September 2019

The past year has seen a lot of activity in the aviation sector. Though there’s been a slowdown in traffic in the past six months, breakneck growth through the past six years has led to passenger traffic more than doubling. The RCS has energised traffic growth while a new cargo policy should help increase activity. The focus is on the creation of airport infrastructure, as capacity nears saturation. There has been movement on airport privatisation, with several airports being bid out. Policy changes that allow for easier investment inflows have also been introduced.

The airport privatisation drive has led to the entry of players like the Tata Group and the Adani Group. There has been action on the greenfield airport front, with movement on several projects. In terms of brownfield activity, the Ahmedabad, Mangaluru and Lucknow airports are being leased out to Adani Enterprises, while the Tata Group has taken a stake in the GMR Group’s airport business. Many other airports are also targeted for privatisation.

The RCS can be considered a success with close to 200 routes coming within its ambit. Traffic projections in the Vision 2040 document envisage 500 per cent traffic growth, to over 1.1 billion  passengers a year in 2040 as compared to 190 million in 2019. Cargo traffic is likely to see a 400 per
cent growth. Of course, this will require significant fleet expansion.

It also implies that India will have to double the number of operating airports in the next decade, as well as significantly increase capacity at existing facilities to cope with increases in traffic. Several metros will need two or even three airports.

Smart warehousing for cargo must be built. New technologies such as biometric processing and automated baggage handling will have to be deployed to process passenger flows smoothly.Dedicated direct pipelines for fuel may be necessary. Creating in-house solar capacities will also be necessary to maintain a green profile as the energy needs of the sector will soar.

While all this is a big challenge, it also represents a massive investment opportunity. The aggregate
land acquisition alone will amount to roughly 150,000 acres and close to $50 billion worth of investments will be required to build this new capacity.

Private sector participation is a must since the government can scarcely fund this on its own steam. Since 100 per cent FDI is now allowed in brownfield projects, financing should not be an issue for those
projects. Actually, based on the experience with GMR and GVK, lenders now consider airport projects
among the safest in the infrastructure sector so financing should not be a major issue.

In the past two years, the greenfield Goa airport project at Mopa and the Navi Mumbai project have
seen movement. The Jewar greenfield international airport in the NCR has been bid out as well, with the
bidding due to close by end October 2019. GMR has acquired the right to develop Bhogapuram airport
and the Multimodal International Cargo Hub and Airport at Nagpur on a PPP basis.

Policy attention will be required to address the sectoral concerns about the terms of PPP with the bid calculations being based on the per-passenger fee bid parameter. Concerns about the future of employees currently based at airports targeted for privatisation could turn into a political hot potato
unless dealt with in a practical and compassionate fashion. The timely acquisition of land and fast clearances will also be necessary to prevent delays with associated cost escalations. These could snowball into major and persistent issues. However, recent developments give us hope that such issues can be tackled to enable growth in the sector.


Enter your email address