Taking Wing: NABH Nirman and Vision 2040 to drive airport construction

NABH Nirman and Vision 2040 to drive airport construction

Construction activity has picked up pace in infrastructure sectors, and the airport sector is no exception. The increased pace of project execution, enabled by easing of pre-construction bottlenecks, has driven construction activity.

India currently has over 100 active airports, and the development of many more is on the anvil to improve air connectivity between cities and ease congestion at existing airports. In fact, the government plans to set up another 100 airports by 2040, which points to the huge construction opportunity waiting to be tapped. In the past, however, issues such as delays in land acquisition, grant of clearances and sourcing of funds have affected the pace of project execution. Failure to address these issues will impact construction activity to a large extent in the future too.

Evolving construction techniques

Over the years, there has been a gradual shift towards the deployment of new and innovative methods of construction. The authorities have started deploying cost-effective designs and technologies to develop airport infrastructure. The construction industry has also been proactive in adopting innovative methods for quicker and cheaper construction of airports.

One of the trends that has been witnessed in the past five-six years is that, in order to keep costs low, airport projects have been developed sequentially in a modular fashion, rather than being built to full capacity in one go. Also, the airports are being designed in such a way that they are simple to operate even though they might have complex functions. There has been increased focus on developing the projects as state-of-the-art facilities along with providing basic infrastructural facilities.

For instance, a 12 MWp solar power plant comprising 46,150 solar panels across 45 acres has been put up at Cochin airport. A total of Rs 620 million was spent on the facility and the cost is expected to be recovered in a period of five-six years.

Meanwhile, Raipur airport has been equipped with a unique steel structure with avian roofing. With a view to adding local flavour, the airport has been decorated with Bastar ethnic artwork. Vadodara airport has been designed as a simple structure articulated through repetition in structural trusses. Such a project design has made the construction work simpler for the contractors.

Demand drivers

The key twin drivers for construction opportunities in airports are the NABH [NextGen Airports for BHarat] Nirman initiative and Vision 2040 for the aviation sector.

NABH Nirman: New transactional structure for greenfield airports

Announced in the 2018-19 budget, NABH Nirman aims to expand airport capacity by more than five times to handle a billion trips a year. The three key aspects of NABH Nirman are fair and equitable land acquisition, a long-term master plan for airport and regional development and balanced economics for all stakeholders.

Despite a separate policy being in place for greenfield airports, most of them have faced inordinate delays due to land acquisition issues, difficulties in securing project finance, political and social friction, delays in securing environmental clearances, policy ambiguities, etc.

To address these challenges, in August 2018, the government proposed a new financial model for building greenfield airports under NABH Nirman 2018. The guiding principles of the proposed transaction structure are affordability, sustainability and predictability.

Under the new financial model, the concession fee given by the airport operator to the concessioning authority will be based on the “per passenger aeronautical model”. Currently, the transaction structure for airports, run under the joint venture route, is based on the revenue sharing model. The proposed model concession agreement will be fine-tuned after industry feedback.

Going forward, massive investments are planned in the greenfield airport segment. Some of the notable greenfield airport projects being undertaken are those in Jewar, Bhogapuram, Sindhudurg and Dholera.

Vision 2040

India’s domestic air passenger traffic is expected to grow at an average compound annual growth rate of 8.5 per cent till 2040, taking the sector close to the target of 1 billion passengers by 2040. Based on the projected growth in traffic, India will require capacity augmentation at brownfield airports as well as setting up of new greenfield airports. Vision 2040 aims to have 200 operational airports by 2040, compared to 106 active airports at present. This number was just 70 in 2016. The Regional Connectivity Scheme contributed to the increase in operational capacity. As per the vision document, all major metro cities will have at least two international airports.

The way forward

The public-private partnership (PPP) model has not been quite successful for infrastructure sectors (including airports) due to land acquisition issues, delays in clearances, poor health of sponsors, problem of stressed assets and reluctance of banks in providing credit. A few big players such as Larsen & Toubro, Reliance Infrastructure Limited and the GMR Group that had entered the PPP space in the past have decided to become asset-light. This has brightened the outlook for engineering, procurement and construction (EPC) players.

EPC companies were able to maintain a strong order book in 2017-18. As the government is increasing expenditure on infrastructure every year and project award is gaining momentum, the order books of companies will provide earnings visibility for the next three to four years. Construction opportunities in the airport sector are abundant, in line with the growing demand for air transport. On an average, about 65 per cent of the total project cost of an airport pertains to construction. Massive projects have been lined up, ranging from large PPP opportunities in greenfield airports to development/ expansion and modernisation of terminals, runways, etc. Besides, the Airports Authority of India has detailed plans with respect to both airside and city-side works at non-metro airports.

To conclude, timely creation of capacity, modification of existing policies and regulatory frameworks in line with changing requirements, and close coordination between the central and state governments are the need of the hour to capitalise on growth opportunities in the airport sector by all stakeholders including construction companies.

Yashu Ramnani