India may offer ₹4,000 crore relief to airlines hit by Iran war

India is considering a ₹4,000 crore emergency credit programme for airlines as the Iran war disrupts operations, pushing up fuel costs and curtailing key international routes.

The proposal, described as a rare intervention, aims to provide financial relief to carriers grappling with rising expenses and reduced flight capacity.

Credit guarantees to ease liquidity stress

According to ETInfra, the scheme would involve the government offering sovereign guarantees on loans of up to ₹1,000 crore per airline.

Carriers may also be eligible to borrow an additional ₹500 crore, provided promoters or owners invest an equivalent amount into the business.

Officials indicated that the guarantees would act only as an enabler, with lenders expected to conduct independent due diligence before extending credit. “Lenders will do their own due diligence before providing the loan,” an official familiar with the discussions told ETInfra.

The programme forms part of a broader government plan to extend credit guarantees worth $26.7 billion to businesses affected by the conflict, particularly smaller firms, the report said.

War impact strains airline operations

Indian airlines are facing mounting pressure as jet fuel prices rise sharply and flights to West Asia — a critical market — remain restricted.

Uncertainty continues despite a temporary ceasefire between the US and Iran, with airports in the Middle East operating cautiously.

For instance, major hubs in Dubai are allowing foreign carriers to operate only limited flights, further constraining capacity.

Indian carriers are particularly exposed, with over 30% of their international operations linked to the Gulf region, making the disruption more acute.

SpiceJet likely to be key beneficiary

Budget airline SpiceJet is expected to be among the biggest beneficiaries of the scheme, given its ongoing financial stress, according to ETInfra.

The airline had raised ₹3,000 crore in 2024 but continues to face liquidity challenges, including delayed salary payments and placing some employees on leave without pay.

Around 37 aircraft remain grounded due to unpaid dues to lessors and maintenance constraints, as spare parts remain unavailable amid financial strain.

Despite earlier fundraising, SpiceJet has struggled to restore these aircraft to service, the report noted.

Lending caution persists

Banks remain wary of extending credit to the aviation sector following recent bankruptcies, including Jet Airways and Go First, which resulted in significant write-offs for lenders, according to ETInfra.

This caution underscores the importance of government-backed guarantees in unlocking fresh funding for the sector.

With geopolitical tensions feeding into fuel costs and route disruptions, India’s aviation sector faces a fresh stress cycle.

The proposed credit support could offer temporary relief, but the pace of recovery will depend on stabilisation in West Asia, restoration of routes, and airlines’ ability to strengthen their balance sheets in a challenging operating environment.