UDAN may face headwind due to the second wave of COVID-19: ICRA

The scheme was launched in 2016 by the Ministry of Civil Aviation to promote regional air connectivity as the air operators have to offer at least 50 per cent of seats at a fixed subsidised fare. The loss that occurred is compensated by the ministry as viability gap funding sources said.

ICRA expects a muted response to UDAN 4.1 bidding as airlines have stressed balance sheets as a result of the second wave of COVID-19.

"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," said Shubham Jain, SVP & Group Head, Corporate Ratings, ICRA.

MoCA has 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, ICRA said.

"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). 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," Jain added.

ICRA said that as of May 31, 2021, only 47 per cent of total routes and 39 per cent of airports (unserved and underserved) have been operationalised under UDAN and 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.

During the financial year 2018-2021, a total of Rs. 3,350 crores have been incurred by the Centre towards the UDAN scheme and the budgeted outlay for FY2022 is Rs. 1,130 crores, it added.

"ICRA estimates Indian airlines to report a significant net loss of about Rs. 210 billion in FY 2021 and an estimated net loss of Rs. 127 billion in FY 2022, with the industry debt level increasing to around Rs. 500 billion in FY 2022. 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," it said.