Covid nearly grounds Modi's ambitious UDAN scheme

The government's regional connectivity scheme UDAN has witnessed a slow progress of implementation, as not even 50 per cent of the route have been operationalised and the second wave of the pandemic, which started from mid of March 2021, may impact it further going forward, according to a report.

Rating agency ICRA in its report on Tuesday said that there is likely to be a further delay of two years in achieving the target of operationalising as many as 100 unserved and underserved airports and starting at least 1,000 RCS routes by 2024.

Aimed at enhancing regional connectivity through fiscal support and infrastructure development, the maiden flight under the Ude Desh Ka Aam Nagrik (UDAN) scheme was flagged off by Prime Minister Narendra Modi from Shimla for Delhi on April 27, 2017.

As on May 31, only 47 per cent of total routes and 39 per cent of airports (unserved and underserved) have been operationalised under UDAN, according to ICRA.

The number of new RCS routes which started operations increased at a healthy pace and stood at 102 and 120 routes in FY2019 and FY2020 respectively, but have declined to 77 new routes in FY2021 due to the COVID-19 pandemic, ICRA said.

Also, during FY2018 – FY2021, a total of Rs 3,350 crore have been incurred by the central government towards the UDAN scheme and the budgeted outlay for FY2022 is Rs 1,130 crore, according to ICRA.

The civil aviation ministry has set a target of operationalising as many as 1,00 unserved and underserved airports and starting at least 1,000 RCS routes by 2024, ICRA said, adding that of these, as many as 52 unserved and underserved airports and 357 routes are operationalised as on May 31.

The ratings agency also said that to improvise the RCS network and achieve its target, the Airports Authority of India (AAI) has launched UDAN 4.1 as a special bidding round under UDAN 4.0 in March this year to award 392 routes. AAI is the implementing agency for UDAN.

"The slow progress of UDAN implementation is attributable to delayed upgradation of infrastructure and readiness of airports, due to lack of adequate right of way (including insufficient runway lengths) at some of the RCS airports and delays in securing necessary regulatory approvals," said Shubham Jain, SVP and group head for corporate ratings at ICRA.

He further said that "low demand on few routes awarded, adverse and unpredictable weather conditions leads to inconsistent operations and have also resulted in closure of operations by some airlines in a few cases."

Jain also noted that the second wave of the pandemic, which started from mid of March 2021 would further impact the UDAN scheme going forward with aviation being one of the worst-hit infrastructure sectors.

"The award and implementation of UDAN 4.1 may get delayed significantly due to the second wave of the pandemic in India and its effect on the Indian aviation industry.

"ICRA expects the target of operationalising 100 airports under UDAN by 2026, with a delay of two years from revised schedule (of 2024 from earlier 2019)," Jain said.

The weak credit profile of domestic airlines is expected to have an impact on the existing routes under UDAN scheme, particularly for smaller airlines given the stretched liquidity position, low utilisation in some of the routes and will also impact future bidding of routes under the scheme, he added.

According to ICRA, there has been a significant impact on the financial health of airline operators due to COVID-19 pandemic.

ICRA estimates the domestic carriers to report a significant net loss of Rs 210 billion in FY2021, and estimated net loss of Rs 127 billion in FY2022, with the industry's debt level increasing to around Rs 500 billion in FY2022.

"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," the ratings agency emphasised.

Furthermore, even for the former, credit metrics and liquidity profile have deteriorated, it said, adding that until the cash inflows improve, the airlines will require funding support to meet their expenses.

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