The Union Cabinet's approval of a ₹5,000 crore Emergency Credit Line Guarantee Scheme (ECLGS) for airlines on Tuesday marks the clearest signal yet that Indian aviation is in deep trouble. Indian carriers were already facing a challenging environment since the IndiGo crisis in December, and the war in Iran has compounded their misery.
Industry Pleads for Support
An industry pleading for tax cuts and government support is hardly novel. However, a recent letter from the Federation of Indian Airlines (FIA) to the civil aviation ministry carries both genuine desperation and a partially credible threat. The FIA warns that current pricing of Aviation Turbine Fuel (ATF) will result in insurmountable losses and lead to the grounding of aircraft, resulting in cancellations of flights.
Fuel Costs Skyrocket
The crack spread, which is the gap between crude prices and the final price of ATF, has widened to $132 per barrel, according to the FIA. Consequently, fuel now accounts for nearly 60% of airline operating costs, up significantly from the historical average of 35-40%. This sharp increase threatens the viability of many carriers and could lead to widespread disruptions in air travel.
The government's emergency credit line is intended to provide some relief, but industry experts argue that more structural measures, such as reducing taxes on ATF, are needed to address the root cause of the crisis. Without such steps, the Indian aviation sector may face prolonged turbulence.
