Airport development in India has undoubtedly been one of the few sectors where the public-private partnership (PPP) model has exhibited positive results. Apart from accounting for most of the traffic share, PPP airports in the country have also raised service standard levels significantly, improving passenger experience.
Currently, there are five PPP airport projects – Delhi, Mumbai, Bengaluru, Hyderabad and Cochin – in the country. Of these, while Delhi and Mumbai are brownfield projects, Bengaluru, Hyderabad and Cochin are greenfield airports. In addition, Kazi Nazrul Islam airport in Durgapur which became operational in 2015 is the country’s first fully private airport. However, in June 2016, Air India, the sole airline operating flights from the airport, shut down its operations citing low passenger demand, and there are now no scheduled flights to and from the airport.
In 2015-16, Zurich airport signed an agreement for the sale of its 5 per cent equity stake in Bengaluru International Airport Limited (BIAL) to Fairfax India Holdings for an aggregate amount of $48.9 million. However, the transaction is still awaiting clearances from the external affairs, home affairs, finance and civil aviation ministries. Besides, the GVK Group divested 33 per cent stake in BIAL to Fairfax Financial Holdings Limited, taking the latter’s stake to 38 per cent while the former now holds a 10 per cent stake.
In terms of operations, PPP airports have been faring quite well. Together, the five airports account for over 50 per cent of overall passenger traffic. During 2015-16, the airports carried 129 million passengers, an increase of 17.64 per cent over 2014-15. The growth in the cargo segment in 2015-16, however, was less pronounced due to the overall global slowdown.
Airport-wise, Delhi airport witnessed the highest passenger traffic of 18.47 million between April 2015 and July 2016, followed by Mumbai and Bengaluru airports at 14.94 million and 7.42 million respectively.
A similar trend was observed with regard to freight traffic in the same period, with Delhi recording 0.28 million tonnes (mt), followed by Mumbai and Bengaluru airports at 0.25 mt and 0.11 mt respectively.
The six privately operated airports (including Durgapur) have thus far witnessed fund mobilisation to the tune of Rs 326 billion. During 2015-16, the five operational PPP airports together earned revenues of Rs 98.19 billion. While Delhi recorded net profits of Rs 5.09 billion, Mumbai witnessed a loss of Rs 0.85 billion. Hyderabad, however, was able to recover from its previous year’s loss and made profits of Rs 0.4 billion in 2015-16.
Over the past few years, Delhi airport has stopped making losses, as a result of the increase in tariffs imposed by the Airports Economic Regulatory Authority of India (AERA), effective May 2012. Meanwhile, the financial performance of Hyderabad airport had suffered in 2014-15, mainly due to AERA’s abolishment of the user development fee (since April 1, 2014). Cochin airport’s financial performance has been consistently improving over the years. Overall, revenues and profits of all the PPP airports exhibited positive results between 2014-15 and 2015-16.
Capacity constraints and expansion plans
Capacities at the Delhi and Bengaluru airports are likely to get exhausted by 2020 and 2025-26 respectively. Besides, capacities at some airports such as Mumbai and Hyderabad are already exhausted, thus increasing the scope for private participation.
Delhi International Airport Limited (DIAL) has submitted a plan to the Ministry of Civil Aviation for the construction of a fourth runway by 2020. According to reports, the construction of Terminal 4, to be located at the site of the present international Terminal 2, is also a part of the airport’s expansion plans. The long-term plan is to have an integrated approach road to Terminal 3 and Terminal 4. Terminal 3 will then be converted into an all-international terminal while Terminal 1 and Terminal 4 will be domestic terminals.
During the past year, a new common use domestic cargo terminal, with an annual handling capacity of 300,000 metric tonnes, was operationalised at the Chhatrapati Shivaji International Airport (CSIA), Mumbai. The terminal is meant to be used by all airlines except Air India and Blue Dart, which have their own cargo handling facilities.
Meanwhile, the second phase of expansion work at the Kempegowda International Airport (KIA), Bengaluru, has commenced at an estimated cost of Rs 40 billion. The expansion includes the construction of a second terminal (Terminal 2) and a parallel runway. Levelling works began in February 2016 and will go on for another 12 months. Construction of Terminal 2, which will be done in two phases, is expected to commence by January 2017. Phase I, which will serve 20 million passengers per annum, is expected to be completed by 2022. The new international terminal of Cochin International Airport, Terminal 3, with a built-up area of 150 million square feet, was inaugurated in February 2016. The terminal is expected to have a peak-hour handling capacity of 4,000 passengers. Besides, Cochin International Airport Limited (CIAL) also plans to convert its old international terminal into a domestic terminal. The entire project, including ancillary development, is expected to require Rs 8.75 billion, and is scheduled to be completed by 2018-19.
Given the growing passenger and cargo traffic, expansion at these airports is required to be taken up on a fast-track basis. However, getting clearances is a major roadblock. A case in point is Hyderabad airport where GMR Hyderabad International Airport Limited (GHIAL) is awaiting AERA’s approval for the second phase of terminal expansion. The project envisages increasing the passenger handling capacity from the existing 12 mppa to 20 mppa.
Focus on sustainability
In August 2015, the Cochin International Airport became the first airport not only in India but globally to operate completely on solar power. Other PPP airports have begun to follow suit.
In March 2016, CIAL stopped paying for its electricity altogether and began contributing to the state grid from its 12 MW solar power plant. Besides, CIAL has now drawn up plans to install solar panels on the rooftop of the airport’s parking lot, at an estimated cost of Rs 200 million. CIAL has already invited bids for project implementation, which includes the construction of a parking area in front of the new international terminal with a capacity to accommodate 5,000 cars. The work is expected to be completed in six months and the proposed system will generate 2.4 MW of solar power.
In April 2016, the solar power capacity at the Indira Gandhi International Airport, Delhi, was increased to 7.84 MW, thus enabling an annual saving of Rs 120 million, with the internally generated power meeting 5 per cent of the airport’s total power needs. DIAL plans to increase the generation capacity of the solar plant to 20 MW by 2020.
Mumbai International Airport Limited has also announced the commissioning of additional solar power capacity of 410 kWp inside CSIA premises, taking the total capacity to 1,060 kWp. The solar panels, spread across five locations at Terminal 2 and the cargo terminals, have been installed on rooftops for optimal space utilisation.
CleanMax Solar, in collaboration with the Solar Energy Corporation of India, has set up a solar plant at KIA, with an annual generation of around 750 MWh. The plant is expected to decrease the airport’s annual carbon footprint by 700 tonnes. Around 40 per cent of the airport’s energy needs are expected to be met through this plant by March 2017.
In January 2016, GHIAL commissioned a 5 MW solar power plant at an outlay of Rs 250 million. The plant, with an installation of 16,000 modules of solar panels, has started generating around 25,000 units of electricity per day, which is equivalent to 30 per cent of the airport’s requirements. Further, the airport is expected to increase solar capacity to 12 MW in 2016-17 alone. GHIAL has plans to gradually scale up solar capacity to 30 MW by 2020 at an investment of around Rs 1.5 billion.
The way forward
The role of private sector investment in the development and upkeep of airports, despite the challenges, cannot be overlooked. Plugging the gaps in the PPP model, as proposed in Union Budget 2016-17 as well as in the Kelkar Committee’s recommendations, is expected to resolve pending issues.
AAI’s strong capabilities in airport development and operations coupled with monetary support from private players, as well as meticulous planning that factors in the requirements of airlines are likely to go a long way in shaping the future of PPPs in the sector. With the government’s thrust on the model, the PPP-based airport development is likely to continue in the future.