New Delhi: The government will be cautious in allowing the Adani Group to start an airline, even though it wants to break the duopoly of IndiGo and Air India, as it is wary of the conflict of interest caused by cross ownership of airlines and airports, civil aviation minister Ram Mohan Naidu said on Tuesday.

"When an airport operator wants to operate an airline, we also have to examine the potential disadvantages. We need to create a system that addresses those concerns. There are several advantages, but the matter is under deliberation," Naidu said in response to a query from ET on the sidelines of an event where he stressed that India should have more airlines.

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In June, the Adani Group, which owns a 74% stake in Mumbai airport, wrote to the government seeking the removal of a clause that restricts the operator of Delhi and Mumbai airports from holding more than a 10% stake in any scheduled carrier.

In the letter dated June 4, Adani Airports chief executive officer Arun Bansal said that group firm Adani Defence & Aerospace was evaluating starting an airline as a natural extension of the group's existing aviation ecosystem.

Government officials ET spoke to said removing such a clause could be seen as a restrictive benefit given to a single company and would come under scrutiny.

The clause was part of the agreement when Delhi and Mumbai airports were privatised in 2006, and any amendment would require Union Cabinet approval.

The officials also said that while it is encouraging that a cash-rich group wants to start an airline, cross ownership of airlines and airports may prove detrimental for customers in the long run.

"While we talk of airline duopoly, airports are a natural monopoly as they are the single gateway in a city. Hence, allowing a company which owns one of the largest airports in the country to start an airline has to be cautiously weighed," according to one senior government official.

Airlines have opposed any relaxation of the clause. Rahul Bhatia, managing director of IndiGo, on Thursday said any move allowing cross ownership would create a "massive conflict of interest" and ultimately hurt consumers.

"It typically would reflect a massive conflict of interest, and over a period of time, it would actually be against the interest of consumers," he said.

In 2019, approval for an ₹8,000-crore investment by the Tata Group in GMR Airports, which then operated Delhi and Hyderabad airports, was denied after solicitor general Tushar Mehta opposed it.

Naidu instead said that Ude Desh ka Aam Nagrik (UDAN), the scheme that subsidised airlines to operate on unprofitable remote routes, would catalyse entrepreneurs to start regional airlines.

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"We want at least five airlines to operate with 100 planes each. There should be airlines which operates in specific regional geographies like someone should think of an airline which connects the north east," the minister added.

First launched in 2017, the ambitious UDAN scheme was aimed at fuelling a nationwide expansion of air travel in one of the world's fastest-growing aviation markets. Under the scheme, the government caps airfares and, in lieu, offers incentives, including subsidies, to attract airlines to less-traversed routes. The second phase of the scheme boosted the outlay sixfold to ₹28,840 crore.

Naidu said strict criteria would govern airport selection in the second phase of the scheme aimed at boosting regional connectivity.

This will be done through the 'challenge mode', where proposed airports will be scored on multiple criteria, including proximity to tourist spots, industrial corridors or major airports; infrastructure readiness such as runways and terminal buildings; land availability; and state government commitment to financial contribution.