UDAN Faces Legal Hiccups

The government had in June this year announced its civil aviation policy. Its fallout has been – Airlines will have to pay Rs 7,500 for every flight up to 1,000 km, Rs 8,000 for those between 1,000 and 1,500 km and Rs 8,500 above 1,500 km.

As per the Union civil aviation minister Jayant Sinha, the national civil aviation policy, including the Regional Air Connectivity Scheme (RCS), is expected to increase the number of functional airports in the country to 150-200 in the next few years; there is going to be a massive increase in airport capacity in the country with an expected investment of Rs 1,50,000 – 1,70,000 million by the AAI in the up gradation and modernization of its airdromes.

According to data twitted by the Minister, the aviation sector served 8.67 million people in October 2016. In contrast, the sector had provided services to 7.03 million people in October 2015. The total number of air travelers between January and October 2016 increased to 81.37 million, from little over 66.06 million during the same time period in 2015.

Noting that the aviation sector in India is changing very dramatically, Sinha added, “There is going to be a massive increase in airports capacity in the country.”

At present there are 75 functional airports in the country. The RCS is now being envisaged with a view to connect smaller cities with the metros which will result in more number of airports coming up.

The Directorate General of Civil Aviation (DGCA) has notified a new cess applicable on domestic flights in order to create a corpus for UDAN under RCS. It has been marked to all airlines and posted on the DGCA’s website.

This move has, however, been challenged in court by the airlines despite apparently knowing that their plea may not be entertained. The group Federation of Indian Airlines (FIA) comprising IndiGo, Jet Airways, SpiceJet and GoAir has filed a petition challenging the cess in the Delhi high court. 

The notification reads –
Airlines will pay
– Rs 7,500 for every flight up to 1,000 km,
– Rs 8,000 for flights between 1,000 and 1,500 km and
– Rs 8,500 for flights over 1,500 km.

The airlines are naturally expected to pass on the cost of the new UDAN charge to their passengers, but they are not sure whether they can do so under the law. If passed on, the cess would come to about Rs 50 per passenger on a 180-seater Airbus A320 plane —flown by most of these budget airlines.

“The central government has decided to impose a levy on the following scheduled flights being operated within India at the rates indicated against them to fund regional air connectivity fund created under powers conferred under Rule 88-B of the Aircraft Rules 1937,” DGCA Director General B.S. Bhullar said.

The current rules already mandate that airlines should mark a certain percentage of their total flights for under served areas. Bhullar said those flights would be exempted from the new levy.

Operators of smaller planes such as ATRs, (operated by Air India and Jet Airways) and Bombardier Q400s (operated by SpiceJet) which are below the take-off mass of 40,000 kg, need not pay this levy. These planes mostly fly short-haul routes.

Flights started by operators in future using funds from the UDAN cess will also be exempted from these charges.

The Airports Authority of India has been designated as the nodal agency to monitor the collection of funds from airline operators.

The funds will also be open to audit by the Comptroller and Auditor General of India (CAG)

The ministry expects an estimated Rs 4,000 million to be collected annually as a result of this scheme. The fare for a one-hour journey of about 500 km on a fixed-wing aircraft or a 30-minute journey on a helicopter has been capped at Rs 2,500, with proportionate pricing for routes of different lengths and duration.

The court, however, has declined to stay the imposition of the levy.

The ministry hopes that, if all goes well, a sum of Rs 4,000 million a year or so can be raised to feed the RCS. However, aviation analysts believe that if the ministry had properly conceptualized the non-aeronautical revenue arising out of over 150-200 new and revamped airports, more than Rs 14,000 million a year could have been raised. That would not have inconvenienced anybody; the air fares would have dropped further; and above all, the whole scheme could have been made self – reliant. There would have been no need of any sort of subsidised relief. 

FIA contends that the cess will be a huge burden on the financials of the airlines. As per FIA, the ministry of civil aviation did not have the authority to introduce the levy in this manner. It said the levy made up for the government’s share of the Regional Connectivity Fund (RCF) towards the public purpose of enhancing regional connectivity.

Thus, the Government’s ambitious much hyped Regional Air Connectivity Scheme is going to run on crutches which might not survive in the long run. This attitude of the government proves that the government knows very well that the scheme does not have any attractive inherent financial feasibility which may excite an entrepreneur. If one takes away the various sops and concessions given to RCS, apart from this levy, then one is left with only losses. Against this backdrop, several practical questions are being raised over the economical operation of the scheme. 

The next hearing is slated for 21 December.

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