The Regional Connectivity Fund (RCF) proposed to offset the losses incurred by airlines for connecting un-served airports is likely to have a corpus of ₹500 crore per annum.

The Fund will be aided through a cess in order to subsidise flights connecting un-served airports under the Regional Connectivity Scheme proposed in the Civil Aviation Policy. The scheme has proposed capping air fares at ₹2,500 for one-hour flights connecting un-served airports.

“We will give this subsidy for three years, time enough for the airlines to know whether the route will work or not,” said Civil Aviation Secretary RN Choubey, adding that “ideally I would have liked the fiscal incentives to be in sync with the aviation policy period of 10 years, as most of the acquisition of planes happens through leasing and not outright purchase. For leasing to be successful, it normally should be for 10-12 years.”

“However, we have promised that the fiscal incentive can be extended for 10 years. But, people don’t invest on promise. This is one aspect where I succeeded only partly. But, there are several aspects where the ministry succeeded quite well,” he said.

Choubey told BusinessLine that the amount that will help subsidise flyers from tier-II and tier-III cities. It will be collected from all passengers except those flying to the North-East, island territories, and from flights on aircraft smaller than 80-seaters.

Viability gap funding The corpus from this cess will go to the Airports Authority of India (AAI). Under the new scheme, the AAI will transfer the amount collected as Viability Gap Funding to airlines that fly to airstrips that are now un-served.

“We are looking at it as a demand-driven thing,” he said, while accepting that even the government does not have a very good idea about how many of these un-served airports would come forward.

Choubey also fears that the western and southern regions, which connect small airstrips well, may walk away with this scheme. “We are ensuring sufficient dispersal as well. We will have that check,” he added.

India has nearly 450 airstrips, of which only 80 airports operate with scheduled commercial airlines. The scheme’s benefits are not applicable to airports where flying is currently happening. The rest — 370 un-served airports — will be eligible for the scheme. The idea is to develop these as no-frills airports.

Initially, the plan is to develop 60 airports, including 10 under AAI, with government support. “If that number turns out to be more than 60, the better,” Choubey added.

No additional charges Moreover, several measures have been suggested in the policy to keep the cap at ₹2,500, he explained. “The excise duty on ATF sold at the un-served airports will be at 2 per cent; VAT on ATF will not be more than 1 per cent; service tax on the tickets will be at 1 per cent. Besides, there will be no landing, parking, air navigation charges on the un-served airport by the AAI,” he said.

On whether States will be wiling to let go of VAT, he said: “They will be. In an airport where even one flight doesn’t come and, therefore, not a drop of ATF is sold, they don’t get one paisa of VAT. There is no revenue foregone.”

While Choubey is looking at competition in the sector, he also expects the national carrier, Air India, to rejig its strategy. “Air India has done well largely due to the fall in crude prices. They have made an operational profit. They will make a net profit in 2018-19, which, as per the government’s turnaround plan, is to come in 2021-22. They will be three years ahead,” he said.

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