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Business News/ Politics / Policy/  After SpiceJet crisis, govt considers special package for airlines
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After SpiceJet crisis, govt considers special package for airlines

Package may include granting infrastructure status to airlines and dealing with the issue of high-cost jet fuel

The government will also take up the issue of costly jet fuel, which accounts for 50% of expenses for Indian airlines. Photo: Ramesh Pathania/MintPremium
The government will also take up the issue of costly jet fuel, which accounts for 50% of expenses for Indian airlines. Photo: Ramesh Pathania/Mint

Mumbai: The aviation ministry is considering a special package for airlines in the wake of the crisis at SpiceJet Ltd, according two ministry officials who declined to be named.

“We are preparing special relief measures for Indian airline companies, including granting infrastructure status. The said package is not restricted to SpiceJet. We are talking to finance ministry to finalize the plan," said one of the ministry officials. He said the ministry will take up the proposals after the current Parliament session.

SpiceJet, India’s second-largest low-fare airline was forced to suspend its flights briefly on Wednesday after being asked to pay upfront for fuel.

The second official said that later, the government will also take up the issue of costly jet fuel, which accounts for 50% of expenses for Indian airlines.

“Certainly, the SpiceJet crisis has triggered this proposal, but the package would not be specific to SpiceJet. There is a series of proposals that should make life of Indian airlines better," the first official said, without elaborating.

On Thursday, SpiceJet said all its 230 scheduled flights were operating normally.

The aviation ministry has permitted SpiceJet to accept bookings till March-end, asked banks to give short-term working capital loans worth 600 crore and requested state-owned oil companies to extend a credit line for jet fuel for two more weeks.

Infrastructure status could help airlines access funds cheaper.

However, bankers are not enthused.

“Banks can probably take a higher exposure when it comes to companies with an infrastructure tag and they will be allowed to reschedule the repayment for these companies faster. Other than that, as a banker, there is no incentive for us to lend more," a public sector banker said, requesting anonymity as the matter is still under discussion.

A former chief of a public sector bank said, also requesting anonymity, that airlines globally face financial constraints.

“One-off cases in India might be due to management challenges, but other cases are because the sector itself is stressed. With the infrastructure loan classification, RBI’s (Reserve Bank of India’s) guidelines for 5:25 would be available for these companies. Therefore, repayment period, which is usually 10-12 years, is extended to 25 years. Additionally, every five years, you can think of refinancing the loans. This is beneficial for banks as well as borrowers. If it works out, it would be a step in the right direction," he said.

The flexible financing scheme introduced in July allows banks to extend long-term loans of 20-25 years to match the cash flow of projects, while refinancing them every five or seven years.

The aviation ministry on Tuesday requested public sector oil companies to give SpiceJet credit for up to 15 days and said airport operators would wait two more weeks for receiving dues from the airline. It also said it would request the finance ministry to permit the airline to borrow working capital overseas as a special case.

Earlier, the ministry had, through aviation regulator Directorate General of Civil Aviation (DGCA), asked SpiceJet—which was raising some of its working capital through advance ticket sales—not to sell tickets more than a month in advance.

That restriction came after the airline cancelled around 1,800 flights in December. This, along with reports of unpaid salaries, prompted the regulator to act fast to prevent a repeat of what happened with Kingfisher Airlines Ltd, the debt-laden airline that was grounded in 2012.

According to consulting firm Centre for Asia Pacific Aviation, India’s airlines had posted an estimated loss of 10,660 crore in 2013-14, which was 76% higher than in the previous fiscal year, and the worst result since FY2008.

The figure excludes Kingfisher Airlines, which remains a listed entity but has been non-operational.

State-run Air India Ltd accounted for more than half of the combined industry loss at 5,390 crore.

Capa estimates that there will be only a slight improvement in 2014-15, with projected losses in the range of $1.3-1.4 billion.

“Capa estimates Indian airlines other than IndiGo (run by InterGlobe Aviation Ltd) will require 9,000-9,600 crore ($1.5-1.6 billion) of funding this year. This amount will be necessary to stabilize their operations, let alone for investment in aircraft. Given the current environment, that is likely to be a challenging exercise. Inability to access sufficient funds when required may impact the operational integrity and customer proposition of some carriers," Capa said in a late November note.

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Published: 18 Dec 2014, 02:36 PM IST
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