Aviation ministry details credit lifeline norms for airlines

New Delhi: A homegrown airline can now borrow up to ₹1,500 crore from banks for over seven years, with no interest for the first two years. This is a key takeaway from India's new emergency credit line guarantee scheme (ECLGS) that allows airlines to take additional loans with a government guarantee, the norms of which were detailed by the civil aviation ministry on Wednesday.

The scheme was cleared by the Union Cabinet on Tuesday. The ₹2.55 trillion scheme has earmarked around ₹5,000 crore of credit for airlines.

The country's aviation sector is reeling under the twin blows of the West Asia war and the jet fuel price surge due to the supply disruptions.

As per the details of the scheme, airline companies can borrow up to their Jan-Mar working capital levels, capped at ₹1,500 crore. Loans taken until 31 March 2027 will be eligible under this scheme.

The maximum benefit that an airline can claim is initially limited to ₹1,000 crore. An additional ₹500 crore will be extended if the airline promoter makes a matching equity infusion of ₹500 crore.

These loans aim to ease short-term liquidity pressures of airlines.

Under the package, most firms can take an additional loan of up to 20% of what they used as working capital in January-March of 2026, capped at ₹100 crore. However, airlines are allowed to borrow up to the entire earlier amount again.

The government will guarantee these loans for their full duration, reducing risk for lenders. It is meant to help the airlines stay financially stable and continue operations.

The scheme will help mitigate the impact of rising aviation turbine fuel (ATF) prices, exchange rate volatility and operational disruptions, which continue to affect the financial health of airlines, the civil aviation ministry statement said.

“By enabling access to credit backed by sovereign guarantee, it will enhance lender confidence, improve credit flow to the sector and support operational stability," the ministry said. “It is also expected to sustain employment, preserve sectoral capacity and help minimize the pass-through of increased costs to passengers.”

A similar credit package with such a sovereign guarantee had been rolled out for airlines during the pandemic.

Airlines had sought government support as the sector has been hit by high operational costs, including doubling of jet fuel prices due to war in West Asia, closure of airspaces and longer flying hours. Representations were made through the Federation of Indian Airlines that includes the Air India Group, IndiGo and SpiceJet as its members.

Typically, jet fuel accounts for 30-40% of operating costs of an airline. However, since March, this has increased to nearly 50%, the industry body said in its representation.

Airlines had said they would have to suspend some international routes and ground aircraft unless the government lowered taxes on jet fuel for overseas flights.

The sector has also seen a slowdown in domestic air traffic growth. Domestic air traffic growth slowed down to 1.3% to 167.46 million in FY26, sharply down from the over 7% growth of FY25, as per data from the Directorate General of Civil Aviation.

“In the present scenario of unpredictable and unprecedented times, when airlines across the world are struggling with operations, Indian airlines have remained steady, supported by timely measures, be it capping of ATF prices amidst global surge, reduction in airport landing and parking charges…" civil aviation minister Ram Mohan Naidu said in the statement. "By approving ECLGS 5.0, airlines will be enabled to navigate short-term liquidity challenges and maintain seamless operations amid global disruptions.”