Cabinet clears ₹5,000-crore emergency credit package for passenger airlines

India’s aviation sector has received a ₹5,000 crore lifeline under the government's emergency credit line guarantee scheme (ECLGS), allowing airlines to tap government-backed loans as soaring jet fuel costs and West Asia disruptions strain their cash flows. The lifeline aims to ease near-term liquidity stress and help carriers sustain operations amid rising costs and slowing traffic growth and is part of the ₹2.5 trillion ECLGS approved by the Union cabinet on Tuesday.

“Passenger airlines are eligible for up to 100% of peak credit up to ₹1,500 crore,” information and broadcasting minister Ashwini Vaishnaw said in a press briefing.

ECLGS provides government guarantee to banks and financial institutions for additional credit extended to eligible businesses and individuals, in this case to airlines to help them manage the West Asia war-induced liquidity crises.

An industry executive said airlines are eligible for ₹1,000 crore of credit. An additional ₹500 crore will be extended if the promoter makes an additional equity infusion of ₹500 crore, thus taking total eligibility to ₹1,500 crore. Further details, including the eligibility criteria, will be announced by the civil aviation ministry.

This is the second time that such a sovereign guarantee is being announced for the aviation sector. The previous one was during the pandemic.

Unlike other sectoral schemes that have a five-year period, the ECLGS for passenger airlines will have a seven-year validity. Simply put, the scheme offers a special seven-year repayment window with a two-year moratorium. This effectively means a 24-month suspension of debt repayment, such as equated monthly instalments (EMIs), principal or interest payments. Interest may or may not accrue for this two-year period to be paid later.

Typically, jet fuel accounts for 30–40% of an airline's operating costs. However, post March, this increased to nearly 50%, the industry body had said in its representation to the ministry.

The industry had, through FIA, written to the ministry at the end of April that airlines would have to suspend some international routes and ground aircraft unless the government lowered taxes on jet fuel for overseas flights.

Apart from a hit on international operations, especially for the lucrative West Asia destinations, India’s airlines also saw 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 reported in FY25. Passenger traffic in the previous fiscal was 165.4 million, data from the Directorate General of Civil Aviation (DGCA) showed.

Major airlines, including Air India, IndiGo, SpiceJet, and Akasa, are yet to respond to queries emailed by Mint. The aviation ministry has also not yet responded to queries.

“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, capped at ₹1,500 crore per borrower. Positive for debt-heavy airlines like SpiceJet,” said Karan Khanna, lead analyst, hotel, real estate, aviation, small & mid Caps at brokerage firm Ambit Capital. “The scheme offers a specialized seven-year repayment window with a two-year moratorium and a nil guarantee fee. Much relaxed for aviation sector vs other sectors which have a five-year repayment and a one-year moratorium,” he added.

⁠This support is vital for mitigating the operational strain caused by the ongoing US-Iran war as it enables carriers to absorb sudden spikes in aviation fuel prices and the increased costs associated with rerouting flights owing to closure of West Asia and Pakistan airspace, Khanna said. “Overall, it should help airlines sustain operations in the near term until geopolitical tensions stabilize.”

Jainam Shah, aviation analyst at Equirus Securities said "loss-making and financially stressed carriers stand to benefit the most, though it remains a short-term liquidity support.”

India’s civil aviation ministry has already rolled out a series of relief measures for domestic carriers. These include capping jet fuel price hikes to a maximum of 25% in April and keeping 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% rise in May.

Airlines sought relaxation on international flights, too, including a cut or reduction in state-level taxes and excise duty. These are yet to be accepted by the government.

The aviation ministry also reduced landing and parking charges of airlines at all airports by 25%.

Airlines have responded to the increase in operating costs by hiking ticket prices and levying fuel surcharges that were raised in April.