Launch of the 2nd Round of bidding under RCS-UDAN

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UDAN was released by Ministry of civil Aviation MoCA on 15 th June 2016 therafter MoCA has launched regional connectivity scheme in October ,2016 with prime objective to facilitate/stimulate regional air connectivity by making it affordable for masses.

After 1st Round of successful bidding under RCS-UDAN,.

  • Routes awarded under RCS- UDAN during the 1st Round of Bidding

Airports Authority of India (AAI), the implementing agency, has issued Letter of Awards for 27 proposals received under RCS-UDAN after completion of the first round of bidding. Key features of the proposals awarded by AAI include:

 

  • Airports to be connected: 27currently served airports, 12 currently underserved airports and 31 currently unserved airports (total of 70 airports) will be connected.
  • Geographical spread: There is a good geographical spread in the proposals: 24airports in the western, 17 in north, 11 in south, 12 in east and 6 in north-eastern regions are proposed to be connected. 22 states and 2 Union Territories will be connected.
  • Routes and network: A total of 108 routes contained in 16 awarded proposals are for single routes (connecting two cities) and 11 are for network (connecting three or more cities). Six proposals have been bid with zero viability gap funding (VGF) reflecting the fact that there is potential latent demand. Total of 128 routes are awarded.

VGF Outflow: These proposals will requires a VGF of around Rs. 200 crores and will provide around 13 lakh seats per annum of which half will be covered by airfare cap of Rs. 2500 for approximately one hour of flying.

  • RCS Flights take off

On 27th  April,2017 Hon’ble pm flagged off the first UDAN flight under RCS on Shimla-Delhi sector. Simultaneously Hon’ble PM also flagged off the inaugural UDAN flight on Kadapa – Hyderabad and Nanded- Hyderabad sectors through video-link.

Progress of the 1st Round of Bidding 

  • RCS Flights commenced under 8 proposals with 16 RCS routes operationalized.
  • of unserved and underserved Airports connected: 8 (Gwalior, Kadapa, Pondicherry, Porbandar, Bhatinda, Kandia, Nanded and Shimla).
  • of inserved and underserved Airports to be connected shortly: 21 (Agra, Pathankot, Shillong, Bikaner, Ludhiana, Vidyanagar, Aalem, Myaore, Jamshedpur, cooch behar, Kullu, Bhavnagar, Jaigaon, Jamnagar, Kolhapur, Pantnagar, Dlu, Nasik (Ozar), Raigarh, Mundra).
  • of Airports under progress / up-gradation: 14 (Kanpur, Jaisaimer, Adampur, Raurkela, Burnpur, Utkela. Jeypore, Jharsuguda, Bilaspur, Ambikapur, Jagdalpur, Mithpur, Neyveli, Solapur).

MoCA to launch  2nd Round on 24 August,2017.

Briefing media the salient feature of the second round of bidding under RCS-UDAN the date of submission of bid upto 27 Sept 2017 , Last date  for submission of initial proposal  is upto 26 Oct 2017 and opening for RCS route /network received is 27 Oct. 2017.

Invitation for submission of counter proposal  is 2 Nov 2017  last date for submission of counter proposal  due on 16 Nov 2017.Opening of Technical  proposal both initial and counter is due on 23 Nov 2017.

Date of declaration of selected airline operator is 30 Nov 2017.

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Scheme Objectives and Guiding
Principles1

1.1.1 The Ministry of Civil Aviation (MoCA), Government of India released the National Civil Aviation Policy 2016 (NCAP 2016). One of the objectives of NCAP 2016 is to  “enhance regional connectivity through fiscal support and infrastructure development”.
1.1.2 As per an ICAO study – “Economic benefits of civil aviation: ripples of prosperity”, the output and employment multipliers of aviation are 3.25 and 6.10 respectively. This implies that every 100 Rupees spent on air transport contributes to 325 Rupees worth of benefits, and every 100 direct jobs in air transport result in 610 jobs in the economy as a whole. In fact, the study attributes over 4.5% of the global Gross Domestic Product (GDP) to civil air transport.
1.1.3 As the Indian economy grows, consumption-led growth in populated metros is expected to spill over to hinterland areas. This is also expected to be on account of factors of production (land, labor, etc.) becoming costlier in the densely populated metro cities. In this scenario, air connectivity can provide required impetus to the economic growth of regional centers (towns / cities).
1.1.4 In this context, one of the key objectives of NCAP 2016 is to “establish an integrated eco-system which will lead to significant growth of civil aviation sector, which in turn would promote tourism, increase employment and lead to a balanced regional growth”.
1.1.5 NCAP 2016 also seeks to sustain and nurture a competitive market environment in the civil aviation sector. While it would be best for growth in the sector and establishment of regional air connectivity to materialize through open market mechanisms in terms of airlines assessing demand on various routes, developing networks through deployment of appropriate capacities & technologies, infrastructure developing in sync with demand, etc. it was felt that facilitating / stimulating regional air connectivity would be desirable from a public policy perspective and may need financial support, at least in the initial period, to trigger participation of players. It is in this context that NCAP 2016 provides for a Regional Air Connectivity Scheme (RCS or the Scheme).
1.1.6 The operation of the Scheme is proposed to be through a market mechanism where operators will assess demand on routes; submit proposals for operating / providing connectivity on such route(s); seek VGF, if any, while committing to certain minimum operating conditions; and the same shall be finalized in interaction with other market participants as provided for in this Scheme.
1.1.7 MoCA acknowledges that different / same aircraft operated by different operators for the same stage lengths can have different cost of operations on account of differences in inherent economics of aircraft types for various stage lengths, cost of operations specific to operators in terms of various business parameters such as business models, fleet utilization, scale of operations, etc. Specification of (normative)

1
This document is not a contract and does not create any enforceable rights and obligations. Terms and conditions of
operations under the scheme would be contained in a suitable contract to be signed between the Implementing Agency and the
Selected Airline Operator.
Regional Connectivity Scheme (RCS or the Scheme) August 2017

VGF Caps upfront has, therefore beenconsidered important to ensure transparent
operation of a market based mechanism under this Scheme rather than through
determination subsequent to receipt of varied proposals.
1.1.8 While, it is the intent and focus of the Scheme that operation of a market based
mechanism facilitates discovery of the optimum VGF requirements within specified
VGF Caps, MoCA recognizes that in certain cases it is possible that a market based
discovery of optimum VGF requirements may not happen due to lack of competition /
uncertainty in market conditions and ex-post, the specified (normative) VGF Caps
may end up seeming to be higher than the actual VGF requirement in future on
account of factors like higher airfares for Non-RCS Seats, higherload factors, etc.
Given that the focus of the Scheme is to provide air connectivity where it does not
exist, the quantum or probability of such eventualities / outcomesin future cannot be
ascertained by MoCA and potentially even the market ex-ante on account of the
multiplicity of unascertainable factors. Further, the Scheme is premised on and
continuing to encourage an open market mechanism where operators will be
assessing demand on routes, developing networks through deployment of
appropriate capacities & technologies, and take risks on account of factors like
marketing of capacities, realizable demand, effect of ATF prices on costs / fares for
Non-RCS Seats, etc. Accordingly, in consultation with stakeholders, MoCA
recognizes that the risks retained with the operators have to be seen in their entirety.
1.1.9 MoCA had released an earlier version of the Scheme on 21st October 2016 and
subsequently released a corrigendum to the same on 5th December 2016 (“Scheme
Version 1.0”). Subsequently, MoCA and AAI conducted a bidding process and
awarded a number of RCS Routes to the Selected Airline Operators. It is hereby
clarified that the provisions contained under this Scheme document shall be
applicable to:
1.1.9.1 any bidding process which may be conducted by MoCA, the Implementing
Agency or the RCS Trust, as the case may be; and
1.1.9.2 any Selected Airline Operator Agreement and any other agreement(s) which may
be entered into by the Implementing Agency or the RCS Trust, as the case may be, with any Selected Airline Operator,
on or after the date of notification of this Scheme for awarding the
concessions/support provided in this Scheme.
For the avoidance of any doubt, the bidding processes conducted, and the Selected Airline Operator Agreements and any other agreements/documents executed, pursuant to the Scheme Version 1.0 shall continue to be governed under and in accordance with the provisions of the such Scheme Version 1.0 and any other document(s) issued by authority.

Scheme Objective
1.2.1 The primary objective of RCS is to facilitate / stimulate regional air connectivity by
making it affordable.
1.2.1.1 Promoting affordability of regional air connectivity is envisioned under RCS by
supporting airline operators through (1) concessions by Central
Government,State Governments (reference deemed to include Union Territories
as well, unless explicitly specified otherwise) and airport operators to reduce the
cost of airline operations on regional routes / other support measures and (2)
financial (viability gap funding or VGF) support to meet the gap, if any, between
the cost of airline operations and expected revenues on such routes.
Regional Connectivity Scheme (RCS or the Scheme) August 2017
Page 8 of 57
1.3 Guiding Principles of the Scheme
1.3.1 Given the focus and objectives of NCAP 2016, the key guiding principles for RCS
would be:
1.3.1.1 State Governments’ buy-in and support to determine eligibility: In view of the
fact that (1) NCAP 2016 is seeking to make regional air connectivity affordable
and (2) limitedfinancial (VGF) support is being generated from within the sector, it
is important that cost of operations are minimized for air transport operators to the
extent possible through concessions from State Governments – especially in view
of economic benefits (regional development as well asoutput & employment
related) to the local catchments / economies through provision of such air
transport services.
RCS is accordingly to be made operational only in States and at airports/helipads
(irrespective of ownership by AAI / State Governments / private entities / Ministry
of Defence, Government of India) which demonstrate their commitment and
support to regional air transport operations by providing concessions / support as
required under the Scheme.
1.3.1.2 Rationale of Regional Connectivity Fund (RCF): RCS is one of the key
elements of NCAP 2016, which envisions domestic ticketing of 30 crores by 2022
and 50 crores by 2027. RCS as well as NCAP 2016 would eventually promote
growth of the entire civil aviation sector.
1.3.1.3 RCSwould lead to creation of regional air connectivity / services that would have
spin-off benefits within the sector in terms of passengers taking other flights (not
under RCS) and using airports / airport services that are not at concessional rates
under RCS. Accordingly, the Regional Connectivity Fund (RCF) is to be funded
through application of a levy on scheduled flights being operated within India or
through any other sources, as per notifications issued by the Ministry of Civil
Aviation from time to time. The RCF would thus channel funds generated from
the sector to stimulate further growth and development of the sector and the
operators (/ passengers) providing (/ using) services on domestic routes where
such fee per departure is levied would be eligible to avail benefits under the
Scheme for providing (/ using) services pursuant to this Scheme.
1.3.1.4 Demand driven mechanism:The MoCA would like to see airlines operating in a
competitive environment and accordingly development of regional air connectivity
routes is proposed to be left to market forces such that airlines undertake
assessment of demand and nature of supply required on particular routes and
lead the process under RCS.
1.3.1.5 Sustainability of operations:A key guiding principle would be to encourage
sustainability of operations under RCS in the long term – such that the
connectivity established is not dependent on VGF in perpetuity. Accordingly,
under RCS, VGF is proposed to be provided for a limited period to facilitate /
stimulate regional air connectivity to un-served / under-served areas. However, it
is recognized that for select Priority Areas, funding may need to be provided for
longer periods of time to support provision of air transport services to such areas.
1.3.1.6 Periodic review of RCS: Acknowledging the fact that market dynamics
willchange over time, MoCA may amend various Scheme provisions from time to
time as and when necessary for efficacy in accomplishment of objectives and
undertake a review at least once every 3 years.
1.4 Definitions
Regional Connectivity Scheme (RCS or the Scheme) August 2017
Page 9 of 57
1.4.1 In line with NCAP 2016 and in order tooperationalize the Scheme, unless the context
requires otherwise, following terms under the Scheme shall have the meanings
ascribed below:
1.4.1.1 ‘Additional Performance Guarante

 

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