UDAN

''Ude Desh ka Aam Naagrik'' (Hindi for "Let the common citizens of the country fly"), known by its acronym ''UDAN'' (Hindi for "flight") is a regional airport development program of the Government of India and part of the Regional Connectivity Scheme (RCS) of upgrading under-serviced air routes. Its goal is to make air travel affordable and improve economic development in India.GoI AAI's RCS UDAN document (final version), October 2016
/ref> At the beginning of the scheme, out of total of 486 airports, 406 were under-serviced airports,Participating unserved UDAN-RCS airports
Airport Authority of India, Nov 2016. 27 were well-served airports, out of 97 non-RCS airportsNon-RCS airports including well served airports
Airport Authority of India, Nov 2016"Udan scheme round-II: Government receives 141 proposals for air routes."
Zee Business, 14 November 2017. only 12 were operational airports, out of 18 participating airports under-served regional operational airports (Nov 2016) with regular fixed-wing scheduled flights.Underserved participating airports at the beginning of UDAN-RCS
, Airport Authority of India, Nov 2016. UDAN scheme will add to this number by expediting the development and operationalization of India's potential target of nearly 425 unserved, under-served, and mostly underdeveloped regional airports with regularly scheduled flights. However, there are several issues and criticisms such as poor infrastructure, dominance by larger airlines and degradation of regional airlines, slow implementation that plague this scheme.

UDAN-RCS is both an enabler and a beneficiary of other key Government of India schemes, such as Bharatmala, Sagarmala, Dedicated Freight Corridors, Industrial corridor, BharatNet, Digital India and Make in India, National e-Governance Plan, Startup India and Standup India.

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The scheme has been implemented in five phases so far:
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UDAN 1.0: 36 new airports commissioned. 128 flight routes for 70 airports were awarded to 5 airline companies.

UDAN 2.0: It added a helipad for the first time. In 2018, 73 unserved airports were announced.

UDAN 3.0: This included tourist routes, seaplanes to connect water aerodromes, and routes under 'UDAN' in the North-East region.

UDAN 4.0: 78 new routes approved in 2020. In this phase, the Kavaratti, Agatti, and Minicoy islands of Lakshadweep will also be connected by new routes.

UDAN 4.1: Its focus is on connecting small airports, special helicopter, and seaplane routes under UDAN. New ways have also been proposed under Sagarmala seaplane services.

Details

The UDAN Scheme is a key component of the Prime Minister Narendra Modi's National Civil Aviation Policy (NCAP) which was released by the Ministry of Civil Aviation (India) on 15 June 2016. The scheme will be jointly funded by the central government and state governments, several states have come on board by signing the "Memorandum of Understanding" with the union government for this scheme. UDAN RCS will connect an unspecified number of new regional routes, by operationalizing 100 regional airports by the end of the 2018-2019 financial year, with a target of 13 lacks (1.3 million) annual passenger seats, requiring crore (2  billion rupees) viability gap funding (VGF) annually. Qualifying routes must have three t
seven flights per week
from the same airport.Civil aviation ministry may face funding crunch for UDAN
''The Economic Times'', 18 December 2017.

The scheme has two components. The first component is to develop new airports and enhance the existing regional airports to increase the number of operational airports for scheduled civilian flights from 70 (in May 2016, a total 98 operational including army airports)State police to stand guard at Airports under UDAN scheme
''The Economic Times'', 2 December 2015. to at least 150 airports (by December 2018) with regularly scheduled flights.
/ref>[https://economictimes.indiatimes.com/industry/transportation/airlines-/-aviation/udan-govt-links-airlines-performance-to-award-of-more-routes/articleshow/61656632.cms "UDAN: Govt links airlines' performance to the award of more routes."], ''The Economic Times'', 14 November 2017. Initially more than 100 underserved (no more than 7 scheduled flights per week) and unserved regional airports will be developed by December 2018, for which the initial funding of for the enhancement of 50 regional airports was approved in May 2017. Out of the total 70 airports included in round-I, 43 are regional airports to be newly operationalized. RCS-Udan operations have commenced from 13 regional airports and additional 12 regional airports are ready to receive flights. 18 regional airports still require a significant upgrades (November 2017). The second component is to add several hundred financially viable, capped-airfare, new regional flight routes to connect more than 100 underserved and unserved airports in smaller towns with each other as well as with well-served airports in bigger cities by using "Viability Gap Funding" (VGF) where needed. Initially, three separate rounds of bidding for the award of routes will be concluded by the end of 2018. Union government's share of "Viability Gap Funding" is from the cess applied to flights to popular routes to main cities and respective state governments have also offered additional benefits to the flight operators to make UDAN-RCS viable.

The number of aircraft jumped 38% to 548 in December 2017 from 395 in 2014, and 50 aircraft are being added every year.In-principle approval for 19 greenfield airports given: Raju
''Times of India'', 20 December 2017. Subsequent phases with the inclusion of seaplanes will boost the number of potential landing sites from nearly 500 airports to over five lacks (500,000) waterbodies as well as more locations along India's 7,000  km coastline. SpiceJet placed a US$400 million order for 100 of these 12-seater amphibian seaplanes (December 2017).

India has 394 unserved and 16 under-served airports; out of a total of these 410 potential-target unserved and under-served regional airports, INR4500 Crore has been approved in the 2016-2017 union budget to revive and further develop 50 airports in the smaller regional towns between 2017 and 2020, 15 airports during 2017–18, another 15 airports during 2018–19, and 20 more airports during 2019–20. A total of 75 airports were operationalized for civilian flights in India since independence, the government has newly operationalized additional 36 regional airports for civilian flights including 3 civil enclaves within the army airports, with regularly scheduled flights, within the single financial year of 2016–2017, with the target to complete a cumulative total of 50 operational regional airports by the end of 2018–2019, and eventually, operationalize a cumulative total of 100 regional airports by December 2018.75 airports in 75 years, 33 new airports in just one year: Jayant Sinha, DNA news, 14 May 2017
/ref>100 more airports in 2-3 years under UDAN: Jayant Sinha, The Dollar Business newspaper, 29 April 2017
/ref>

Indian prime minister Narendra Modi launched the scheme on 27 April 2017 by flagging off the inaugural regional flights between Delhi and Shimla, and also between Kadapa-Hyderabad- Nanded.

Concessions to operators

The scheme will run for 10 years and can be extended thereafter.

From central government

Following concessions from the Government of India:UDAN-RCS Plan (final version, 2016)
Government of India, 2016.
* Viability Gap Funding (VGF) to subsidize the airfare
* Concession on service tax on tickets.
* Code-sharing of UDAN-RCS flights By Mr. Narendra Modi permitted with other operators

From state governments

Following concessions from the participating state governments at their respective UDAN-RCS airports:
* Reduction of VAT (or GST after GST came in operation) to 1% or less for 10 years
* Coordinate with oil companies to create fuelling infrastructure on airports
* Provide free land for the development of airport, with multimodal (rail, road, metro, waterways, etc.) hinterland connectivity
* Provide free trained security
* Provision of water, electricity and other utilities at reduced rate
* Provide 20% share of Viability Gap Funding; North-Eastern states, Uttarakhand, Himachal Pradesh and Union territories to provide 10% share only
* State governments are encouraged to provide additional concessions

From airport operators

Airport operators (commercial or private companies, central and state governments or their entities such as AAI and Defence Ministry) must agree to provide the following concessions in order to participate in UDAN-RCS scheme:
* No landing, parking or other charges
* No Terminal Navigation Landing Charges (TNLC)
* Allow selected airline to manage the ground handling of flights
* Route Navigation and Facilitation Charges (RNFC) will be applied on UDAN-RCS flights by AAI on a discounted rate of 42.40% of Normal Rates

UDAN-RCS cargo flights concession

Cargo flights will be given similar benefits except no "Value Gap Funding" (VGF) will be provided.

UDAN-RCS fares

For the fixed-wing aircraft there is a cap of maximum fare of ₹2,500 per hour of flight for the 50% of the seats (min 9 RCS seats and max 40 RCS seats per fixed-wing flight, and max 12 helicopter RCS seats per heli flight), connecting unserved and under-served regional airports, remaining 50% seats will be priced at market rate.Aviation scheme UDAN takes off, fares capped at Rs 2,500 for 1-hour flights
''Hindustan Times'', 21 Oct 2016India- Modi launches UDAN scheme for cheap flights, MENAFN News, 27/04/2017
/ref> Capped RCS fares will also be graded based on distance, e.g. ₹1,420 for a distance of 151–175 km, ₹1,500 for a distance of 176–200 km, and so on, with a ceiling of maximum ₹3,500 fare for a total distance of 800 km or more.

For the helicopter services maximum fare is also capped at ₹2,500 for every 30-minute leg of flight. Capped helicopter fare will be graded on the time of flight, e.g. ₹2,500 for a flight of 0 to 30 minutes, ₹2,900 for a flight of 31 to 35 minutes, and so on, with a ceiling of maximum ₹5,000 fare for a total flight duration of 60 minutes or more.

Viability gap funding

The scheme entails making the routes financially viable, without insisting on the financial viability of the regional airports, by lowering the cost of flight operations and through financial support in the form of viability gap funding (VGF). VGF will be available to flight operators on specific routes for the first 3 years of operation.

The demand-driven revival and enhancement of the regional airports with financially viable commercial flight routes is based on the combination of seeking firm proposals from Airlines for the names of airports they wish to fly to and MoU-bound commitment from the state governments for providing various concessions for the airport operations, such as state tax concessions, free land and security, etc. Participating states, Northeast states and Union Territories are required to sign the MoU with the union governments to share the 20% and 10% burden of VGF respectively.UDAN Scheme
/ref>

To make the routes viable for commercial airlines, the union government offers flexible code-sharing arrangements, reduced excise on value-added tax on fuel and service tax. Airports, some owned by the Airports Authority of India and others by the respective state governments, will not charge the landing and parking charges and terminal navigation landing charges."All you wanted to know about UDAN."
The Hindu, 15 May 2017]

Airlines will be given a Value Gap Funding (VGF) raised from the RCS levy. Starting from 2017, the airfare cap and VGF in this 10-year scheme will be revised quarterly, based on Consumer Price Index for Industrial Workers.

UDAN-RCS levy

RCS subsidy will be raised by levying a cess, which will be revised periodically, on the flight between main trunk routes connecting major cities. Starting from 1 June 2017, it is initially at a flat rate of ₹5,000 per flight, translating into roughly ₹30 per passenger."Centre cuts UDAN levy on air tickets."
The Hindu, 12 May 2017]

Impact of STOL, seaplanes, ski and bushplanes on UDAN-RCS

While UDAN phase-I had focussed on fixed-wing aircraft, Phase-II included helicopters also. Subsequent phases were supposed to include STOL seaplanes and ski and bush planes operating from STOLports. On 9 December 2017, SpiceJet conducted seaplane trials using a Quest Kodiak aircraft, in association with Japan's Setouchi Holdings, who owned Quest Aircraft company LLC at that time. SpiceJet was planning to buy 100 Quest Kodiak amphibian seaplanes for US$400 million, including long-term parts and maintenance (December 2017)SpiceJet may put seaplanes into operations within a year
LiveMint, 9 December 2017. The trials were conducted from Girgaum Chowpatty off the Mumbai coast with Union minister Nitin Gadkari on board. At the occasion, Gadkari claimed that seaplanes had the potential to revolutionise air transport in the country, possibly opening up many more destinations by enhancing the potential pool of landing sites from nearly 500 airports to over five lakh (500,000) waterbodies and thousand more locations along India's 7,000 km long coastline. He said that the Civil Aviation Ministry and Water and River Resources Ministry would soon formulate rules for the seaplane operations along the lines of those in nations like United States, Canada and Japan. /economictimes.indiatimes.com/articleshow/62038783.cms Sea-plane will revolutionise transport sector: Nitin Gadkari ''The Economic Times'', 12 December 2017. A few days later on 12 December 2017, Prime Minister Modi also rode a Quest Kodiak operated from Sabarmati River to Dharoi Dam.

In 2019, the third round of the UDAN scheme awarded 18 air routes connecting six water aerodrome sites to be connected by seaplanes. The water aerodrome sites are Guwahati river front, Nagarjuna Sagar, Sabarmati river front, Shatrunjay Dam, Statue of Unity (Sardar Sarovar Dam) and Umrangso Reservoir.

UDAN-RCS connectivity by rounds

Bidding process

AAI aims to operationalise, hundreds of routes in several rounds of UDAN-RCS, from at least 100 regional airports by the end of 2018-2019 financial year. AAI will periodically publish the updated list of participating airports and helipads, with collaboration from their owners, such as central govt, state govt, commercial and private parties, and in addition any entity can list their airport or helipad with the government for this scheme. Three rounds of bidding for operationalisation of new routes will be conducted in 2016-2017 and 2017-2018 financial years, more rounds of bidding will follow till the end of 2018-2019. Airlines (including seaplane) and helicopter service providers will bid for the routes with at least nine seats and a maximum of 40 seats for the fixed-wing aircraft and a minimum of 5 seats and a maximum of 13 seats for the helicopters. To ensure the sustainability of the routes by lowering the commercial risk, these "specific" routes will be awarded on an exclusive basis to the winning parties. Preference is given to the bidder who bid for zero-VGF (operators who rely on no government subsidized VGF to sustain their operation), for example, in phase-I SpiceJet bid was zero-VGF, and in Phase-II SpiceJet and IndiGo bids were zero-VGF.

UDAN-RCS Round-I (April 2017)

This round concluded in April 2017, 5 airlines companies were awarded 128 fixed-wing flight routes to 70 airports (including 27 currently well-served metro airports and 43 regional airports (31 unserved and 12 underserved, 36 out of 43 are newly made operational including 2 civilian enclave within army airports), several of which have already become operational by November 2017 and most of remaining routes will become operational by 15 December 2017.Map of 70 airports with 128 routes in the RCS Phase-1 UDAN takes off: Five airlines to fly 128 routes, connect 70 airports, Indian Express, 31 March 2017
/ref> Five airlines are Air Odisha (50 routes, new airline), Air Deccan (34 routes, relaunched airline), Turbo Megha Airways (18 routes), Alliance Air (15 routes, Air India subsidiary) and SpiceJet (11 routes)."Big leap for cheap flight scheme UDAN as airlines rush to grab a pie of skies."
'' The Financial Express'', 22 November 2017. Several routes are already operational on 13 December 2017 and most of remaining routes, all to be operated by Air Deccan and Air Odisha will become operational by 23 December 2017 and 31 December respectively. SpiceJet was the only bidder with zero-VGF.

UDA-RCS Round-II (December 2017)

502 new regional fixed-wing and helicopter routes were bid in 196 proposals (55 counter-proposals from 10 airlines, and 141 initial proposals from 17 airlines including 108 for the fixed-wing and 33 for helicopters) to connect 126 airports and heliports (49 unserved, 15 under-served, 38 well-served and 24 helipads).Indo lets go VGF
''The Economic Times'', 13 December 2017. Second round results will be awarded in late December 2017.More UDAN routes to be allocated.
Apps for PC Daily, 25 May 2017.]Govt to link smaller towns with bigger cities in UDAN Phase-II in August, ''The Economic Times'', 25 May 2017
/ref> SpiceJet and IndiGo are bidders with zero-VGF.

UDAN-RCS Round-III 25 January 2019

The central government has received bids for 111 routes from 15 airlines under the third round of auction for the UDAN scheme. SpiceJet and IndiGo has bid for 37 routes and 20 routes in the third round of auctions. Ghodawat Enterprises Private Limited has bid for total of 15 routes in this round. The Centre did not include chopper routes under the third round of auctions, as there have already been.

UDA-RCS Round-IV (tbd)

Started on 3 December 2019. In this phase, The Viability Gap Funding has been revised. The funding that was provided for Category 2 and 3 air crafts (which generally have >20 seats) has now been enhanced to all flights in the states of HP, Uttarakhand, J&K, North Eastern states and the islands. Also, the phase will allow operation of helicopter and seaplanes. The phase also plans to promote short-haul routes, meaning no monetary support will be given to operators with stages more than 600 km.

UDA-RCS Round-V (tbd)

Will be launched soon.

UDA-RCS Round-VI (2019, tbd)

Will be launched in 2021.

Summary status table

* Total in-scope target current airport: 486
* Total operational airports at beginning of scheme: 39 (27 well-served out of total 62 non-RCS airports and 12 underserved out of total 18 participating underserved regional operational airports).
* Total unserved participating airports at beginning of scheme: 406
* Helicopter routes: Hill states ( Northeast India, North-East states, J&K, Himachal Pradesh and Uttarakhand) and oceanic union territories (Lakshadweep Islands and Andaman and Nicobar Islands) only.

Issues

Poor infrastructure including the lack of operational readiness of airports in remote areas and lack of availability of bays in the private airports in the large metro cities, shortage of pilots, lack of favourable rules and still pending reforms in DGCA (aviation regulator) and AAI rules and regulations are the main hurdles, most of these the government is responsible for (c. 22 December 2017).Regional connectivity was an unfulfilled dream: Captain Gopinath on his return to aviation
Money Control, 22 December 2017. Situation will get worse as airlines plan to add 900 aircraft, such as IndiGo 448 (399 A320s and 49 ATRs by 2028 to its existing 150 aircraft), SpiceJet 157 (107 B737-800s and 50 Bombardier Q400s during the 2018–2023 period to its existing 57 aircraft), GoAir 119 (A320 during 2018–2022 to its existing 34), AirAsia 60 (by 2025 to its existing 14), Air India 19 (3 B777-300ER and 16 A320 planes by March 2019 to its existing 155), Zoom Air 19 (5 CRJ-200 and 14 CRJ-900 planes to its existing 2), Vistara 5 (to its existing 17) and TruJet 6 (ATR72-500/600 from 2018 to 2022 to its existing 4).Indian carriers to induct over 900 planes in coming years
''The Economic Times'', 25 December 2017. AAI announced that as the part of its infrastructure upgrade plans over next 4 years (2021) it will add 273 bays at 24 major airports against the industry requirement of 300 overnight parking bays at 30 airports in next 5 years (c. 22 December 2017).Airports Authority of India plans to add 273 bays at 24 airports
''The Economic Times'', 22 December 2017. The solution lies in the policy intervention, such as reserving at least 25% bays for the regional routes at the metro airports.More flights to smaller cities must for development: Air Deccan chief
''The Economic Times'', 24 December 2017.

Criticisms

A 2019 analysis by ''Outlook'' of the first two phases of RCS routes notes that the success rate of UDAN was less than 20 per cent. Of the 440-odd air routes allotted to 14 major and fledgling airlines under the two phases of UDAN, not more than 40 to 60 routes were operating regularly. This was because smaller operators such as Zoom Air, Trujet, Pinnacle Airlines, Heritage and AAA Aviation had succumbed to operational issues. Industry experts pointed out several operational, technical, procedural and financial problems in the scheme that failed to create a proper ecosystem for smaller operators due to which the operational costs of the operators of small aircraft went so high that the government subsidy could not compensate. The scheme hence benefited only the operators of larger aircraft like the ATR 72 and the Airbus A320.

A close examination of the distribution of successful UDAN routes by operator, shows most of the successful routes have come from large operators like SpiceJet and IndiGo. Both these airlines have chosen to not take the Viability Gap Funding subsidy, but are instead leveraging the scheme strategically towards gaining additional slots for themselves at congested Tier-1 airports and gaining monopoly status on routes. Aviation consultancy firm CAPA India had predicted that the success of the scheme would depend on the participation established airlines, since in its current form, UDAN does not make a business case for small and independent operators who cannot benefit from the economies of scale. In its report, “Indian Aviation Outlook for FY2019", CAPA India pointed out that "the chances of failure of regional airlines operating older aircraft, dispersed across multiple stations without rigorous demand assessment, and in the absence of a maintenance ecosystem is significant". However, UDAN cannot run without small aircraft operators as only small aircraft can land and take off from the majority of the 400 airports that the scheme intends to bring online.

The scheme also faced criticism for the financing model it had adopted. A viability gap funding structure, where a surcharge was levied on tickets on existing routes, which would be used to refund part of the ticket costs for the airlines flying on UDAN route, was adopted which didn't go down well with various quarters.

Critics have also pointed out issues in Scheme execution such as AAI's selection of airports that lack supporting economic activity. Leisure and native traffic alone will not stimulate demand at small airports. Demand for air travel is created and sustained by the presence of industries and the services sector. Critics blame faulty planning of the AAI and political influence. Demand surveys have failed to correctly predict future passenger traffic demand.

See also

*Transport in India
*Aviation in India

References

Main Point
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* GoI AAI's RCS UDAN document (final version). October 2016.
* Map of 70 airports with 128 routes in the RCS Phase-1.
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