Pandemic Yes, but Problems With the UDAN Scheme Also Go Beyond That

Out of the 948 routes awarded in the last five years, only 403 routes connecting 65 unserved and underserved airports are operational as of December 2021.

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Mumbai: So much for high flying. Data presented by the Ministry of Civil Aviation before a parliamentary panel shows that Narendra Modi government’s low-cost flying scheme UDAN – short for Ude Desh Ka Aam Nagrik – otherwise known by the technical moniker of Regional Connectivity Scheme (RCS), has crashed landed as is evident from the routes that were operational by November 30, 2021.

Glaringly, only 22 routes out of the 94 total routes survived at the completion of the three-year subsidy period under the UDAN scheme.

The UDAN scheme was flagged off with much fanfare in October 2016 but has floundered. Since then, 154 RCS unconnected airports – including 14 aerodromes and 36 heliports – have been identified for the operation of flights. Out of these, currently, only 65 have resumed flights.

In seven rounds of bidding conducted by the ministry under UDAN, 948 valid routes have been awarded. However, the fact that these routes have been awarded doesn’t necessarily make them viable or even remotely functional. Out of the 948 routes awarded in the last five years, only 403 routes connecting 65 unserved and underserved airports are operational as of December 2021.

The catch here is that these 403 routes have been facing challenges of their own. The pandemic has made the going tougher. Out of these 403 routes, a whopping majority of 300 routes have been affected due to poor demand. The civil aviation ministry, consequently, has stepped up and decided to extend the benefits under the scheme by a year for those routes which were bound to complete their tenure by December 2021.

But the Standing Committee on Transport, Tourism and Culture isn’t happy:

“The Committee notes with dismay that out of 948 valid routes for RCS-UDAN Scheme, only 403 routes have been operationalised after the lapse of 5 years, since the launch of [the] scheme in October 2016. The Committee also notes that an extension of benefits has been granted for a period of one year only to routes completing three years tenure. The Committee feels that a helping hand should be given to the fledging RCS-UDAN routes considering the low number of operationalised routes and adverse impact of the Covid-19 pandemic, which has resulted in lower passenger traffic and therefore, strongly reiterates its recommendation that benefits should be extended by another two years, instead of one year as granted by Ministry now.”

Miffed with the poor response to the 403 routes, the parliamentary panel had earlier, in report number 308, stressed that the ministry should consider direct air connectivity to tourist destinations and cultural sites in the country. It said:

“…Direct air connectivity to tourist destinations and cultural sites in the country can massively promote the tourism industry which will lead to the generation of more employment opportunities and faster economic growth. The Committee, therefore, observes that there is an imperative need for close coordination between the Ministry of Civil Aviation, and the Ministries of Tourism & Culture, in matters regarding air connectivity to important tourist destinations and cultural sites in the country. Hence, the Committee recommends the Ministry of Civil Aviation, to work in tandem with the Ministries of Culture and Tourism, who are vital stakeholders in this regard.”

The civil aviation ministry acted on the recommendation of the parliamentary panel but here too it had to put up with a muted response. Of the 106 tourism RCS routes floated for bidding, airlines responded with bids only for 46 tourism routes and by February 2022, only 31 out of these 46 routes were operational under UDAN.

Passengers wearing protective face masks wait in a queue to enter Chhatrapati Shivaji International Airport, after the government allowed domestic flight services to resume, during an extended nationwide lockdown to slow the spread of the coronavirus disease (COVID-19), in Mumbai, India, May 25, 2020. Photo: Reuters/Francis Mascarenhas/File photo

The sinking fortunes of the aviation industry

UDAN’s failure draws largely from the fact that it is a market-driven scheme which makes it incumbent on the government to make the routes far more lucrative for airline operators. Bids under UDAN are submitted based on the demand assessment by the airline operator for that particular route or routes.

The prospective take-off for the scheme was also scuttled as the second wave left a brutal impact on the economy, especially the tourism and transportation sector. Even after four years of the launch of the scheme, only 47% of the routes and 39% of the unserved and underserved airports were operational by July last year. By FY19 and FY20, the scheme seemed on the verge of finally launching into a full-flight as the number of new operational routes grew to 102 and 120 respectively. However, by FY21, the total number of new operational routes had declined to 79, indicating that recovery is far from certain.

The civil aviation ministry has also conceded to the parliamentary panel that the aviation industry is a difficult ecosystem to be in considering the low yields and high operating costs. The situation is further exacerbated by delays in obtaining commuter operator permits by new airline entrants, non-availability of suitable aircraft, aircraft leasing issues, long lead time for delivery and thorny maintenance issues of small aircraft as well as bothersome problems in procuring spares from abroad.

Accompanying the dismal performance of the UDAN scheme are the sinking fortunes of the aviation industry. After having a wide swathe of its business activity destroyed by the pandemic, the aviation industry has had to battle with soaring crude oil prices.

As per an ICRA estimate, there has been a significant impact on the financial health of airline operators due to the COVID-19 pandemic. The ICRA report estimates Indian airlines to report a significant net loss of Rs 12,700 crore in FY22 with the industry-wide debt level climbing to Rs 50,000 crore.

“While some airlines have sufficient liquidity and/or financial support from a strong parentage, which will help them sustain over the near term, there are other airlines, which are already in financial stress. Furthermore, even for the former, credit metrics and liquidity profile have deteriorated. Until the cash inflows improve, the airlines will require funding support to meet their expenses” the report said.

An India Ratings report on the aviation industry states that airlines had partially recovered in 2020 but cautioned that raising funds will be a challenge going ahead. It states, “Despite challenging operating conditions, airlines have responded well over the last year, aggressively cutting costs and arranging for funding gaps. Barring the leading domestic airline carrier, which boasts a strong balance sheet, other players are in urgent need of balance sheet repair. However, recurring covid waves and a smaller market share than the market leader might be key constraints to raising money.”

But it just isn’t the widespread misery in the aviation sector that has contributed to the UDAN scheme tanking badly. Protracted regulatory clearances, paucity of funding, lack of land tracks with clear titles have all varyingly contributed to the scheme’s failure.

“The slow progress of UDAN implementation is attributable to delayed upgradation of infrastructure and readiness of airports, lack of adequate right of way (including insufficient runway lengths) at some of the RCS airports and delays in securing necessary regulatory approvals. Low demand on few routes awarded, adverse and unpredictable weather conditions lead to inconsistent operations and have also resulted in the closure of operations by some airlines in a few cases.” Shubham Jain, SVP & Group Head, Corporate Ratings, ICRA said.