Flights within the northeastern region may be hit from New Year, with Air India threatening to stop its operations to airports like Tezpur, Lilabari and Shillong following non-payment of funds by the North East Council (NEC).

The alleged failure of NEC to pay over Rs 100 crore, due for two years, has also led Air India subsidiary Alliance Air not renewing the lease of three turbo-prop ATR planes operating to these cities, sources said here.

The NEC finances Alliance Air's operations in the crucial region each year through viability gap funding (VGF) under a MoU between the two sides.

While Alliance Air submitted its VGF estimates in September last year for the grant of Rs 52 crore and Rs 55 crore for 2012 and 2013, the amount has not been paid to it so far, the sources said.

The airline has been operating so far on the assumption that the funds would soon be available.

The viability gap for this year is now estimated at Rs 60 crore, resulting in a severe cash crunch for Alliance Air which was in dire straits to maintain the operations to the crucial northeastern region, the sources said.

After the grounding of helicopter services run by Pawan Hans following some accidents, Alliance Air had extended its intra-northeast operations by connecting cities like Lilabari, Tezpur, Dimapur and Jorhat. It has been flying four turbo-prop ATR aircraft in the region.

These additional routes have led to higher VGF due to lower seat factors and yields and despite this, the airline was continuing these flights, the sources said.

While the lease of one ATR aircraft expired in September, the leases of another two are due to expire shortly, they said.

If the NEC does not provide the VGF due for 2012-13, Alliance Air would 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, they said.

The NEC has been informed that these flights would be discontinued from January one next year in case the VGF funds are not provided urgently, the sources said.

Operations in the northeast are guided by the government's Route Dispersal Guidelines which entail that all Indian carriers fly to the northeast and other remote parts of the country, more so as a social obligation if not financial. A major chunk of these operations are carried out by Air India and its subsidiary Alliance Air.

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