‘Only 47% of total UDAN routes currently operational: Icra
The number of new RCS routes which started operations increased at a healthy pace and stood at 102 in the financial year (FY) 2019 and 120 routes in FY2020. They, however, declined to 77 new routes in FY2021 due to the Covid-19 pandemic
The second wave of Covid-19 has not only led to operational losses for airlines and airports but has also impacted future developments in the aviation sector. According to ratings agency ICRA, the target of operationalising 100 airports under ‘Ude Desh Ka Aam Naagrik’ (UDAN) will see a delay of two years from 2024 to 2026 due to the impact of the pandemic.
The Ministry of Civil Aviation (MoCA) launched the UDAN scheme in 2016 as a Regional Connectivity Scheme (RCS) to enhance regional connectivity. However, as per the ICRA, only 47% of total routes and 39% of airports (unserved and underserved) have been operationalised under UDAN as of May 31, 2021.
The number of new RCS routes which started operations increased at a healthy pace and stood at 102 in the financial year (FY) 2019 and 120 routes in FY2020. They, however, declined to 77 new routes in FY2021 due to the Covid-19 pandemic. ICRA said that during FY2018 – FY2021, Rs. 3,350 crores have been incurred by the central government towards the UDAN scheme and the budgeted outlay for FY2022 is ₹1,130 crores.
Moreover, the slow progress of UDAN implementation is not only attributable to delayed upgradation of infrastructure at some of the RCS airports, delays in securing necessary regulatory approvals, low demand on few routes awarded, but also to the adverse and unpredictable weather conditions that lead to inconsistent operations and also resulted in the closure of operations by airlines in a few cases.
“The second wave of the pandemic, which started from mid-March 2021 will further impact the UDAN scheme going forward with aviation being one of the worst-hit infrastructure sectors,” said Shubham Jain, SVP and group head, corporate ratings, ICRA.
The civil aviation ministry set a target of operationalising 100 unserved and underserved airports and starting at least 1,000 RCS routes by 2024. Of this, 52 unserved and underserved airports and 357 routes are operationalised as of May 31, 2021. To improve the RCS network and achieve its target by 2024, the Airports Authority of India (AAI) launched UDAN 4.1 as a special bidding round under UDAN 4.0 in March 2021 to award 392 routes.
“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. We expect the target of operationalising 100 airports under UDAN by 2026, with a delay of two years,” Jain said.
He added, “The weak credit profile of domestic airlines is expected to have an impact on the existing routes under the 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.”
Moreover, there has been a significant impact on the financial health of airline operators due to the Covid-19 pandemic.
According to ICRA’s estimates, Indian airlines will report a significant net loss of approximately 210 billion in FY 2021 and an estimated net loss of ₹127 billion in FY2022, with the industry 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. Until the cash inflows improve, the airlines will require funding support to meet their expenses,” ICRA said.
