UDAN scheme: Can international expansion of regional connectivity be a winner despite hiccups?

New Delhi: The extension of the government’s ambitious regional air connectivity scheme UDAN, which is confined to domestic operations, to international routes seems to be too much of a stretch at present. Or is it? In a surprise move, the Assam government has earmarked Rs 100 crore a year, for three years, for international connectivity from Guwahati airport under UDAN. And the Centre has indicated it would be supportive of the proposal to allow international flights under UDAN.

People in the know point towards a Gulf-based low-cost carrier which has been keen to operate international flights from the north eastern region. It cannot add flights in the normal course as bilateral flying rights between its home country and India are already used up and India seems to be in no mood to enhance entitlements further. Bilateral entitlements define how many flights, seats, among other things, airlines from two consenting countries can offer.

But this hurdle can be circumvented under UDAN, since India may allow additional flights to this Gulf country to enhance connectivity to the poorly connected north east. At least, this is what this particular airline is hoping for. If this happens, it would kill two birds with one stone: 1) Allow this particular airline to launch additional flights from India and open doors for other middle eastern or south east Asian carriers to follow a similar model while bypassing the bilateral rights’ math 2) The Centre can dismiss frequent criticism over its inability to control large number of Indian passengers travelling on Gulf airlines to the Gulf hubs and onward, at the cost of Indian airlines.

Representative image. Reuters

Representative image. Reuters

UDAN, short for ‘Ude Desh ka Aam Nagrik’ was launched last year to enhance air connectivity to India’s hinterland. The scheme, as devised initially, had no mention of international connectivity from India’s smaller towns. Among the provisions for UDAN was a combined Central and state government subsidy (viability gap funding or VGF) on such flight operations under a pre-determined ratio.

And operators availing of such a subsidy were expected to cap fares at about Rs 2,500 per hour of flying for some specified number of seats on each flight. The aim was to get several remote airports on the aviation map, and facilitate enhanced connectivity through targeted sops for a limited period. Till now, UDAN has seen middling success and needs to be fine tuned further for better results even in the case of domestic operations.

For example, helicopter operations under UDAN have not commenced due to concerns over inadequate viability gap funding and some technical reasons. State-owned Pawan Hans Ltd’s (PHL) proposals for five routes under the scheme were found invalid and PHL has had to submit bids in the second round of the UDAN bidding. Now, in the second round, helicopter bids have been awarded for routes like Shimla heliport to Mandi heliport, three heliport pairs in Imphal, several heliport pairs in Assam and other north-eastern states, the Kasauli to Shimla heliport, among others. Awardees include PHL and some private operators. But it still remains to be seen whether the second phase of the bidding process will actually see the launch of chopper services.

Against this backdrop, the Assam government’s eagerness to allow international operations under UDAN is interesting. This, even when the Centre has made it clear that it will not provide VGF for such operations. Will this haste to begin international operations augur well for the scheme, since such operations involve permissions from the Centre in terms of bilateral flying rights, questions over type of aircraft for such flights, adequate VGF by state government alone, etc? If the Centre is keen, and the particular Gulf airline involved is willing to operate without seeking VGF and the state government is willing to offer concessions on cost heads such as landing/parking charges, tax cut on jet fuel etc – why not?

Amber Dubey, partner and India head of aerospace and defence at KPMG, said expanding UDAN to international routes is a good idea, but warned of headwinds. VGF will be a key one. “The VGF will be a large amount. It can't be recovered from passengers flying on non-UDAN routes like in the domestic UDAN. A significant portion will need to come from the central and state exchequer. VGF can be given only to Indian carriers. Indian taxpayers’ money can't be used to fund foreign carriers. With some countries wherein the bilateral quotas have been exhausted, this may require opening up additional quotas specific to the UDAN locations. This can get tricky since foreign countries may demand a location-agnostic enhancement of bilateral quotas. Overall, international UDAN is a good idea whose time has come.”

After all, many other countries support their carriers, directly or covertly, in the international market. No reason why India should not do this. Besides, international connectivity will help the North East create jobs and boost economic growth.

As for the domestic leg of UDAN, 12 under-served and 31 unserved airports were to be connected under the first-phase of UDAN. These are airports where either no flight operations were happening earlier or very few flights were operating from them. Under UDAN, these airports have got a new lease of life. In the second-phase of UDAN, the government has awarded 44 more routes/networks to connect the hinterland.


Updated Date: Mar 09, 2018 19:15 PM

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