UDAN needs more support to be viable

Allowing easy exit for airlines which have operated a route for three years with VGF but found it unviable was another key demand.

The regional air connectivity scheme, UDAN, or ‘Ude Desh ka Aam Naagrik’, has been found wanting on several parameters by the Comptroller & Auditor General (CAG). Launched in 2016 to get smaller towns and cities on the country’s aviation map, the architecture of the scheme envisaged a new category of airlines — Scheduled Commuter Airlines (SCAs) — with a fleet of small aircraft which would fly on unserved and underserved routes. Further, the SCAs were provided with viability gap funding (VGF) according to a pre-determined formula to make their operations viable and in turn, they were required to sell a certain number of seats per week at a subsidised fare. To fund the VGF, scheduled airlines (IndiGo, Air India etc) were asked to pay a levy.

Analysing UDAN’s performance between 2016 and 2021, the CAG found that SCAs were unable to mount flights on most routes because of non-viability, even with the VGF. Also, some SCAs sought more VGF than allowed and some scheduled airlines failed to deposit their full share of the levy to the Regional Air Connectivity Fund (RCF). The CAG noted that the ministry of civil aviation (MoCA) had not, to date, formulated guidelines to regulate the collection and remittance of the RCF and the disbursement of the VGF to airlines for underwriting seats on flights mounted on commercially non-viable routes. Left unchecked, scheduled airlines continued to collect higher fares from passengers and also delayed paying their share of RCF.

Financial Irregularities

Flagging flaws in self-certification of the VGF claims by SCAs, the CAG illustrated how Alliance Air (once a part of the Air India Group) claimed excess VGF of nearly Rs 31 crore by under-allocating the required number of Regional Connectivity Scheme (RCS) seats on its aircraft on UDAN routes. Alliance Air also charged nearly Rs 49 lakh as excess fare from passengers. UDAN fares are regulated because airline operators are given VGF. Similar discrepancies were found against some other SCAs too.

There were significant delays in the revival/ development of UDAN airports. Reviving existing airports/helipads was a key feature of the scheme; of 116 such airports where the government spent funds, 83 could not be made operational and that led to a loss of over Rs 1,000 crore.

As financial irregularities continued to plague UDAN, CAG data also shows the scheme itself has been a middling success, at best, in terms of the number of flights. Less than one in two UDAN routes which had been awarded over five years have commenced operations — 774 routes were awarded, but only 371 commenced operations. And out of those where operations did start, only 174 continue to be operational today. That means that just a fifth of the routes awarded remain functional.

Design flaws

Several design flaws in the scheme are to blame for its lacklustre performance. The government’s reluctance to share data with prospective SCA bidders — the specific annual number of routes awarded, the number of routes that attracted any bids, routes operationalised and those that remained operational even after the VGF ended — has been discouraging SCAs to come forward for more routes.

Then, the specification that SCAs must only operate small aircraft makes their business risky. When routes that these airlines bid for became unviable, the small aircraft were left idle because it was next to impossible to find slots for them at metro airports. Many SCAs folded up because of poor load factors on UDAN routes and the inability to use aircraft. Many scheduled airlines — Air India, Alliance Air, SpiceJet, IndiGo and the erstwhile Jet Airways — had also bid for some UDAN routes in the past but have subsequently withdrawn from many of these routes.

The SCAs have frequently sought higher VGF to make UDAN more successful. Allowing easy exit for airlines which have operated a route for three years with VGF but found it unviable was another key demand. The list of things that the government needs to do to improve the scheme has become longer following the CAG’s observations. These include establishing a proper mechanism to regulate VGF payment to SCAs instead of relying on their self-certification, monitoring collection and payment of RCF levy by scheduled airlines and also monitoring the spending on underserved/unserved airports when a majority of these have not been revived and remain non-functional. The CAG has also suggested that the performance of select SCAs be audited independently to prevent future excesses.

Sindhu Bhattacharya is a journalist based in Delhi who writes on a range of topics in business and economy. Views are personal, and do not represent the stand of this publication.