Indian airlines may find it harder to take loans as banks have become cautious to lend to the sector after Jet Airways and now Go First filed for bankruptcy within a period of five years.
Lenders are asking for increased collateral or promoters to pledge more personal holdings to access loans for lending to airlines, airline executives told.
Credit worthiness of the sector was improving after Tata Group increased its presence in the sector acquiring Air India and with strong performance from IndiGo, but it has become highly negative after the bankruptcy filing by Go First, they said.
“We were in discussion with rating firms and banks to improve the credit worthiness of the sector, highlighting strong performance by airlines and favourable policies of the government,” chief financial officer of an airline told. “However, such recurrent failure of companies dents the entire credit worthiness of the aviation industry,” said the person requesting not to be identified.
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 ₹11 crore.
A senior executive of a public sector bank said Go First’s account will be marked as non-performing asset from this quarter and necessary provisions made against it.
On May 3, Central Bank of India said its outstanding exposure to Go First Airlines as on March 31, 2023, was ₹1,305 crore and an additional amount of ₹682 crore was sanctioned under emergency line of credit guaranteed by the government.
“There is an intrinsic risk of lending to airlines,” an executive of a public sector bank said. “As most of them operate on asset light models… in case of a default, there are little tangibles that we can monetise. Moreover, multiple bankers have faced enquiries in the Kingfisher Airlines case. This is fresh in the mind of bankers.”
While market leader IndiGo’s timely payment of loans and its liquidity position helps to get new loan facilities from banks, Tata Group’s support to Air India has also insulated it from the negative mood of the sector.
However, weaker airlines are finding it difficult to raise money.
