Recent Developments: Focus on regional connectivity

Focus on regional connectivity

The year 2016-17 witnessed a revival in the government’s interest in the development of the aviation sector, and that too on a much larger scale than before. In April 2017, the central government flagged off inaugural flights under the Regional Connectivity Scheme (RCS) from Shimla, Nanded and Kadapa airports. The year saw an 18 per cent increase in passenger traffic, the highest growth rate in the past five years. Meanwhile on the airport development front, two key airport projects, Navi Mumbai International Airport and Mopa Airport, that had been in a limbo for years, finally moved forward.

Indian Infrastructure takes a look at recent developments in the sector…

Government initiatives

  • Union Budget 2017-18 allocated Rs 51.68 billion to the Ministry of Civil Aviation (MoCA), marking a fall of around 1 per cent over the Rs 52.17 billion (revised estimate) allocated for 2016-17. Of the total amount allocated for the current fiscal year, budgetary support of Rs 18 billion (34 per cent) has been provided for equity infusion in Air India Limited. The infusion is to be extended as a part of the bailout package announced by the government in 2012. Meanwhile, an allocation of Rs 1 billion has been made to the Airports Authority of India (AAI).
  • The Ministry of Finance has announced amendments in the AAI Act, allowing the authority to monetise its land assets and utilise the proceeds for airport infrastructure development. Besides, select airports in Tier II cities will be taken up for operation and maintenance on a public-private partnership basis.
  • RCS agreements have been signed with the governments of Maharashtra, Gujarat, Chhattisgarh, Puducherry, Assam, Punjab, Bihar and Tamil Nadu.

Airports

  • In August 2016, GMR Airports Limited secured the contract for the development and operation of the greenfield Mopa International Airport in Goa. The concession agreement has been signed with the state government.
  • In February 2017, GVK Power & Infrastructure Limited emerged as the successful bidder for building, developing and operating the Navi Mumbai International Airport. Pre-development works for the project have begun.
  • During the year under review, the Steering Committee on Greenfield Airports recommended in-principle approval to three projects in Andhra Pradesh – the Bhogapuram, Dagadarthi (Nellore) and Orvakal (Kurnool) airports. Besides, the MoCA granted permission to the Telangana government for developing an airport at Kothagudem and AAI granted in-principle approval for the proposed site at Purandar for the greenfield New Pune International Airport and for Orvakal airport.
  • The MoCA has approved the construction of the Jewar greenfield airport in Uttar Pradesh, at an investment of Rs 35 billion. Meanwhile, Package I works of Andhra Pradesh’s Orvakal greenfield airport project have been awarded to K.C.V.R. Infra Projects Private Limited. The project is likely to be completed by May 2018.
  • With more than 90 per cent works completed, the Pakyong greenfield airport project is expected to be commissioned by December 2017. Meanwhile. Shirdi airport is also expected to be commissioned soon.
  • In March 2017, GVK Power & Infrastructure Limited divested 33 per cent of its equity stake in Bangalore International Airport Limited (BIAL) to Fairfax India Holdings Corporation for an aggregate amount of Rs 21.49 billion. Further, in July 2017, GVK sold its residual 10 per cent stake worth Rs 12.9 billion in BIAL to Fairfax. The proceeds of the sale will be used to reduce GVK’s debt and fund the development of the upcoming Navi Mumbai airport.
  • In October 2016, Delhi International Airport Limited issued 10-year bonds in the international market at a coupon rate of 6.125 per cent, raising $522.6 million. The proceeds of the sale will be used to entirely refinance the company’s rupee loans and external commercial borrowings.

Airlines

  • The Union cabinet has granted in-principle approval for the divestment of Air India. Subsequently, a committee headed by the Ministry of Finance has been established to decide the extent of divestment, and the modalities on debt, assets such as hotel companies and all other assets of the airline. NITI Aayog has recommended a divestment of up to 100 per cent, suggesting three possible stake sale options of 24 per cent, 49 per cent and 74 per cent. Meanwhile, in a separate development, IndiGo has expressed interest in buying a stake in the airline.
  • GoAir has confirmed its order for 72 A320 neo aircraft at an estimated cost of Rs 520 billion, doubling its order size from Airbus to 144. Meanwhile, SpiceJet has placed a $1.7 billion firm order for 25 Bombardier Q400 aircraft, with an option for 25 more.
  • The Directorate General of Civil Aviation deregistered all three ATR aircraft that were being operated by Air Pegasus, leaving the airline with no aircraft to operate flights. The airline had suspended operations in July 2016 due to delays in aircraft lease payments. Further, Bengaluru-based regional airline Flyeasy signed an agreement with Air Pegasus to acquire up to 74 per cent stake in the latter for Rs 700 million.