A viability gap funding amount of around ₹205 crore per annum will be provided for the operators chosen in the first round of bidding under the regional connectivity scheme, Minister of State for Civil Aviation Jayant Sinha said. In an interview to BusinessLine , Sinha outlined the working of the scheme and why he is confident, it will succeed. Excerpts:

Globally the hub and spoke model works. We are doing point-to-point. Why are we re-inventing the wheel?

Every airline (under RCS) is going to operate on a hub and spoke approach because that is the most cost-effective and economical way to proceed.

Kolkata is a major hub, Shillong, Guwahati is a major hub and Delhi is a major hub…. Mumbai would have been a major hub but is not because there are no slots available. The way the airlines have thought about their routes is very much hub and spoke .

There are a few routes that end up becoming point-to-point because of sufficient traffic which is the way it has developed everywhere in the world. By and large what we are seeing is the emergence of a regional aviation market which is appropriately based around certain hubs.

Apart from Alliance and SpiceJet, the others who won the right to operate are start-ups and will have to work out agreements with other airlines. Will that get complicated?

Code share arrangements to do hub and spoke are negotiated between carriers. That is driven through code share agreements, joint venture agreements etc. and are commercial discussions that have to happen between airlines.

This is only the first round of RCS. We expect multiple rounds and we expect an industry to evolve where we have regional airlines, national airlines and international airlines. That is how the model has evolved around the world and that is how it will evolve in India as well.

India has not fully ratified the Cape Town Convention (on aircraft leasing) and as a result rates of leasing of aircraft are high. Will this not affect the RCS players?

We have spent a lot of time with the lessors on this. We have largely ratified the Cape Town Convention, there is just one wrinkle that was causing some concern. However, by some of the regulations that we have established like the de-registering of aircraft and the ability of foreign registered aircraft to operate in India we have largely worked around the challenges associated with the Convention. If you look at leasing rates in India, they are quite competitive with leasing rates around the world.

The comfort level given the experience of Kingfisher and Air Deccan has not been good for lessors…

There are a number of lessors and some are more successful than the others. If you speak to the more successful ones they will tell you that they have been able to work quite successfully within the Indian environment. Certainly some have not done as well and therefore they will have their concerns.

Under the RCS is the Government planning to provide any comfort to companies as far as leasing of aircraft is concerned, either now or later?

The lessors obviously want to make sure that the regulations in India are there to protect their investments. What the lessors will tell you is that the recent rule and changes are satisfactory.

At least two of the winners (Air Odisha and Air Deccan) have had financial problems in the past. Was this looked at when their bids were considered?

Every bidder had to meet certain requirements, including providing guarantee money and getting security clearances. All the winning bidders passed those tests. All the back ground checks have to be done before giving an operating permit and cleared by the Ministry of Home Affairs.

Do you feel that the guidelines for RCS are stringent enough to ensure that a passenger who buys a ticket will be able to fly as well?

Not necessarily to fly. But if for example the flight does not happen they should be able to get a refund of their money. I feel that at the moment passengers are protected for that eventuality.

People say there is no subsidy for kerosene and diesel but you are willing to subsidise a flight for the aam admi . How will you react to this?

The subsidy is time-bound… It is there only for three years. This is really about boot strapping and creating a market. This is not a perpetual subsidy. Once the market gets created then the market will operate on a commercial basis as per market forces of supply and demand.

But ultimately the airline industry is fully deregulated in India. It is one of the most open and competitive airline industries in the world and it will operate as per market forces.

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