Will government be able to revive aviation industry?

After burning their hands by lending more than USD 1 billion to Kingfisher Airlines, the Indian banking community shut the doors on airlines, disgruntling players in the cash-crunched sector.

Is the situation improving? The government certainly thinks so. SpiceJet got a bitter taste of the banking community's distaste for airlines when it ran into rough weather last year. With total liabilities of Rs 1,600 crore and curtailed operations, the government requested banks to cough up Rs 600 crore in working capital loans to the airline. But even with bank loans of only Rs 300 cr on its balance sheet, and promoter Kalanithi Maran willing to furnishing personal guarantees for fresh loans, lenders refused to increase their exposure to SpiceJet.SL Narayanan, Group CFO, Sun Group said: “The family of his does not have the liquidity to pump in Rs 600 crore at this point in time now which is why we needed help to get this money sourced from the banking system and he is willing to give a personal guarantee but nobody wants to accept it.”Lenders are haunted by memories of Vijay Mallya's now defunct kingfisher airlines, which owes more than Rs 6,000 crore to a consortium of mostly state-run banks. Ranking number one in India’s list of top 406 loan defaulters, the crisis forced policymakers to pressure banks to get tough on borrowers as bad loans piled up. But this argument has not gone down well with Indian carriers, which are starved of cash and are bleeding heavily. “Banks cannot take a blind view of the entire industry by not lending to airlines. A banks job is to help industries and it is ironic that they loan money to those who don't need it and don't lend to those who need it,” said Sanjiv Kapoor, COO, SpiceJet.But the civil aviation ministry, which had a huge role to play in reviving SpiceJet, believes the situation is changing for the better.Anil Srivastava, joint secretary, civil aviation ministry said: “I am very sure that gradually the confidence of lender is developing.. While we were handling the SpiceJet issue; we found that confidence being generated and it is not the situation during Kingfisher.” But until banks find the right balance between the quest to lend to the cash-strapped sector and lowering their NPAs, airlines will have to continue relying on other sources of funding such as external commercial borrowing (ECBs).