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As India's civil aviation ministry readies an industry policy for the cabinet approval in the coming weeks, Vijay Sankeshwar, chairman of VRL Logistics, India's largest fleet-owning private logistics company, announced his plans to launch a new regional airline, reported the Economic Times. Along with no-frills airport in Tier 2 and Tier 3 cities, regional air connectivity will be a key component of the government policy.

Sankeshwar said he sees a huge potential in regional aviation business, especially in southern India as its air connectivity remains limited.

"There is no proper air connectivity to places such as Hubballi or Belagavi. We may introduce services like Bengaluru-Chennai, Bengaluru-Tirupathi, Chennai-Coimbatore, etc. We will limit our operations to the 2-3 neighbouring states," he said.

Press Trust of India reported that the government policy draft suggested tax incentives for airlines, maintenance and repair works of aircraft and increasing FDI limit for foreign airlines. It noted that the policy would aim to provide viability gap funding for airlines to bolster regional air connectivity. A slew of sops to regional airlines in form of exemptions such as airport charges, service tax on tickets and excise duty on aviation fuel are also on the anvil.

Outside their logistics and transport business, Sankeshwar and his son Anand will float an entirely new company to kick-start their dream airline. An investment of Rs. 1,400 crore -- Rs. 1,000 crore in debt and Rs. 400 crore in equity -- will be pumped in over three years, VRL Logistics told the stock exchange in a filing Tuesday. "We currently hold 69 percent in VRL Logistics. (We) will dilute 8-10 percent and use that money to invest in the aviation business," Sankeshwar said. 

He added that the new company plans to get the regulatory approvals first and own a fleet of eight to ten aircraft initially. The type and the manufacturers are undecided, he added.

Captain G.R. Gopinath, a pioneer of low-cost airlines in India and the founder of another Bengaluru based air carrier Air Deccan (later acquired by KingFisher Airlines), appreciated Sankeshwar's airline attempt that would do a world of good to the travellers, he told the ET. However, Gopinath warned the aviation industry needs sweeping reforms.

"Our fundamental aviation regulations date back to 1930s, and, as a result, only about 70 million domestic tickets are sold, translating to 30 million fliers. We have several airports in India without any flight service," he noted.

VRL Group was founded 40 years ago in Gadag district of north Karnataka. With a fleet of 4,253 vehicles currently, it caters to logistics, passengers and courier services markets. The group also recently launched its own Kannada daily in the southern state, after selling an earlier one to BCCL.

On the announcement, shares of VRL Logistics witnessed a free-fall touching a 52-week low at Rs. 253. The shares dropped 20 percent on Tuesday and fell another 10 percent on Wednesday.

NDTV reported that the fall in stock prices prompted the promoter to clarify that the proposed entry into the aviation business was a personal investment and "at no point do we anticipate VRL's balance sheet being used for the venture."