MEMBERS REFERENCE SERVICE

LARRDIS

LOK SABHA SECRETARIAT

NEW DELHI

REFERENCE NOTE

For the use of Members of Parliament NOT FOR PUBLICATION

No.11/RN/Ref/March/2018

REGIONAL CONNECTIVITY SCHEME – UDAN

Prepared by, Shri Naushad Alam, Additional Director (23034299) and Smt. Shalima Sharma,

RO of Lok Sabha Secretariat under the supervision of Smt. Kalpana Sharma, Joint Secretary and

Smt. Anita Khanna, Director. The Reference Note is for personal use of the Members in the discharge of their Parliamentary duties, and is

not for publication. This Service is not to be quoted as the source of information as it is based on the sources

indicated at the end/in the context.

REGIONAL CONNECTIVITY SCHEME – UDAN

Introduction

The Ministry of Civil Aviation launched the 'Regional Connectivity Scheme (RCS)

UDAN---- Ude Desh Ka Aam Naagrik' on 21 October 2016 with the twin objectives of1:

i. Promoting Balanced Regional Growth; and

ii. Making Flying Affordable For Masses

The scheme is a major step towards making flying a reality for the small town

common man. With the launch of UDAN, the Aviation Sector is set to get a big boost and

tap huge market of middle class flyers living in Tier-2 and Tier-3 cities2.

Highlights of the Scheme3

Pay only Rs. 2500 per seat for One Hour of flight by an aeroplane or a

journey covered in 30 minutes by the helicopter.

In a Century of Civil Aviation, only 76 airports connected by scheduled

commercial flights but now in 16 months of UDAN, 56 unreserved airports

and 30 unreserved helipads awarded for connectivity.

Growth rate of 17.5 per cent in 2017 in domestic passenger traffic – amongst

the highest in the world.

In second bidding round of UDAN, 90 proposals involving around 325

Regional Connectivity routes are awarded.

The scheme, which would be in operation for a period of 10 years, envisages

providing connectivity to un-served and undeserved airports of the country through

1 Ministry of Civil Aviation, Annual Report 2017-18, p.6

(http://www.civilaviation.gov.in/sites/default/files/AnnualReport%28Eng%2916_17Part_1_0.pdf) 2 PIB Release dated 29.04.2017 (http://pib.nic.in/newsite/printrelease.aspx?relid=161400)

3 Ministry of Civil Aviation, UDAN spreads its wings dated 24.01.2018

(https://twitter.com/Ashok_Gajapathi/status/956121663141117953)

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revival of existing air strips and airports4. The scheme is being executed by the Airport

Authority of India (AAI), the implementing agency5.

Funding Pattern for the Scheme

Regional air connectivity is envisioned under 'Regional Connectivity Scheme

(RCS) by supporting airline operators through

(1) Concession by Central Government , State Governments / UTs and airport operators

to reduce the cost of operations on regional routes; and

(2) Financial Viability Gap Funding (VGF ) support to meet the gap, if any, between the

cost of airline operations and expected revenues on such routes. Viability Gap Funding

will be shared between Ministry of Civil Aviation and the State Government in the ratio

of 80:20 whereas for the States in North-Eastern region / Union Territories (UTs) the

ratio will be 90:106.

A list of airports and routes awarded under Regional Connectivity Scheme

(Regional Connectivity Scheme) – UDAN along-with the status of their

operationalization is annexed at Annexure- 1 and Annexure-27.

Features of the Scheme

The Prime Minister flagged off the first regional flight on 27 April 2017 under

UDAN. The three inaugural flights were launched in the sectors of Shimla-Delhi,

Kadapa-Hyderabad and Nanded-Hyderabad.

UDAN is a first-of-its-kind scheme globally to stimulate regional connectivity

through a market-based mechanism.

4 Opcit Annual Report, p .6

(http://www.civilaviation.gov.in/sites/default/files/AnnualReport%28Eng%2916_17Part_1_0.pdf) 5 PIB Release dated 29.04.2017 (http://pib.nic.in/newsite/printrelease.aspx?relid=161400)

6 Lok Sabha Starred Question No.90 dated 08.02.2018.

(http://164.100.47.194/Loksabha/Questions/QResult15.aspx?qref=62404&lsno=16) 7 Ibid

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The UDAN Scheme is a key component of the National Civil Aviation Policy8

(NCAP) which was released by the Ministry of Civil Aviation on June 15, 2016.

The Airports Authority of India has approved 27 proposals which will see 27

currently served airports, 12 currently underserved airports and 31 currently

unserved airports (for a total of 70 airports) connected.

Of the 70 airports, 24 airports are in the Western region, 17 in the North region, 11

in the Southern region, 12 in the East and 6 in regions of the Northeast India.

As many as twenty-two States and two Union Territories will be connected

through these 27 proposals.

The airline companies chosen are Airline Allied Services (Alliance Air), SpiceJet,

Turbo Megha Airways, Air Deccan and Air Odisha.

The seating capacity of aircraft under the scheme will range from 19 to 78, and 50

percent of the seats in every flight will have a fare cap of Rs 2,500 per seat per

hour9.

The scheme is estimated to add total 28.4 lakh RCS seats to the domestic aviation

traffic.

In order to fund the subsidy, Airports Authority of India will also be providing

partial contribution from its dividend share, in addition to the levy of Rs 5,000 per

flight being imposed on non- RCS operations.

Airports Authority of India (AAI) has given Rs 200 crore for Regional

Connectivity Scheme in the current fiscal, and is likely to contribute Rs 500 crore

in the next fiscal.

The second round of RCS will need Viability Gap Funding of Rs 620 crore, while

the first round required Rs 213 crore10

.

The commitments of the States are to make sufficient land available, ensure

adequate security, and provide essential services at concessional rates for the

airports or air strips.

8 One of the key objectives of National Civil Aviation Policy (NCAP) -2016 is to “establish an integrated eco-system which

will lead to significant growth of civil aviation sector, which in turn would promote tourism, increase employment and lead

to a balanced regional growth” (pib 29.4.17) ((http://pib.nic.in/newsite/printrelease.aspx?relid=161400) 9 The Times of India dated 27.04.2017 (https://timesofindia.indiatimes.com/india/pm-to-flag-off-udan-flight-scheme-today-

10-things-to-know/articleshow/58392833.cms) 10

The Economic Times dated 24.01.2018 (https://economictimes.indiatimes.com/industry/transportation/airlines-/-aviation/govt-awards-325-air-routes-in-tier-2-3-cities-under-udan-2/articleshow/62638016.cms)

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Hyderabad-Cuddapah, Hyderabad-Nanded, Nanded-Mumbai, Chennai-Mysuru,

Chennai-Salem, Mumbai-Porbandar, Kolkata-Aizwal, Pune-Nashik, Delhi-

Dehradun, and Ranchi-Raipur are some of the other proposed routes11

.

Airfare Caps under the Scheme12

1. Airfare of Rs.2,500 (All-inclusive) RCS Seat will be applicable for:

Regional Connectivity Scheme Flights operated by fixed wing aircraft for stage

length of 500 km; and

Regional Connectivity Scheme Flights operated by helicopters for flight duration

up to 30 minutes

2. Airfare Caps will be indexed to inflation as per National Civil Aviation Policy

(NCAP) 2016 and will be revised quarterly.

Methodology13

Reviving un-served airports

Operators to assess demand on routes (both aircraft and helicopter) & submit

proposals for operating/ providing connectivity on such routes

Earmarking 50% of RCS flight seats as RCS seat subject to (Maximum 40 seats

and minimum 9 seats)

Passenger fares on RCS seats to be capped based on flight distance / time

11

The Hindu dated 27.02.2018 (http://www.thehindu.com/news/national/all-you-need-to-know-about-the-udan-scheme-for-low-cost-regional-connectivity/article18251599.ece) 12

Opcit, Annual Report, p.47 (http://www.civilaviation.gov.in/sites/default/files/AnnualReport%28Eng%2916_17Part-II.pdf) 13

Ibid

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Regional Connectivity Fund (RCF) and collection14

The Central Government has decided to impose a levy on scheduled flights

operated within India to fund Regional Air Connectivity Fund, in the following

manner:

i. Rs. 7,500 with stage length upto 1,000km.

ii. Rs. 8,000 with stage length more than 1,000 km to 1,500 km, and

iii. Rs. 8,500 with stage length above 1,500 km.

However, following flights shall be exempted from the said levy:

i. Flights operated on CAT II/ CAT IIA routes as specified in Route Dispersal

Guidelines issued under Rule 134 (1A).

ii. Flights operated on Regional Connectivity Scheme (Regional Connectivity

Scheme) routes.

iii. Flights operated with aircraft having maximum certified take off mass not

exceeding 40,000 kg.

UDAN-Round II

Under UDAN- II, the Government has received 141 initial proposals for air

services which involve 502 routes to connect 126 airports, including helipads. These

include 49 unreserved and 15 under-served airports as well as 24 helipads. Out of the

total proposals, 108 are for flying fixed wing aircraft and 33 for operating helicopters15

.

Letters of award have been given to 90 proposals for 325 routes. Out of these,

129 routes are in a newly created category of 'priority areas' that include Jammu and

14

Ibid 15

The India Express dated 14.11.2017 (http://www.newindianexpress.com/nation/2017/nov/14/udan-2-to-fly-higher-than-udan-1701309.html)

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Kashmir, Himachal Pradesh, Uttarakhand, North East, Andaman and Nicobar Islands and

Lakshadweep Islands16

.

Conclusion

Apart from spurring the economic growth in hinterland, the affordable air services

will ensure that the monopoly of elite on air services comes to an end. The UDAN will

usher in a new era in fast growing aviation sector by providing low cost air

connectivity to untapped routes and connecting un-served and under-served airports.

The UDAN will also boost regional connectivity by bringing smaller cities and towns on

air map of the country through a market-based mechanism and open this sector to

young professionals, small businessmen and students belonging mainly to the vast middle

class populations living in these cities and towns17

.

UDAN is a world-leading policy intervention that builds on similar programs in

the USA, Canada, and Australia. Minimum Government for Maximum Governance

approach is laying the foundation of a new regional segment in India’s aviation market18

.

16

The Times of India dated 24.01.2018 (https://timesofindia.indiatimes.com/business/india-business/udan-2-325-more-routes-awarded-indigo-jet-airways-join-with-chopper-operators/articleshow/62638862.cms) 17

PIB Release dated 29.04.2017 (http://pib.nic.in/newsite/printrelease.aspx?relid=161400) 18

(https://www.narendramodi.in/reflections/udan-minimum-government-for-maximum-impact-19)

Annexure-I Regional connectivity Scheme (UDAN)

Status of commencement of RCS flights awarded in first round of bidding

Source: Lok Sabha Starred Question No.90 dated 08.02.2018. (http://164.100.47.194/Loksabha/Questions/QResult15.aspx?qref=62404&lsno=16)

Annexure-II

List of Proposals awarded under RCS – UDAN – 2

Source: Lok Sabha Starred Question No.90 dated 08.02.2018.

(http://164.100.47.194/Loksabha/Questions/QResult15.aspx?qref=62404&lsno=16)