Rebounding now

There is good news on the horizon, however. Domestic passenger traffic has made an impressive recovery in June and July, with both GoAir and SpiceJet now seeing load factors of over 70%. This will go a long way in boosting revenues and allowing them to add further capacity in the coming months, increasing their market share once again. For now, any government assistance to the industry will be seen as a positive step.

What do you think about airlines drawing from the ECLGS? What more could the government be doing? Let us know in the comments!

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