New Delhi: Domestic airlines such as Jet Airways, IndiGo and SpiceJet can now hope that they will be allowed tap the external commercial borrowing (ECB) window for raising funds at low cost.
The nodal civil aviation ministry has requested the finance ministry and the Reserve Bank of India (RBI) to bring back the earlier scheme that allowed air operators to raise funds through this route with a cap of $1 billion. It has also asked for widening the scope of such window to use ECB funds for local sourcing of aircraft and import of other capital goods.
Of course, the funds could be raised for working capital requirements and swapping of high-cost debts with cheaper ones.
An internal aviation ministry document revealed that it has already set the ball rolling for the proposed move and written to the finance ministry. It has pitched for adopting a market-driven ECB policy for the aviation sector. “The economic adviser in the aviation ministry had last month informed industry about the developments on ECB and trade credit borrowings. The airlines companies have been asked to provide their inputs on it at the earliest to take the issue forward,” a senior official told Financial Chronicle.
Raising funds through ECB is easy compared to local borrowings and are considerably cheaper. The central bank clears the quantum of funds to be raised through ECB on the basis of each company’s cash flow, foreign exchange earnings and the capability to service the debt.
“Currently, there is no ECB window for airlines. They need it now because they are now more profitable and have a bigger business plan to execute. Allowing a larger ECB window with extended time frame is going to be relevant. The government should not only revive it but also make the size larger and increase the tenure. This will be required across the airline sector,” said Kapil Kaul, an industry veteran and chief executive officer (Indian subcontinent and Middle East) at global advisory Centre for Asia Pacific Aviation (CAPA).
He noted its significance further by saying that even companies buying Air India would need access to ECB fund.
Earlier, while providing the ECB window for airlines, the RBI had capped the overall ECB ceiling at $1 billion. The maximum permissible ECB that could be availed by an individual airline was set at $300 million. The facility was discontinued from April 1, 2016.
“Like other industries, airline sector should also be allowed to tap the ECB window without any restrictions. There should be as little restrictions as possible and as bigger the (window) size as possible,” CAPA India chief said.
