SpiceJet has received Rs 150 crore under the Emergency Credit Line Guarantee Scheme (ECLGS) 5.0, but this represents only a fraction of its sanctioned Rs 500 crore. The carrier awaits another tranche of Rs 350 crore, highlighting a broader pattern where airlines receive partial disbursements while balance amounts remain stuck due to what the Federation of Indian Airlines (FIA) calls "continued hesitation on the part of lending institutions". This partial access to sanctioned funds creates immediate working capital shortfalls precisely when carriers need liquidity most.
The ECLGS 5.0 scheme, operational until March 2027, earmarks Rs 5,000 crore specifically for scheduled passenger airlines out of a total Rs 2.55 lakh crore credit guarantee facility. For the aviation sector, the scheme provides up to Rs 1,000 crore per borrower, with an additional Rs 500 crore subject to equivalent equity infusion. Loans carry a 7-year tenure including a 2-year moratorium on repayment, designed to ease short-term liquidity pressures. However, the gap between sanction and disbursement tells a story of implementation challenges.
The immediate pressure point is aviation turbine fuel (ATF). Prices have surged to record highs, crossing Rs 2 lakh per kilolitre for certain categories. Domestic ATF prices increased to approximately Rs 115 per litre from Rs 104.93 earlier, while international ATF prices have risen by Rs 73-75 per litre, making many international routes completely unviable. More critically, ATF expenses now account for 55-60% of airline operating costs, up from the earlier 30-40% range.
Compounding this fuel crisis are operational disruptions. The ongoing West Asia conflict since April 2026 has caused airspace closures and flight diversions, while Pakistan's airspace remains permanently closed since May 2025. These factors have severely strained airline liquidity and working capital, creating what the FIA describes as "unprecedented financial and operational challenges". The rupee's depreciation against the dollar further exacerbates the situation, as 35-50% of airline costs—including fuel, aircraft lease rentals, and maintenance expenses—are dollar-denominated.
Despite the 90% government guarantee coverage for airlines under ECLGS 5.0, lenders continue to exhibit caution in releasing balance sanctioned amounts. This hesitation stems from sector-specific risk perception and historical performance concerns. SpiceJet, for instance, has reported several instances of delays in monthly debt servicing (principal and interest) over the past 3-4 months, with a bank guarantee invocation in July 2026. Such events influence lender risk assessment even within a government-guaranteed scheme.
The assessment framework creates effectively different credit access tiers. Air India, with its Crisil AAA rating and Tata group backing, and IndiGo, with healthy liquidity and net debt to EBITDA of approximately 2.1 times, represent Tier 1 with full access to ECLGS 5.0 limits. SpiceJet, with negative net worth of Rs 2,983.47 crore in FY25 and total debt of Rs 4,218.5 crore as of March 31, 2025, falls into Tier 3, facing enhanced due diligence and delayed disbursements.
For ECLGS 5.0 loans exceeding Rs 500 crore, banks require additional security based on EBITDA performance during 9MFY26. If EBITDA is negative, borrowers must provide pledge of shares equivalent to at least 50% of incremental funding beyond Rs 500 crore, personal guarantees from promoters, or corporate guarantees from group entities with investment-grade ratings. These requirements create additional hurdles for financially stressed airlines.
The ECLGS 5.0 framework itself contains several requirements that can slow disbursements. Borrowers must have credit facilities classified as 'Standard' (excluding SMA-2) as of March 31, 2026, and loan repayments should not be overdue by more than 60 days. For airlines with recent debt servicing delays, these eligibility criteria become problematic.
The operational guidelines require Member Lending Institutions (MLIs) to check and satisfy borrower eligibility, cross-verify Days Past Due (DPD) status across all MLIs using Credit Information Company (CIC) data, ensure primary securities are in good and enforceable condition, and conduct due diligence through respective sanctioning authorities. In consortium or multiple banking arrangements, obtaining No Objection Certificates (NOCs) from other lenders is required when availing funding exceeding a lender's proportional 20% share. This coordination requirement can significantly delay disbursements.
The Jan Samarth Portal-based application process involves multiple steps: borrower application with self-declared details, forwarding to selected lender branch, lender assessment and sanction, and real-time sharing of sanction details with NCGTC. While designed for efficiency, this process requires coordination between borrowers, lenders, and NCGTC, with each step potentially creating delays if documentation or eligibility issues arise.
ECLGS 5.0 funds come with strict end-use restrictions. Up to Rs 100 crore may be utilized for all working capital expenses except payments to promoters or related entities. However, credit support exceeding Rs 100 crore can only be used for salary expenses (excluding executive directors/CEO), ATF/fuel purchases from Oil Marketing Companies, airport charges, aircraft lease charges, and statutory expenses—all based on auditor's certificate. These restrictions explicitly exclude capital expenditures such as fleet expansion, new route development, or technology investments.
This creates a strategic dilemma for airlines. The industry has massive capex commitments, with Indian airlines having ordered more than 1,700 aircraft. IndiGo has ordered 500 Airbus A320 Family aircraft and 30 Airbus A350-900 aircraft, while Air India has ordered 570 aircraft. These long-term strategic investments cannot be funded through ECLGS 5.0, forcing airlines to prioritize short-term operational survival over long-term competitive positioning.
CRISIL estimates working capital requirements to expand 25-30% this fiscal, necessitating funding through both internal accruals and external sources. The ECLGS 5.0 funds are specifically designed to address this working capital expansion, not to fund capital expenditures. For financially stressed airlines like SpiceJet, this means capex plans may need to be deferred or scaled back, risking competitive disadvantage if fleet modernization is delayed.
The Indian airline industry experienced a remarkable post-pandemic recovery that has now been significantly disrupted. In FY24, the industry saw operating profit near tripling, with FY25 projecting over 20% growth fueled by strong passenger traffic recovery and ability to pass on volatile fuel prices. Net losses compressed significantly from Rs 235 billion in FY22 to Rs 50-70 billion in FY24. The industry outlook was Stable with expectations of continued profitability.
However, the West Asia conflict beginning in late February 2026 triggered a sharp reversal. ATF prices doubled from USD 85-90 per barrel to USD 150-200. ICRA now expects the Indian aviation industry to report a net loss of Rs 360-380 billion in FY27, significantly higher than its earlier forecast of Rs 110-120 billion. This represents a complete deterioration of the recovery trajectory achieved over the past three years.
The FIA's urgent appeal to Civil Aviation Minister Ram Mohan Naidu reflects the severity of this collective crisis. The industry body, representing Air India, IndiGo, and SpiceJet, has written seeking urgent intervention for expeditious disbursement of credit support. The letter emphasizes that airlines play a critical role in national connectivity, trade, tourism, employment, and economic growth, and that the sector's financial and operational sustainability is important for the wider economy and the government's vision of Viksit Bharat 2047.
The release of balance ECLGS 5.0 funds will have complex effects on airline leverage profiles. For airlines with negative net worth like SpiceJet, ECLGS 5.0 disbursements will initially worsen debt-to-equity ratios as debt increases while equity remains negative. However, the 2-year moratorium and Funded Interest Term Loan (FITL) option—allowing conversion of up to 50% of interest accruing during the moratorium period into a separate term loan—provide critical cash flow relief.
The Indian airline industry faces systemic leverage challenges. Industry net debt is expected to reach Rs 1.1 lakh crore by March 2026, a 10% year-on-year increase despite improved liquidity. The net debt to operating profit ratio is projected to rise to 5-5.5 times in FY26, up from 4.3 times in FY25. The industry's interest coverage ratio is projected at 0.7-0.9 times for FY26, indicating severe debt service pressure.
CRISIL notes that for its rated corporates, the incremental support in the form of ECLGS 5.0 could add approximately 10% of existing debt to balance sheets, with repayment obligations beginning in fiscals 2028 and 2029. The agency believes companies will have sufficient cash flows to service these obligations given current balance sheet strength of most entities. However, this assessment may not apply uniformly across all carriers, particularly those with existing financial stress.
The continued hesitation by lending institutions in releasing balance ECLGS 5.0 funds threatens to derail the operational recovery achieved during the post-pandemic period. With working capital requirements expanding 25-30% this fiscal and ATF prices at record highs, timely access to sanctioned credit is not merely desirable—it is essential for survival. The FIA's collective action underscores that this is not a SpiceJet-specific problem but an industry-wide crisis requiring coordinated policy response before individual airline distress cascades into systemic failure.
