Key Points
- Cabinet approves Rs 5,000 crore credit guarantee scheme for airlines under ECLGS 5.0
- Airlines can borrow up to Rs 1,500 crore with 100 per cent government guarantee
- Seven-year loan tenure includes two-year moratorium on repayments
The Union Cabinet on Wednesday approved a Rs 5,000 crore credit guarantee scheme for Indian airlines facing financial stress from rising fuel costs and operational disruptions caused by the ongoing West Asia conflict.
The Emergency Credit Line Guarantee Scheme 5.0, or ECLGS 5.0, will allow airlines to borrow up to Rs 1,500 crore each with 100 per cent government-backed guarantee coverage. The scheme also covers micro, small and medium enterprises with similar credit support.
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Under the scheme, the National Credit Guarantee Trustee Company Limited (NCGTC) — the government body that manages credit guarantee programmes — will provide coverage to banks and other lending institutions for loans extended to eligible borrowers.
Airlines can access loans of up to Rs 1,000 crore per borrower, with an additional Rs 500 crore available if the airline raises an equivalent amount through equity. The loans carry a seven-year tenure, including a two-year moratorium — a period during which borrowers need not make repayments.
Borrowers may also convert up to 50 per cent of interest payments into a Funded Interest Term Loan (FITL), a structure that defers interest payments to reduce immediate cash outflow. This provision aims to ease liquidity pressure on carriers whose revenues have fallen due to airspace closures and reduced international operations.
For working capital needs, airlines can access additional credit of up to 100 per cent of their peak working capital utilisation during the fourth quarter of the 2025–26 financial year, capped at Rs 1,500 crore. MSMEs can access up to 20 per cent of peak working capital, capped at Rs 100 crore.
West Asia disruptions strain Indian carriers
The scheme responds to financial stress caused by sharp increases in Aviation Turbine Fuel (ATF) prices and airspace restrictions that have forced airlines to take longer routes on international flights. These diversions have reduced aircraft utilisation — the number of hours each plane flies daily — cutting into airline revenues while operational costs remain high.
Civil Aviation Minister Ram Mohan Naidu said the scheme would help airlines navigate short-term liquidity challenges while maintaining operations during global disruptions.
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“It will provide strong financial backing to safeguard jobs, sustain connectivity and ensure resilience across the aviation sector, while also supporting MSMEs,” Naidu said.
The guarantee coverage will remain valid for the full tenure of each loan. All loans must be sanctioned between the date of NCGTC’s operational guidelines and 31 March 2027.
The government expects the scheme to mitigate the impact of exchange rate volatility and ATF price increases on airline balance sheets. By backing credit with sovereign guarantee, the scheme aims to improve lender confidence and prevent airlines from passing increased costs to passengers through higher fares.
MSMEs will receive 100 per cent guarantee coverage, while larger non-MSME borrowers outside the airline sector will receive 90 per cent coverage under the same scheme.
Your Questions, Answered
What is ECLGS 5.0 and how does it help airlines?
ECLGS 5.0 is a government credit guarantee scheme that backs bank loans to airlines with 100 per cent sovereign guarantee. Airlines can borrow up to Rs 1,500 crore each to address liquidity challenges caused by rising fuel costs and West Asia-related disruptions.
What are the loan terms under ECLGS 5.0 for airlines?
Airlines can access loans of up to Rs 1,000 crore, with an additional Rs 500 crore if they raise equivalent equity. Loans have a seven-year tenure with a two-year moratorium on repayments.
When does the ECLGS 5.0 scheme end?
All loans under ECLGS 5.0 must be sanctioned by 31 March 2027. The guarantee coverage remains valid for the full tenure of each loan.
Why are airlines facing financial stress currently?
Airlines face rising ATF prices, airspace closures due to the West Asia conflict forcing longer routes on international flights, reduced aircraft utilisation and exchange rate volatility, all affecting revenues and cash flows.