UDAN – Midterm Review of Policy

Parc for Nation    28-May-2021
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By Nitin M Deshpande


Commencement of flight to Rupsi on 8th May 2021 has put Western Assam back on the flight map after a gap of almost four decades. Thanks to RCS- Regional Connectivity Scheme, which planned to add 100 more underserved or unserved airports back into action so that balanced growth can be achieved across the states & in all parts of the country.

There are around 400 airports/airstrips in India, and around 75 of these had a scheduled operation in the year 2016. Most of these unserved airstrips came into existence as a result of World war II. They were defunct for many decades as aviation was much a regulated field post nationalization of airlines in 1953. There was an attempt to provide air connectivity in the late '80s when Vayudoot – a public sector airline, was launched with much fanfare but got folded in few years, making many airstrips going off the map again. Post liberalization in 1991 till date Indian aviation has seen many ups & down and most of the reports suggested that aviation will be the fastest-growing sector in India. Covid had made a significant dent into all projections. Pax traffic in the domestic sector has reduced by more than 50% in the last year. Thus, UDAN (Ude Desh Ka Aam Nargik), as envisaged in the New Civil Aviation Policy of 2016, requires a mid-term review.

What was the vision of UDAN- To provide affordable and convenient air travel for a middle-class citizen of the country wherein a person can travel a distance of 500-600KM in one hour @ Rs 2500/- indexed to inflation. In 2014-15 number of domestic air tickets sale was nearly seven crores.  To enable this volume to reach 30 crores by 2022 and 50 crores by 2027, the RCS- Regional Connectivity Scheme was made part of the new policy document to enhance regional connectivity through fiscal support and infrastructure development. It is to implemented by

  • Revival of un-served or under-served airports/ routes, including routes connecting Agatti and Leh
  • Concessions by different stakeholders, which includes Central & State Govt.
  • Viability Gap Funding (VGF) for operators under RCS. (80% by Central Govt & 20 % by State Govt except for N-E sector where this ratio will be 90:10)
  • Cost-effective security solutions by the Bureau of Civil Aviation Security (BCAS) and State Governments.

There are several attractive measures to operating airline such as for 10 years -no airport charges such as TNLC (Terminal Navigation Landing Charges) & RNFC (Route Navigational Facility Charges), 1% reduction in VAT on fuel prices, reduced excise duty on aviation turbine fuel, reduced service tax on air ticket etc mentioned in the policy document.

Total routes commenced so far via route bidding process stands to nearly 299 by the end of 2020. This was possible as Govt has budgeted around Rs 1000Cr in a phased manner to develop a no-frill airport at an indicative cost of Rs 50 Cr to Rs 100Cr without insisting on financial viability.

Viability of airport can be assessed on the basis of aircraft movement, passenger traffic and freight movement. However, as regards UDAN, passenger traffic will weigh far more than other parameters as the scheme's design was to make ordinary citizen fly.

Table A provides sample data for RCS airport across India. (RCS airport in NE region excluded).

Chart B provides the snapshot of domestic air traffic across various country regions, including all metro and Tire II cities and RCS airport.


Airport/No of Pax



































































pfn_1  H x W: 0


The challenges before the policymakers in light of Covid impact are many folds, and the total domestic traffic in FY20-21 is half of what it was five years earlier or has shown negative growth of around 61% over earlier year. The aviation industry is passing through the worst crisis, and the pandemic has disrupted the air transport industry as never before. Airlines across the globe are facing an unprecedented uphill task to keep it in the air, and Indian carriers are no exception. It may take 3-4 years before air traffic restores to what it was three years before, and a target of 500 Million pax is not likely to be achieved until the year 2030. It means there will be added pressure on the RCS scheme to run it, and many airlines will withdraw from small airport operation as it makes no economic sense. But should we abandon the UDAN or tweak it? Is UDAN necessary at all? How do subsidiaries work in the future financial world, and how will VGF (Viability Gap Funding) shape out? Is UDAN unique to our country, or are there any parallels? How can RCS airport be made profitable?

Communities worldwide need to be connected to the national network, and many governments recognize this. Some may adopt a state-run program or offer concessions to an operator to provide such services to such far-flung or not easily accessible area. What is called ESP (Essential Services Program) in the USA is similar to RCS and offers air connectivity for the people in Alaska or Hawaii, or many other destinations.

Key Learnings: -

  • In accordance with statement issued by MoCA (Ministry of Civil Aviation) in month of March 21, 57 unserved and underserved airports, including five heliports and two water aerodromes, with 347 routes have been made operational under UDAN across the length & breadth of the country.
  • The data indicates that North-East sector lags behind substantially in air transport.
  • Air Odisha, Deccan Air, and Heritage Air launched the operation with less than 20 pax seating capacity airplane but could not sustain the operation. As a result, investment made in airports has cost exchequer without meeting the objective of UDAN.
  • Operators who deployed aircraft like ATR-72 have to withdraw from many routes due to low passenger load.
  • The operator failed to provide reliable service to instill public confidence. Example – Ahmedabad – Sardar Sarovar sector with amphibian aircraft or sea plane.
  • AAI did many airports operational by a good amount of investment like that was done for Shimala, Jalgaon, Kishangarh, Durgapur and many more.

Suggestions to ponder upon:

  1. Set the priority - RCS's thrust area shall be North-East and examine routes in other regions for need analysis as well as sustainability with no losses. It makes no economic sense to invest in Jalgaon, which is well connected by road/rail or to invest in airports that are not even 150KM from each other such as Vidyanagar & Kopal or Belgaon & Hubali as aircraft movement & pax traffic will not justify for the investment. A sample survey of RCS airport at Table A provides monthly traffic registered for same month over last five years to provide an insight. How the monthly pax traffic across the RCS airport will generate a volume of 1 Million pax a year to be called a successful airport if not profitable airport? Let us understand that these airports will neither get aeronautical revenue (due to the concessions offered with RCS), nor non-aeronautical revenue to make it profitable.
  2. Airport modernization -As the number of RCS airports increases, it also adds to the airport's maintenance, calibration, and security expenses. So, rather than investing in airports/airstrip in developed region, make NE airport all weather for the safe and efficient operation.

To develop existing 100 airports/airstrips at a minimum cost of Rs 50 Cr means a total spend of around Rs 5000 Cr over a decade. As such investment will be spread over length & breadth of the country & with airlines withdrawing due to capacity load or other reasons, such investment may not meet its objective. Thus, aim shall be to invest where it makes it a successful airport if not profitable as regard to meeting its objective. 

  1. Long term route analysis -Samruddhi Marg or Delhi-Mumbai express highway or bullet train or similar projects in other parts of the country means the aviation sector will have increased competition and thus deployment of resources shall be done carefully. Also, metro airports are warrying of offering morning or evening slots for operation to RCS route which further reduces its chance of sustaining the operation once initial euphoria dies off.
  2. VGF analysis- The basis of VGF(Viability Gap Funding) was a contribution of Rs 5000 per flight by airlines to the RCF fund, and with the reduction in aircraft movement, funding will dry off. Alternate resource or mechanism will need to thought off.
  3. Aircraft capacity & fleet size- It is seen that aircraft seating capacity and load factor are important for reliable and long-term sustainable operation. It is seen that operator who deployed aircraft with less than 20 or more than 60 seating capacity, could not offer services for long time as small fleet size (in some cases operator has only one aircraft) or inadequate load factor resulted in unreliable service. So, right aircraft with right fleet size is key to RCS success.
  4. Alternate pilot project for north-east region- Central Govt can offer a one-time grant to create a North-East Air shuttle company which can buy fleet of aircraft (not less than five) with seating capacity of 30-50, so that it can provide reliable & sustainable services for 10 years. Let each NE Government can fund the operating expenses based on its population size or some other parameters. Maybe each North-East citizen in the age group of 18-60 gets direct benefit subsidiary for travel by such NE Shuttle over next 10 years and such shuttle service will connect one-two metro/major hub like Kolkata/Guwahati as gateway to national or international network with code share arrangement. Each of the aircraft can have four business class seats so that VIP Pax like Governor/Chief minister can travel any time of the day, or a spare plane could be chartered by any state Govt or even tourist company for that matter. Once the 10 years moratorium period is over for such shuttle company then it can offer services to nearby countries like Bangladesh, Myanmar or nearby nation and subsidiary can be reduced.
  5. Aviation eco system -Develop an aviation training academy, Maintenance facility to develop the ecosystem to generate local employment and support this feeder venture of North-East shuttle.

We will require a CAGR of 25% to reach the target of 30Cr domestic pax in a 5-year time. Major airport operators worldwide have reported losses, including those who operate in India and are requesting concessions or assistance to tide over the pandemic crisis. It will be a massive challenge for all the players in aviation as well as Govt too and thus UDAN policy review becomes more critical.

About the Author- Nitin M Deshpande is an aviation professional with over 30 years of experience and has worked with various companies like Hindustan Aeronautics Ltd, Pawan Hans Helicopter Ltd, Airbus, Air Works India, Kirloskar group and Adani group.

Disclaimer: The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of PARC.