The public-private partnership (PPP) model in airport infrastructure development has been a success. At present, the sector has five privately managed airports, which have together mobilised an investment of around Rs 320 billion. Cochin was the first airport among these to be developed (in 1999) and had equity participation from non-resident Indians and financial institutions.
The move to invite private participation for the modernisation of India’s metro airports has had positive results in terms of dramatic improvements in airport infrastructure, passenger experience, and efficiency of airline operations. The five PPP airports carry more than 50 per cent of the country’s air passenger traffic and, since 2012-13, passenger traffic, aircraft movement, as well as cargo traffic have been increasing sharply at these airports.
Capacity expansion
With passenger traffic growing in double digits, PPP airports have reached nearly 100 per cent capacity utilisation, or, in some cases, surpassed their total capacity. Therefore, significant emphasis has been laid on capacity enhancement. Between 2008-09 and 2017-18, the total capacity of the Delhi, Mumbai, Bengaluru, Hyderabad and Cochin airports increased from 63 million passengers per annum (mppa) to around 169 mppa. Further, plans are in place for exp-
anding the existing capacity of these airports. For instance, the Telangana government has laid the foundation stone for expanding Hyderabad airport through the construction of a second runway. For Bengaluru airport, the operator has already finalised plans for a second runway that is expected to be operational by 2019 and a second terminal to be operational by 2021.
Meanwhile, the GMR Group-led Delhi International Airport Limited (DIAL) has started the process of appointing a design consultant and inviting expressions of interest for the expansion of Terminal 1 and Terminal 3 at the airport, and the construction of a new runway and taxiways. DIAL expects the expansion to start with Terminal 1, to be completed by 2021, followed by Phase II of the expansion, which includes the construction of a new terminal.
Further, Mumbai International Airport Limited (MIAL) has also outlined an expansion plan entailing a new taxiway from the parking apron of Terminal 2 to the main runway, and expanding another taxiway to enhance airside safety and efficiency. Besides, facilities such as radar, aircraft parking and aerobridges will also be provided. Overall, an outlay of around Rs 369 billion has been envisaged for the expansion of these airports.
Airport revenues
Over financial years 2012-13 to 2016-17, the Delhi, Mumbai, Hyderabad, Bengaluru and Cochin PPP airports recorded double-digit compound annual growth rates (CAGR) in total income. During this period, the highest CAGR was recorded by Bengaluru at 21.78 per cent. This was followed by Mumbai (19.97 per cent), Delhi (16.16 per cent), Hyderabad (14.49 per cent) and Cochin (12.23 per cent). With regard to net profits, almost all the PPP airports recorded positive net profits in 2016-17, except Mumbai airport, which recorded a loss of Rs 0.9 billion.
Further, PPP airports in the country account for a substantial revenue share of the Airports Authority of India (AAI), which, in turn, is using these revenues to develop other airports and help make itself a viable entity. Since 2006-07, the PPP airports (primarily Delhi and Mumbai) have delivered a massive dividend of $2 billion to AAI in the form of revenue share payments. On the flip side, not all of them have made significant returns. So, in terms of financing, attracting private interest will not be very easy going forward.
Upcoming PPP airports
After the initial burst of private participation, during 2004-06, when the Delhi, Mumbai, Bengaluru and Hyderabad airports were privatised, there was a lull in private interest. Some of the key reasons were concerns relating to regulatory uncertainties, restricted capacity of major infrastructure players, funding constraints of the banking sector, and the mandated absorption of AAI’s sizeable employee base in the case of brownfield airport privatisation.
However, with most of these issues gradually being resolved, private interest has revived recently, as highlighted by the concessions of the Mopa and Navi Mumbai airports. These projects are being implemented on a PPP basis and will entail an investment of around Rs 200 billion. After a delay of almost 10 years on account of issues in acquiring land and receiving requisite approvals, the airport projects witnessed progress in 2017-18. Besides, the central government is also planning to build another six airports on the PPP model in Tamil Nadu, West Bengal, Maharashtra, Uttar Pradesh and Bihar.
Some of the notable PPP projects in the pipeline are the Jewar greenfield airport project (Rs 190 billion), the Navi Mumbai greenfield international airport project (Rs 167 billion), the Bengaluru international airport expansion project (Phase II) (Rs 148.67 billion), the Bhogapuram greenfield international airport project (Rs 45.16 billion), the Mopa greenfield airport project (Rs 33 billion), and the multimodal international cargo hub and airport at Nagpur (Rs 22.47 billion).
Meanwhile, though the privatisation of the operations and management of the Jaipur and Ahmedabad airports has been on the anvil for a long time, the projects have failed to generate interest among private players. The proposal is currently under revision due to interest from only a single bidder.
AERA Act, 2017
The Airports Economic Regulatory Authority (AERA) has received approval from the central government to amend the AERA Act, 2017, allowing the authority to fix aircraft landing and parking fees prior to the commencement of the bidding process for an airport. The new tariff will be for airports which are proposed to be developed on a PPP basis.
At present, the tariff to be levied at privately run airports is being decided. Once finalised, the new airports at Jewar in Greater Noida and
Purandar in Pune are likely to be the first to invite bids under the proposed rule. Fixing tariffs prior to bids will take care of the regulatory uncertainty and help give a boost to foreign investments in the civil aviation sector. For airports that are already operational or have been awarded, AERA will continue to determine the tariffs.
Conclusion
Looking at the positive transformation of India’s metro airports over the past decade, it can be inferred that the PPP model has been quite successful in the sector. AAI by itself would not have been able to bring about this transformation due to the several constraints it faces. According to industry experts, however, piecemeal reforms in the sector are not enough as airport capacity is expected to run out within a span of three to five years. The role of the private sector therefore needs to be increased. In fact, the top 20-30 AAI airports could be leased out to private operators, in a phased manner, with the government providing full support in terms of favourable contracts, land acquisition, obtaining clearances, etc. The hybrid till model for the Indian aviation sector can be used to attract increased private investment in airports. Experience shows that initially, when the regulator had proposed “single till”, there were no bidders for the Navi Mumbai and Mopa airport projects. Subsequently, the government decided to go ahead with the idea of a 30 per cent “hybrid till” regime for all existing and future airports to remove the uncertainty that was affecting investments. This helped change the scenario for these projects. Both the Navi Mumbai and Mopa airports were given to private operators for development and operations after undergoing a competitive bidding process. The award of operations and maintenance contracts, however, has not yielded the desired results. As per industry stakeholders, bidders should be allowed to make use of the airside and car parking spaces, apart from the terminal and cargo areas. This would help attract more bidders as these are profitable areas for them.