UDAN (Regional Air Connectivity)

UDAN, Ude Desh Ka Aam Nagarik, is a regional air connectivity scheme launched in October 2016 by the Ministry of Civil Aviation. The scheme has two procurement dimensions: the development and upgrading of regional airports (airside, terminal, and landside infrastructure) contracted through the Airports Authority of India (AAI) and state governments; and the selection of airline operators to serve UDAN routes through a competitive bidding process where selected airlines receive Viability Gap Funding (VGF) to offset the economics of operating on thin regional routes. Both dimensions generate significant procurement activity across different segments.

What is UDAN in government procurement?

For construction contractors, UDAN is primarily relevant through AAI's capital expenditure programme for developing regional and greenfield airports. AAI, a statutory body under the Ministry of Civil Aviation, procures all airport construction works centrally through its headquarters in New Delhi and regional executive directors. AAI's procurement follows GFR 2017 guidelines, and all tenders above Rs 25 lakh are published on CPPP as well as AAI's own portal (tender.aai.aero). The work categories include: runway and taxiway construction and resurfacing (using MoRTH/IRC specifications for flexible pavement), terminal building construction (architectural and civil works), apron construction, ATC tower construction, navigation aid installation (ILS, VOR, DVOR, DME), meteorological instruments, and passenger amenity systems.

For UDAN route selection, the procurement mechanism is a transparent competitive bidding process where airlines submit sealed bids specifying the VGF they require per seat to operate a UDAN route viably. The bid with the lowest VGF requirement for a given route pair is selected. This is not a conventional works or goods tender but an output-based procurement where the "service" is airline connectivity and the "price" is the VGF. Successfully selected operators sign a concession agreement with AAI and receive VGF payments for three years, after which the route is expected to become commercially self-sustaining.

State governments co-fund UDAN airport development (typically 20% state share for greenfield, variable for upgrades) and often develop airport-adjacent infrastructure (access roads, utilities) through their own PWD or infrastructure corporation, generating additional state-level tender volume.

Why it matters for bidders

For civil contractors, AAI airport work offers prestigious project credentials, a completed airport terminal or runway project is strong eligibility evidence for larger airport projects at metro airports (Terminal 3 expansion, new greenfield airports) and for public building works in general. AAI tenders tend to use CPWD DSR rates as the benchmark for building works and MoRTH specifications for airside pavement.

For aviation and navigation equipment suppliers, UDAN drives procurement of ILS (Instrument Landing Systems), VHF communication systems, radar equipment, and passenger information systems at regional airports. These are typically high-value supply contracts with FAT, SAT, and QAP requirements, procured competitively with GFR 2017 single-source procurement restricted to OEM-only items.

For airlines, the UDAN route bidding process requires careful financial modelling of aircraft operating costs, seat capacity utilisation, and fare caps to determine the minimum VGF that makes a route viable. Historically, multiple bidding rounds have been held (UDAN 1.0, 2.0, 3.0, 4.0, 5.0) each covering new route pairs.

Example

AAI floats a tender for construction of a new terminal building at a regional airport being developed under UDAN, estimated at Rs 85 crore. The NIT specifies a minimum average annual turnover of Rs 40 crore for the past three years and completion of at least one multi-storey public building of Rs 35 crore or above in the past seven years. A mid-sized construction company meets both criteria, submits its technical documents in Cover 1, and prices the BOQ in Cover 2. After technical evaluation, it wins as L1 at Rs 79 crore. The project is scheduled for completion in 24 months, with a DLP of 12 months after completion.

Key rules / thresholds

• AAI tenders are published on tender.aai.aero and on CPPP for all works above Rs 25 lakh.
• UDAN VGF bidding: bidder (airline) submits minimum VGF required per seat; lowest VGF per route wins; VGF is capped at Rs 5,000 per seat per sector (revised periodically).
• State government co-funding requirement varies by scheme version and state category (hilly/remote states get higher central share).
• Greenfield airport projects above Rs 100 crore require CCEA (Cabinet Committee on Economic Affairs) approval before award.