State govts lining up sops to attract airlines

State govts lining up sops to attract airlines

At least a dozen Indian states are offering financial concessions and infrastructural facilities to airlines to step up air connectivity in their cities.

The moves come as the ministry of civil aviation is also promoting regional airlines and modernizing some 35 non-metro airports to improve intra-India connectivity.

These states are considering reduction in sales taxes and offering soft loans to airlines as compensation for servicing far-flung areas that were previously not part of air networks. Linking small cities is often financially unviable for a scheduled carrier. Some of the states are also upgrading airstrips to potentially handle small planes.

Kerala, Uttarakhand, Rajasthan, Gujarat, Karnataka and the seven states of North-East region are all keen to have more airlines operating routes in their states.

Consulting firms such as Infrastructure Leasing & Financial Services Ltd (IL&FS), Infrastructure Development Finance Co. Ltd (IDFC) and Feedback Ventures Pvt. Ltd are assisting some of the state governments in wooing airlines as well as in upgrading airports.

“States are increasingly promoting airport and air link projects, as domestic travel is gaining momentum, besides strong demand from business community," says Harsh Shrivastav, a vice-president at Feedback. “A surge in air cargo movement is also another factor for this states’ initiative."

The Uttarakhand government, for instance, has invited expression of interest from airline operators having valid licences for operating commercial flights in the state.

The tender, which was floated through Uttarakhand Infrastructure Projects Co. Pvt. Ltd, a joint venture between IL&FS and the state government, specifies that airlines should be able to connect cities such as Dehradun, Pant Nagar, Naini Saini, Gauchar and Chinyalisaur. The company has suggested airlines can use smaller aeroplanes, with a minimum of 18 seats, to connect other key routes as well.

The state government will offer a soft loan to selected airline through its budgetary resources as these routes are financially viable to operate.

Shwetank Singh, who is in charge of air connectivity projects with IL&FS, declined to comment for this story. “The amount of soft loan is yet to be finalized. We will ask airlines to bid for the loan amount and will award to contract to one that quotes lowest amount," said an IL&FS executive who did not want to be named. IL&FS is also currently working on similar projects for Rajasthan and Gujarat.

Feedback Ventures had earlier assisted the Karnataka government to develop airports at various places including Hassan, Shimoga, Bijapur, Raichur and Gulbarga, as a preliminary step to boost air connectivity.

The Kerala government is also formulating concessions for airlines to increase the connectivity within the state as well as flights to other states.

“The chief minister had convened a meeting of airline representatives recently and asked suggestions. The state is yet to get back to us about the offerings including concessions and other sops," said M. Thiagarajan, managing director, Paramount Airways, which is a scheduled airline operating out of Chennai.

The north-eastern states of Meghalaya, Assam, Tripura, Mizoram, Manipur, Nagaland and Arunachal Pradesh have also invited airline operators to increase routes in their states. The preferred airlines will be supported by a fund set up by IL&FS: the North East Region Air Link Fund. The fund is essentially to offset the losses made by operating in the particular routes.

“Earlier, there was a proposal to permit airlines operating in north-east to fly neighbouring countries such as Bhutan, Nepal, Myanmar, Thailand and Sri Lanka. Now, ministry of civil aviation is reviewing this proposal," said a person familiar with the project, who didn’t want to be identified.

The spurt in tourism is also driving the states to seek more air connections. Each international tourist coming to India is likely to take an average of four to five flights inside the country, according a report prepared by the Associated Chambers of Commerce and Industry of India and consulting firm Ernst & Young.

“Increasingly, the domestic tourists are also taking air travel, which could add incrementally to the other drivers of domestic traffic growth. Several new cities are expected to appear on the aviation map over the next two years, considering the growth in tourism-based opportunities in India," the report said.