In view of the financial stress faced by airlines due to the sharp increase in ATF prices, compounded by airspace closures and reduced operations, particularly on international routes, leading to lower aircraft utilisation and liquidity constraints, the Union Cabinet, chaired by Prime Minister Shri Narendra Modi, has approved the ECLGS 5.0 scheme to provide targeted credit support to Indian airlines.

The scheme aims to provide credit guarantee coverage of 100% for MSMEs and 90% for non-MSMEs as well as airline sector, to Member Lending Institutions (MLIs) by National Credit Guarantee Trustee Company Limited (NCGTC) for the amount in default under the additional credit facility extended to the eligible borrowers to tide over any short-term liquidity mismatches, against the backdrop of ongoing West Asia situation.

For the aviation sector, the scheme has specifically earmarked ₹5,000 crore for airlines. The scheme provides structured financial relief with a maximum loan limit of ₹1,000 crore per borrower, and an additional ₹500 crore subject to equivalent equity infusion by the borrower. The loans will have a tenure of up to 7 years, including a 2-year moratorium on repayment, thereby easing short-term liquidity pressures.

The introduction of ECLGS 5.0 aims to provide additional credit support to MSMEs and airlines during the current challenging period. The longer 7-year loan tenure, along with the option to convert up to 50% of interest into a Funded Interest Term Loan (FITL), is expected to ease immediate repayment pressure and improve cash flows and liquidity.

On this announcement, Hon'ble Minister Ram Mohan Naidu said, "Under the decisive leadership of Hon’ble Prime Minister Narendra Modi Ji, India’s aviation growth story today stands out globally as a success story built on the foundation of reforms, resilience and resurgence. And 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 and now a bold decision has been taken by the Government. By approving the Emergency Credit Line Guarantee Scheme (ECLGS) 5.0, airlines will be enabled to navigate short-term liquidity challenges and maintain seamless operations amid global disruptions. It will provide strong financial backing to safeguard jobs, sustain connectivity and ensure resilience across the aviation ecosystem, while also supporting MSMEs".

The Scheme will provide additional credit up to 20% of peak working capital utilised during Q4 FY 26, capped at Rs.100 crore. For airlines up to 100%, capped at Rs.1,500 crore per borrower, subject to satisfying certain specific conditions. Maximum period of guarantee cover shall be co-terminus with the tenure of the loan. The Scheme would be applicable to all loans sanctioned during the period from the date of issue of these guidelines by NCGTC upto 31.03.2027.

The scheme will also 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. By enabling access to credit backed by sovereign guarantee, it will enhance lender confidence, improve credit flow to the sector and support operational stability. It is also expected to sustain employment, preserve sectoral capacity and help minimise the pass-through of increased costs to passengers, thereby supporting the continued growth and resilience of India’s aviation sector.

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Divyanshu Kumar

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