Banks tighten rules around lending money to airlines after Go Air crisis

Repeated company failures dent the entire aviation industry's creditworthiness, the chief financial officer of an airline said

BS Web Team New Delhi
Loans, Retail loans

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Indian airlines may find it more difficult to take loans due to banks' increased reluctance to lend to the industry following the bankruptcy filings of Jet Airways and Go First within a five-year period, said a report by Economic Times (ET).
Airlines executives told ET that lenders are demanding more collateral or promoters to pledge more personal holdings in order to obtain loans for lending to airlines.

The sector's creditworthiness was improving after Tata Group increased its presence in the sector by acquiring Air India and with a strong performance from IndiGo, but after Go First filed for bankruptcy, it turned out to be very unfavourable, they said.
"We were in discussion with rating firms and banks to improve the creditworthiness of the sector, highlighting strong performance by airlines and beneficial policies of the government. However, such repeated company failures dent the entire aviation industry's creditworthiness," the chief financial officer of an airline said.

Wadia Group-promoted Go First filed for bankruptcy on May 2. While the airline hadn’t defaulted till then, it has now defaulted on an interest payment of Rs 11 crore.
According to a senior executive of a public sector bank, Go First's account will begin to be treated as a non-performing asset this quarter, and the necessary provisions will be made.

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On May 3, the Central Bank of India reported that as of March 31, 2023, it had a total outstanding exposure to Go First Airlines of Rs 1,305 crore and had approved an additional amount of Rs 682 crore under an emergency line of credit that was backed by the government.
"Lending to airlines carries an inherent risk. The majority of them use asset-light models, so in the event of a default, there aren't many tangible assets we can turn into money. In the Kingfisher Airlines case, numerous bankers have also been the subject of inquiries. Bankers still have this on their minds," said a bank executive from the public sector.

While market leader IndiGo’s timely payment of loans and its liquidity position helps to obtain new loan facilities from banks, Tata Group’s support for Air India has also protected it from the negative mood of the sector.
However, weaker airlines are having difficulty raising capital.

First Published: May 16 2023 | 2:36 PM IST

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