Here's why budget airline SpiceJet is trending higher today

SpiceJet

Indian Market
by 5paisa Research Team Last Updated: 2022-10-06T17:32:27+05:30

Budget carrier SpiceJet has been struggling for the last few months and its stock has lost more than half its value over the past year. But shares of the airline jumped almost 6% on Thursday morning amid reports that it could benefit from a government scheme.

SpiceJet Share Price opened at Rs 41.15 apiece on the BSE, up from Tuesday's close of Rs 38.45, and were trading around Rs 40.80 at last look.

The shares gained after the finance ministry modified the Emergency Credit Line Guarantee Scheme (ECLGS) for the aviation sector, raising the scheme’s cheaper loan limit to Rs 1,500 crore from Rs 400 crore to help the sector tide over cash-flow problems.

This could come as a major relief for cash-strapped airlines like SpiceJet.

The Department of Financial Services (DFS) under the finance ministry made this change recognising that an efficient and strong civil aviation sector is vital for the economic development of the country.

So, what is this scheme really?

Under the scheme, banks provide additional loans to existing borrowers without any collateral in a bid to help businesses survive the liquidity crunch post the Covid-19 pandemic.

It was earlier extended beyond March 2022 to March 2023. Previously, companies in the civil aviation sector were allowed to borrow up to 50% of their highest fund-based credit outstanding, subject to a maximum of Rs 400 crore per borrower.

What are the nuances of the modified regulation?

As per the modified ECLGS, an airline would be eligible for 100% of its fund- based or non-fund-based loan outstanding or Rs 1,500 crore, whichever is lower.

The move is aimed at giving the necessary collateral-free liquidity at reasonable interest rates to the aviation industry.

What has Spicejet itself said on the new changes and by how will the new rules benefit it?

Mint said that SpiceJet welcomed the changes made to the ECLGS but asked the government to extend support on jet fuel as well.

The airline expects to receive an additional Rs 1,000 crore as part of the modified ECLGS, a company official said on condition of anonymity, a Mint report said. The airline is in need of funds to sustain heavy costs and pay pending dues. 

The airline has also been in discussions with bankers to raise $200 million, the Mint report said, citing an official.

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