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Udan scheme: Govt set to announce regional aviation routes, airlines

LiveMint logoLiveMint 29-03-2017 Shally Seth Mohile

Mumbai: In an ambitious scheme aimed to open and expand subsidized flights to remote airports is close to take-off, with the government ready to release the names of routes and airlines that have qualified for the same.

Aviation minister Ashok Gajapathi Raju will shortly name the airlines and routes under the first phase of the Udan regional connectivity scheme (RCS), officials in the ministry and the Airports Authority of India (AAI) said, on condition of anonymity.

“We have received close to 43 proposals from scheduled and non-scheduled operators, of which five airlines are likely to get a licence,” said an AAI official. He declined to name the airlines. However, another AAI official said SpiceJet Ltd and Air India Ltd subsidiary Alliance Air Ltd were in the list.

“The minister will announce all the work orders (for the new airports) and the airlines formally on 30 March,” he said.

"We have received close to 43 proposals from scheduled and non-scheduled operators, of which five airlines are likely to get a licence"- An official with the Airports Authority of India

The scheme, which will run for 10 years, will work to revive existing airstrips and airports. The first phase will include 45 airports and about 70-odd routes. “We get six months from the date of bids to make the airport fit for flying,” said the first official cited earlier.

While the airports owned by AAI are ready, work is pending on those owned by state-run firms such as Steel Authority of India Ltd and some others by private companies. AAI officials will meet in the first week of April to gauge the level of preparedness of its airports.

The Union cabinet on 5 March approved a Rs4,500 crore plan to develop or upgrade 50 underserved or unserved airports and airstrips. At least 15 airports or airstrips would be revived during 2017-18 and 2018-19 each, while 20 airports will be revived during 2019-20.

Deploying air navigation services—those provided to aircraft to enable safe and efficient flight from one destination to another—at new airports will be a major task. AAI has invited bids from mobile tower companies for airports where the facility is not readily available, said the second AAI official cited above.

While the airports owned by AAI are ready, work is pending on those owned by state-run firms such as SAIL and some others by private firms

Meanwhile, the second round of bidding for Udan RCS will begin after a couple of months, said the second official. The bids, he added, will be invited twice, every year. With the first round, the ground rules will be laid. “We expect subsequent rounds to be a lot more faster and smoother. This time around everything, including the operators, are new,” he said.

The regional connectivity model is based on viability gap funding, under which 80% of the cost will be borne by the state government and the rest by the centre. The subsidies will be offered for a period of three years. Under the scheme, the fare for a one-hour journey of about 500km on a fixed-wing aircraft or a 30-minute journey on a helicopter will be capped at Rs2,500, with proportionate pricing for routes of different lengths and duration. In order to make operations on such routes financially viable, the central government will provide concessions in the form of reduced excise on value-added tax, service tax and flexibility in code-sharing at airports under Udan scheme.

The regional aviation model is based on viability gap funding, under which 80% of the cost will be borne by the state govt and the rest by centre

Delhi and Goa have cut aviation turbine fuel tax to 1% for flights under Udan RCS. Close to 20 states have signed a similar agreement with the aviation ministry, said the second official cited above.

“To a great extent, the success of the scheme and participation by airlines will depend on state governments as they should be willing to let go off the revenue and participate in the viability gap funding,” said Kinjal Shah, an analyst at Icra Ltd.

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