AP to underwrite seats in planes connecting smaller locations

Draft policy proposes AP Regional Airport Development Fund with initial corpus of Rs 100 cr

The Andhra Pradesh government would underwrite seats for commercial airline operations that provide connectivity to Tier II and III cities as it seeks to develop six new airports under public-private collaboration apart from expanding the existing ones managed by the Airports Authority of India (AAI) in the state.

Keeping in line with its ambitious agenda for the development of airport operations, the state government has proposed to create a separate fund with an initial corpus of Rs 100 crore in the name of Andhra Pradesh Regional Airport Development Fund (APRADF).

The government has released a draft aviation policy incorporating these and several other steps and incentives to develop the aviation infrastructure by attracting private investments.

“Airport development in Tier 2/3 cities require innovative funding solutions. The government will set up the APRADF to provide financial support for development and operation of airports and/or to underwrite seats for commercial airline operations wherever deemed necessary,” the document stated.  

Underwriting a specific number of airline seats or a certain percentage of the capacity of the aircraft would be provided to encourage the airlines to operate the services on routes that  may not be viable. The  airline companies would also be given exemptions from aeronautical tariffs to enhance intra and interstate connectivity, it said.

Fiscal incentives and exemptions, and reimbursement of various charges would be provided up to specific traffic levels, or up to a period of five years from the date of commercial operations of newly-commissioned airport facilities.

The government has already reduced the VAT on aviation turbine fuel (ATF) to 1 per cent in a bid to attract more airline services to the state.

<b>SPVs for new airports</b>

For the development of new airports the government would set up SPVs to accomplish all the basic work, including land acquisition and securing of clearances before transferring the same to the private developer, who would be selected through competitive bidding. The government would hold a minority equity towards the land and other facilities extended to the project.

The new airport developers would also get viability gap funding, exemptions from state taxes and lease charges among other things, it said.

The draft also provides a set  of incentives for the aircraft maintenance repair and operations (MRO) facilities. For instance, MRO and air cargo infrastructure and similar other facilities with a minimum of Rs 50 crore investment would be exempted from stamp duty while the manufacturing units and R&D services in the defence aerospace sector would be given financial incentives according to the existing industrial policy of the government.

The vision is to create world-class aviation infrastructure in the state that would help provide reliable and seamless air connectivity to regional, national and international destinations by 2022, the draft said.

<b>Six greenfield airports</b>

The state government proposes to set up six greenfield airports, including an international airport at Bhogapuram in Vizianagaram district adjoining Visakhapatnam. The other five would be no-frills or low-cost airports proposed to be set up at Dagadarthi (Nellore), Orvakallu (Kurnool), Kuppam (Chittoor), Tadepalligudam (West Godavari) and Ongole (Prakasham district).

While proposing to develop these six airports under the PPP model, the government has also requested the AAI to develop Donakonda, an airstrip built by the British before the independence, and the Nagarjuna Sagar airport as part of the national level plans of developing regional no-frill airports.

The key focus areas also include the expansion of Visakhapatnam, Vijayawada and Tirupati into international airports and expansion and modernisation of Rajahmundry airport, according to the draft policy.

AP currently has six operational airports at Visakhapatnam, Tirupati, Vijayawada, Rajahmundry and Kadapa under the AAI and one at Puttaparthi, being managed by the Sri Satya Sai Trust.

According to the provisional AAI data, Visakhapatnam, Tirupati, Vijayawada, and Rajahmundry airports registered a traffic of 1.66 million passengers 2013-14, an increase of 5 per cent traffic over that in the previous year.