By: Probal Bose
Towards the last quarter of 2016, the Ministry of Civil Aviation of the Government of India (“The Ministry”) introduced for the first time an integrated Civil Aviation Policy (“The Policy”) with the objective of migrating to a more liberal administrative and regulatory regime for the aviation sector. One of the key features of the Policy was the introduction of a Regional Connectivity Scheme (“The Scheme”). The Scheme, also known as UDAN (which is short for “Ude Desh ka Aam Nagrik” that translates to “country’s common man gets to fly”), aims to make flying affordable for the masses, promote tourism, increase employment and promote balanced regional growth. It also intends to put life into un-served and under-served airports. The Central Government will support the RCS Scheme by providing:
Various concessions to reduce the cost of airline operations on regional routes; and
Financial support (viability gap funding or VGF) to meet the gap, if any, between the cost of airline operations and expected revenues on such routes.
Recently, the initial proposals were received from airline operators under the Scheme. We have given below a brief background of the mechanism under the Scheme and the further course of action.
Initial Proposals under the Scheme have been submitted:
Under the Scheme, the eligible airlines are to be selected through a process of reverse bidding. The Scheme requires airlines to submit financial information such as the proposed maximum airfare in cases where VGF is sought.
As per media reports, a total of eleven airlines have sent in their bids based on the eligibility criteria and the minimum performance specifications provided in the Scheme. Although it is not clear as of now as to how many proposals have been made for individual routes and how many for network routes respectively, the bids include 45 initial proposals covering 200 routes under the Scheme.
The Process Ahead
Once the Ministry prepares the shortlist from the bunch of initial proposals received, it will invite counter proposals. Once the counter-bidding process is completed, the operators who have sent initial proposals shall get a right to match. An evaluation committee set up under the Scheme will select an airline operator for each specified route and/or network. The airline operators selected shall enter into a three-year contract with the implementing agency (to be designated by the Ministry) under the Scheme.
The Civil Aviation industry saw a 27.4% rise in passenger traffic in 2016 as compared to the previous year. The Government of India has also proposed the development of 200 low-cost airports by 2035, along with an investment of USD 1.3 billion for upgradation of non-metro airports by 2017. These developments, along with the relaxation of FDI policy applicable to the aviation sector, will help India’s target of becoming the third-largest civil aviation market by 2020.