Whalesbook
Major Investment for Regional Connectivity
The Indian government has approved a significant overhaul of its UDAN scheme, committing Rs 28,840 crore over 10 years to expand regional air connectivity. This move aims to develop new airports and helipads and provide vital support to airlines flying in less-served areas.
The revamped UDAN scheme will run from fiscal year 2026-27 to 2035-36. The Rs 28,840 crore budget is a substantial increase. Of this, Rs 12,159 crore is allocated over eight years to build 100 new airports from existing airstrips, aiming to elevate India's aviation standards. Another Rs 3,661 crore will fund 200 modern helipads in remote, hilly, and aspirational regions.
To help cover ongoing costs for regional routes, the scheme will provide operational and maintenance support for three years per airport. This support is capped at Rs 3.06 crore annually for airports and Rs 90 lakh for heliports, with an estimated Rs 2,577 crore set aside for about 441 aerodromes. Crucially, Rs 10,043 crore is designated over ten years for Viability Gap Funding (VGF) for airline operators, essential for keeping routes with lower passenger numbers viable. The plan also includes procuring two HAL Dhruv helicopters for Pawan Hans and two HAL Dornier aircraft for Alliance Air, supporting domestic aircraft manufacturing.
Challenges in Regional Airline Operations
The Indian aviation sector faces several challenges. These include fluctuating jet fuel prices, which account for about 40% of operating costs, and currency risks from USD-denominated leases. Ongoing supply chain issues are also causing delays in aircraft deliveries. New regulations, such as requiring airlines to offer 60% of seats without extra charges, put pressure on airlines' income from other services.
Public carriers like Alliance Air struggle with a debt burden of around Rs 40 billion, persistent operational problems including grounded aircraft due to engine issues, and past issues with pilot pay and strikes. Pawan Hans, despite plans to receive new helicopters, has faced financial difficulties, relies heavily on government revenue, and deals with technical problems on its older fleet.
While the previous UDAN scheme successfully launched 663 routes and carried over 162 lakh passengers, questions remain about the long-term viability of routes once subsidies end. The extended VGF in the new scheme aims to address this, but a recent trend of declining VGF support despite expansion could signal future economic challenges.
Key Risks for the UDAN Revamp
Despite the large investment, significant risks loom over the UDAN revamp. The scheme's heavy dependence on VGF for an extended period could lead to routes becoming perpetually subsidized rather than driven by market demand. Reports suggest VGF has been decreasing even as the scheme expands, possibly indicating a gap between budget allocations and actual financial support.
The operational issues plaguing state-run carriers like Alliance Air and Pawan Hans—such as debt, aging fleets, maintenance hurdles, and staff concerns—pose direct threats to reliable service. The ambitious goal of developing 100 new airports and 200 helipads within eight years carries considerable execution challenges, including potential delays and budget overruns typical for large infrastructure projects.
Furthermore, a shortage of pilots and ongoing industry supply chain disruptions could slow down operations. Recent regulatory focus on safety and seat allocation policies, following incidents in 2025, adds further complexity to an already challenging sector.
Long-Term Vision and Viability
The revamped UDAN scheme aligns with the government's broader development goals, aiming to boost economic growth, trade, and tourism in Tier-2 and Tier-3 cities. Improved air connectivity is also expected to enhance emergency response and healthcare access in remote regions.
While the Indian aviation sector anticipates moderate domestic growth despite ongoing challenges, the long-term success of UDAN routes will depend on transitioning from subsidy reliance to genuine market demand, ensuring efficient airline operations, and completing sustained infrastructure development. Analyst forecasts for the sector are stable but cautious, stressing the need for strong governance and operational resilience alongside expansion plans. Ultimately, UDAN's success will be measured by the sustainable air services it enables, not just the infrastructure built.