Air India has threatened to stop flying to the North-east from January 1, if immediate steps are not taken to address the issue of non-payment of nearly Rs. 100 crore by the North East Council (NEC) to it in the last two years.

If the threat materialises, thousands of passengers flying from Tezpur, Lilabari and Shillong will be badly hit. The non-payment has also led Air India subsidiary Alliance Air not renew the lease of three turbo-prop ATR planes operating to these cities, sources in the Aviation Ministry said.

The NEC finances Alliance Air’s operations in the region each year through viability gap funding (VGF) under a Memorandum of Understanding. While Alliance Air submitted its VGF estimates in September last year for a grant of Rs. 52 crore and Rs. 55 crore for 2012 and 2013 respectively, the amount had not been paid to it so far, the sources said.

The viability gap for this year is now estimated at Rs. 60 crore, resulting in a severe cash crunch for Alliance Air. After the grounding of helicopter services run by Pawan Hans following accidents in the recent past, Alliance Air extended its operations in the North-east by connecting cities such as Lilabari, Tezpur, Dimapur and Jorhat by flying four turbo-prop ATR aircraft.

While the lease of one ATR aircraft expired in September, those of two others are due to expire shortly. “If the NEC does not provide the VGF its due for 2012-13, Alliance Air will not be able to renew the leases and be forced to return the aircraft to the lessor, leading to the stoppage of flights on these crucial sectors,” a senior official said.

The NEC was informed that these flights would be discontinued from January 1 in case the VGF funds were not provided urgently, the sources said.

Operations to the North-east are guided by the government’s Route Dispersal Guidelines, which make it mandatory for all carriers to fly to the region and other remote parts of the country. A major chunk of these operations are carried out by Air India and Alliance Air.

When the guidelines were first formulated in 1994, there were only 28 flights a week flying in the North-east. Today, there are over 350 flights a week.