Government Launched ‘UDAN’ Project

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Union government has launched a Regional Connectivity Scheme ‘UDAN’. It is a significant milestone in India’s quest for bringing more aam aadmis on to the aviation map.

This ambitious scheme offers subsidy to airlines to mount flight to those of India’s airports where either no scheduled flight operates today or where the frequency of flights is very limited. It also mandates that any airline availing of the government’s subsidy should cap fares on identified routes to Rs 2,500 per hour of flying. For helicopters, this cap is Rs 5,000 for an hour of flying.

A “first of its kind” in the world, UDAN (Ude Desh Ka Aam Naagrik) will be based on market mechanism as well as bidding for a minimum of 9 seats and a maximum of 40 seats in a fixed wing aircraft. For 50 per cent of the seats of flights under UDAN, the fare cap will be Rs 2,500, and the rest will be market-based pricing.

Here are some highlights of UDAN:

1) UDAN will be applicable on flights which cover between 200 km and 800 km with no lower limit set for hilly, remote, island and security sensitive regions. Under the scheme, such flights must connect at least one RCS airport (a list of underserved and unserved airports specifies which airports qualify under the scheme).

2) The RCS caps fares and also offers a ceiling for the VGF available for each route. This means airlines cannot charge beyond the caps specified from passengers and then will be allowed to do reverse bidding for availing the VGF. For the shortest route under the scheme, which is between 151-175 km, fare has been capped at Rs 1,420. For the longest route, which is over 800 km, the cap is Rs 3,500.

3) In addition to VGF, the Centre will also provide concessions such as 2 percent excise on Value Added Tax (VAT) and service tax at 1/10th the rate and liberal code sharing with domestic as well as international airlines for RCS airports.

4) State governments will have to provide free security and fire service, utilities at concessional rates and reduce VAT on ATF to 1 percent.

4) No landing charges, parking charges and Terminal Navigation Landing Charges will be imposed for RCS flights.

5) A Regional Connectivity Fund (RCF) will be created to fund the scheme via a levy on certain flights. States are expected to contribute 20 percent to the fund which will have a corpus of Rs 500 crore each year. For balanced regional growth, allocations will be spread equitably across 5 regions – North, West, South, East and North East with a cap of 25 percent.

6) A minimum of 3 and a maximum 7 regional connectivity scheme flights per week per route with minimum 9 and maximum 40 seats per flight will be allowed. This means if an operator of, say, an 80 seater aircraft is part of this scheme, it can avail VGF for only 50 percent of seats on any flight. Since the remaining 50 percent are not bound by RCS conditions, the operator is free to price tickets for these seats.

7) The regional connectivity scheme will be in operation for 10 years with individual route contracts to be for a 3-year span. Limited period exclusive route rights will be allotted to selected operators. There is a well defined exit clause too in the scheme in case operators want to exit within one year or after completion of an year. In the first case, the Rs 50 lakh bank guarantee will not be returned.

8) Market-based reverse bidding mechanism to determine least VGF to select the airline operator with the right to match to the initial proposer. The VGF component will be reduced if passenger load factor remains high and will be discontinued after 3 years when route becomes self sustainable.

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