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BANGALORE: An alumnus of IIT Delhi is preparing to launch a regional air services in June, the second entrepreneur to do so this year in an industry that is struggling for survival because of high operating costs.

Umesh Kumar Baveja, who was previously vice-chairman at Cairn Energy, is in talks with private equity players to raise around Rs 100 crore for the new venture, called Rahi Air.

The launch of the air services will coincide with the opening of an airport in Gulbarga town in northern Karnataka, which is being built by Baveja's firm Regional Airport Holdings International, a joint venture between IL&FS Transportation Networks and Comet Infra-Developments.

"The market we are addressing requires under-20-seater aircraft and there is no commercial mass airline operating in this space. That is one of the main reasons we decided to start our own airline,"" said Baveja.

Rahi Air will ply on the Gulbarga-Hyderabad and Gulbarga-Bangalore routes to begin with and will have two flights a day, six days a week.

"IL&FS is an investor in RAHI and this will make it easier to raise capital but viability is the most critical issue," said Kapil Kaul of the Centre for Asia Pacific Aviation.

In February, Vijayawada-based infrastructure company LEPL Projects founded by little-known entrepreneur Ramesh Lingamneni announced the launch of regional airline called Air Costa.

Other than IndiGO, all other carriers have been making heavy losses and are saddled with billions of dollars in debt. But entrepreneurs such as Baveja are betting on government incentives that encourage regional operators. This includes a uniform sales tax of 4% on fuel for aircraft with a take-off weight of less than 40 tonne. For scheduled airlines such as Jet Airways and Kingfisher, tax on fuel is among the biggest cost components as it varies by state and can be as high as 40%.

Industry analysts say the affordability of tickets and fixed costs of operations will be major challenges for smaller airlines. Rahi Air and Air Costa will be the only operational airlines in South India, if both take off as planned, with Chennai-based Paramount Airways closing operations about two years ago.

"Right now, around 30% of total passenger volumes come from smaller cities and towns and that could grow to 40%. These numbers are attractive for private equity investors,"" said Viswanath Attaluri, chief operating officer of Capital Fortunes, a financial and project advisory company based in Hyderabad.

Rahi Air, based in Bangalore, is in the final stage talks with three aircraft manufacturers to buy 10 planes with capacity to seat 19 passengers, said Baveja. He said delivery of the first aircraft is expected by September and declined to disclose more details.

In the interim, the company will lease 10-seater planes to operate from June till September. ""We are talking to non-scheduled aircraft operators who have the licence to fly. They will fly on our routes under our name,"" said a company representative, who adding Rahi Air will apply for a licence to operate non-scheduled air transport service when they take delivery of their own aircraft.

"Rahi's plan seems more like 'pump-priming' the market - an interesting strategy that will be keenly watched,"" said KPMG India Director Amber Dubey, who specialises in aviation and aerospace.

The real test for airlines such as Rahi Air will come when scheduled airlines begin services to the towns dotting India if passenger traffic picks up. ""No one wants to be the first guy to create the market. It is a question of who will bell the cat. We are doing it,"" said Baveja

Bangalore firm to launch regional airport, air services - The Economic Times