Aviation stocks take off as Govt announces draft regional air connectivity scheme

Three aviation stocks rose by 2.95% to 3.68% at 14:40 IST on BSE after the government announced draft regional connectivity scheme to promote regional air connectivity.

InterGlobe Aviation (up 3.68%), Jet Airways India (up 3.56%) and SpiceJet (up 2.95%), edged higher.

The S&P BSE Sensex was up 137.86 points, or 0.51% at 27,282.77.

To operationalise the Regional Air Connectivity Scheme (RCS), aircraft and helicopter operators would be required to assess the demand on various routes and submit their proposal for providing connectivity on such routes. They would be required to earmark certain number of seats on every flight for the RCS. The fare for such seats would be capped based on flight distance and time. An index has also been prepared for airfare caps for the RCS seats for fixed wing aircrafts and helicopters depending upon the distance.

Airport Authority of India (AAI) will be the implementing agency for the scheme. The RCS route will have to include un-served airports i.e. airports where there is no scheduled commercial flight or under-served airports i.e. airports which have 7 or less scheduled commercial flights per week. The RCS routes would cover a length between 200 to 800 kilometre. This criteria will not apply to hilly areas, islands, North-east region and for helicopter operations.

The procedure for selecting airline operators would be based on reverse bidding mechanism. The selected airlines would be expected to commit 50% of the seats on RCS flights to be sold at the specified airfare cap. They would also be required to maintain a frequency of minimum, three flights per week and maximum seven flights per week. A Regional Connectivity Fund would be created to subsidise the operation of the RCS.

The central government will support the RCS scheme by levying an excise duty of only 2% on aviation turbine fuel (ATF) purchased at RCS airports for a period of three years. The service tax will be levied at only 10% of the taxable value of tickets for RCS seats for a period of one year. The operating airline will be free to enter into code sharing arrangement with domestic and international airlines.

The concerned state governments will charge value added tax (Vat) of 1% or less on ATF at RCS airports for a period of 10 years. It will also provide security and fire services free of cost, besides providing electricity, water and other utility services at concessional rates.

The draft RCS will be placed in public domain for three weeks to enable stakeholders to give their suggestions. After this the details of the scheme would be finalized.

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