Indian banks have experienced a substantial uptick in lending to the country’s aviation sector over the past year, witnessing a remarkable 65.4% year-on-year surge at the end of November 2023. This stands in stark contrast to the 8.7% contraction noted in the same period of the preceding year, according to data from the Reserve Bank of India (RBI).

In absolute terms, the data reveals that lending to the aviation sector soared to Rs 40,449 crore in November 2023, marking a significant increase from Rs 24,452 crore in November 2022 and Rs 26,780 crore in November 2021.

Bank executives and airline representatives attribute this surge in credit demand to heightened requirements for lease contracts and increased hirings within the aviation sector. Banks are adopting a long-term lending approach, expressing confidence in the sustained growth of the aviation segment. Some banks are actively exploring lending opportunities to airlines, with a focus on building a substantial portfolio.

Despite challenges faced by some airlines, including voluntary bankruptcy filings, banks maintain optimism about the overall growth prospects of the aviation sector. The positive sentiment is driven by expectations of continued growth in the Indian aviation market and the robust financial position of existing players.

Airlines are diversifying funding channels, with increased borrowing attributed to expansion-related contracts and hirings, as well as hedging against high fuel rates and forex prices. Monthly aircraft leasing costs have risen by nearly 1.5-2% compared to 2022, leading to higher borrowing by domestic airlines. The collapse of Go First and challenges faced by the sector have contributed to a significant increase in leasing costs, posing a financial burden on airlines.

The Centre for Asia Pacific Aviation (CAPA) India projects robust growth for the Indian aviation industry, estimating 1.3 billion passengers and a commercial fleet of 4,000 aircraft by 2043. ICRA predicts domestic air passenger traffic to grow at 8-13% in FY24, maintaining a stable outlook on the industry.

Airlines, including Air India and IndiGo, are strategically hiring for pilots, ground handling, and cabin crew. Plans for acquiring a significant number of new aircraft in 2023 have contributed to increased hiring and capital requirements.

Despite challenges and heightened leasing costs, banks are keen to lend to domestic airlines, considering the anticipated growth in the Indian aviation market. The surge in bank lending to the aviation sector underscores the industry’s resilience and the positive outlook on its growth potential.

The industry is expected to report a significantly lower net loss of about Rs 3,000-5,000 crore in FY2024 compared to approximately Rs 17,000-17,500 crore in FY23, as per ICRA.

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