Airlines send out SOS as loans dry up, fuel prices hit record high

Loans for Indian airlines have dried up as banks have become cautious to lend to the sector.

The aviation industry is facing severe funding roadblocks even as skies are opening up and the impact of Covid is on the wane.

Loans for Indian airlines have dried up as banks have become cautious to lend to the sector.

With fuel prices reaching record high, escalating the cost of operation, airlines have sought government intervention in getting banks to lend working capital.

While market leader IndiGo has been able to tap banks to raise loans due to its strong cash position, it has become difficult for smaller airlines like SpiceJet and Go First to get loans from banks due to their stressed balance sheets, people close to the development said.

The Tata group-owned airlines have got regular equity infusion from the parent company, to deal with the situation.

The situation has worsened as these airlines have been unable to tap funds from markets through Initial Public Offering (IPO) or Qualified Institutional Placement (QIP).

While both Go First and SpiceJet made fund-raise announcements via IPO and QIP, the process is yet to take off.

With airlines pushing for more relaxed credit norms, Civil Aviation Minister Jyotiraditya Scindia and Finance Minister Nirmala Sitharaman held a meeting with airline bosses and heads of banks recently.

Airlines want banks to relax their lending criteria for the sector.

"We have made our case to the FM. We have said that while looking at credit worthiness of airlines, banks cannot consider criteria before 2020. They must also set conditions considering the restructured balance sheets after 2021," said an airline executive.

The liabilities to vendors and suppliers as well as debt position have all significantly changed after the Covid waves, the executive said.

While airlines such as SpiceJet and GoAir, got guaranteed support to the extent of about Rs 349 crore (Rs 3.49 billion) under the government's Emergency Credit Line Guarantee Scheme (ECLGS), executives pointed out it wouldn't suffice.

According to multiple people Business Standard spoke to, lenders are asking for increased collateral especially from airlines or they are asking promoters to pledge more personal holdings to access loans.

"There is an intrinsic risk of lending to airlines. Most of them operate on asset light models. Hence in case of a default, there are little tangibles that we can monetise. Moreover, multiple bankers have faced enquiries in the Kingfisher Airlines case. This is fresh in the mind of bankers," said an executive of a public sector bank.

For instance, Wadia-group owned Go Air, which last year rebranded itself to Go First, has only been able to raise loans from Central Bank of India, Bank of Baroda, IDBI Bank only after group firm Wadia Realty mortgaged land parcels.

Loans from banks became necessary for Go First after its planned IPO got delayed twice due to the disruption caused by Omicron variant.

The airline plans to use over 50 per cent of the IPO proceeds towards prepayment and scheduled repayments of borrowings.

An amount of Rs 255 crore (rs 2.55 billion) is earmarked to repay dues to Indian Oil Corporation for fuel supplies.

The repayment and prepayment would have cleared a substantial portion of the airline's total outstanding debt, which stood at about Rs 2,956 crore (Rs 29.56 billion) on April 19, 2021, helping reduce its finance costs.

The airline now plans to have a public listing only after the market situation improves.

A Go First spokesperson refused to comment on questions sent by this newspaper regarding loans accessed by it or IPO timelines.

SpiceJet Chairman and Managing Director and Assocham Vice-President Ajay Singh called the civil aviation sector "chronically ill".

It needs Centre's support as banks have been withdrawing facilities -- even if they are well serviced-- from companies that could potentially face problems related to certain sectors, according to Singh.

SpiceJet had approached bankers for fresh credit of Rs 500 crore (Rs 5 billion), but the bank has not yet approved the proposal.

"We are still examining the proposal and the airline's restructuring plans including evidence for final settlement with various creditors and vendors," said an executive of a private sector bank which has been approached by SpiceJet.

48.84 per cent of promoter's stake of the company is already pledged with lenders.

'There needs to be a message of support from the government. Perhaps for two to three years, aviation could be put under priority sector for bank lending or granted infrastructure category status,' Singh said at a recent industry event.

'That could greatly help as today banks are not there when we need them. Oil has crossed $100 a barrel and this is the single largest input in aviation,' he added.

An expert tracking the sector said lenders were looking for signs from promoters for skin in the game before offering fresh credit lines.

"Lending is used up as working capital as opposed to recapitalisation and growth. That leads to weak airlines impacting industry pricing power, capacity dynamics and overall risk premiums," said Satyendra Pandey, managing partner at the aviation services firm AT-TV. His advice is that in the current situation, weaker airlines have to at least attempt to strengthen the balance sheet, mostly by way of equity infusions.

Feature Presentation: Ashish Narsale/Rediff.com