The Indian aviation sector received a ₹5,000 crore lifeline under the government’s Emergency Credit Line Guarantee Scheme (ECLGS), which allows airlines to draw government-backed loans as soaring jet fuel prices and blackouts in West Asia strain their cash flows. The lifeline aims to ease short-term liquidity pressures and help carriers maintain operations amid rising costs and slowing traffic growth, and is part of ₹2.5 trillion ECLGS was approved by the Union Cabinet on Tuesday.
“Passenger airlines are eligible for up to 100% top line credit up to ₹1,500 crore,” Information and Broadcasting Minister Ashwini Vaishnaw said at a press conference.
ECLGS provides a government guarantee to banks and financial institutions for additional credit extended to eligible businesses and individuals, in this case airlines, to help them deal with the liquidity crisis caused by the war in West Asia.
An industry executive said airlines are eligible ₹1000 million credits. Other ₹500 crore will be increased if the promoter makes an additional capital infusion ₹500 million, bringing the total eligibility ₹1,500 million crowns. Further details including eligibility criteria will be announced by the Ministry of Civil Aviation.
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This is the second time that such a sovereign guarantee has been issued for the aviation sector. The previous one was during the pandemic.
Unlike other industry schemes that have a five-year period, the ECLGS for passenger airlines will be valid for seven years. Simply put, the scheme offers a special seven-year repayment window with a two-year moratorium. This essentially means a 24-month moratorium on debt repayments such as Equatable Monthly Installments (EMIs), principal or interest repayments. During this two-year period, interest may or may not accrue and will be repaid later.
Support wanted
Airlines, hit by high operating costs, including a doubling of jet fuel prices as a result of the war in West Asia, airspace closures and longer flight hours, have asked the ministry for support. The announcements were made through the Federation of Indian Airlines (FIA) – an industry body with IndiGo, Air India and SpiceJet as its members.
Aviation fuel typically accounts for 30-40% of an airline’s operating costs. However, this increased to almost 50% after March, the industry body said on its behalf at the ministry.
The industry, through the FIA, wrote to the ministry in late April that airlines would have to suspend some international routes and ground planes unless the government reduced taxes on jet fuel for overseas flights.
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In addition to a hit to international operations, especially to lucrative destinations in West Asia, Indian airlines have also seen domestic air traffic growth slow. Domestic air traffic growth slowed to 1.3% to 167.46 million in FY26, a sharp decline from the more than 7% growth reported in FY25. According to Directorate General of Civil Aviation (DGCA), passenger traffic was 165.4 million in the previous fiscal.
Major airlines, including Air India, IndiGo, SpiceJet and Akasa, are yet to respond to Mint’s emailed queries. The Ministry of Aviation has also not yet responded to questions.
Critical support
Sector analysts said the latest ECLGS is a crucial financial boost for airlines, especially the indebted ones.
“ECLGS 5.0 will provide a critical financial safety net to Indian airlines by offering a substantial liquidity cushion of up to 100% of peak working capital with a cap ₹1,500 crore per borrower. Positive for highly indebted airlines like SpiceJet,” said Karan Khanna, Principal Analyst, Hotel, Real Estate, Aviation, Small & Mid Caps at brokerage Ambit Capital. “The scheme offers a dedicated seven-year repayment window with a two-year moratorium and zero guarantee fee. Much relaxed for the aviation sector compared to other sectors which have a five-year repayment and a one-year moratorium,” he added.
This support is critical to easing operational tensions caused by the ongoing US-Iran war, as it allows carriers to absorb sudden spikes in jet fuel prices and increased costs associated with rerouting flights due to the closure of West Asian and Pakistani airspace, Khanna said. “Overall, this should help airlines sustain operations in the near term until geopolitical tensions stabilize.”
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Jainam Shah, aviation analyst at Equirus Securities, said “loss-making and financially stressed carriers will benefit the most, although this remains a short-term liquidity support.”
The Civil Aviation Ministry of India has already introduced a number of relief measures for domestic carriers. These include capping growth in aviation fuel prices to no more than 25% in April and leaving fuel prices unchanged in May. However, this relief is only for airlines operating on domestic routes. It does not include international flights, where fuel prices doubled in April and then saw another 5% increase in May.
Airlines have sought liberalization on international flights as well, including reductions or reductions in taxes and excise duties at the state level. These have yet to be accepted by the government.
The aviation ministry has also reduced the landing and parking charges of airlines at all airports by 25%.
Airlines responded to the increase in operating costs by raising ticket prices and introducing fuel surcharges, which were increased in April.
