The privatisation regime that took centre stage a decade and a half ago has proved to be a sound business case for the airport sector and has significantly raised the bar for service quality at Indian airports. The concession agreement for Hyderabad airport was signed with GMR Hyderabad International Airport Limited (GHIAL) together with two other parties. This was followed by the signing of the operation, management and development agreement for Delhi airport in 2006.
Until recently, the GMR Group has been a front runner in the airport privatisation domain. The company witnessed several challenges and at the same time gained deep insights and significant experience into operating a public-private partnership (PPP) airport. Based on the experience, there are some key drivers that can act as guiding principles for all other private operators to follow.
Airport development and operation is a complex process that involves a series of clearances and the integration of several stakeholders besides financial stability. However, the entire process poses several challenges.
The first drivers for the successful development of a greenfield or brownfield airport are the timelines and deliverables that need to be adhered to to avoid cost overruns. However, for the development of a greenfield airport, land acquisition and clearances are the biggest challenges and the most time-consuming. At the same time, brownfield airports pose an even greater challenge of simultaneously managing operations and expansion work. In order to avoid delays, government coordination and support of other bodies is key. For instance, the GMR Group, while taking up the expansion of Delhi airport’s Terminal 3 required clearances for large tracts of land. With timely coordination, work on the terminal was completed in a record time of 28 months. Similarly, Hyderabad airport was completed in a record time of 31 months.
Selection of an engineering, procurement and construction contractor with the required skills and know-how for developing an airport is another major factor for the successful completion of an airport project. As the contractor is directly involved with the civil works of the project, hand-holding and regular communication is necessary to avoid delays.
Airport service quality is one of the key efficiency indicators of an airport. With privatisation of the airport, the responsibility of ensuring efficiency gets even greater in addition to passenger expectations. Therefore, the focus has to be on business excellence and innovation and on devising means by which processes can be simplified. Also, the potential of the existing asset must be utilised to the fullest. Hyderabad airport, which has a design capacity of 12 million passengers per annum (mppa), is currently operating at double its capacity. This has been made possible with a slew of measures like the introduction of a separate corridor for passengers with only hand baggage so as to reduce waiting time. Apart from this, GHIAL, with hand-holding from the central government, also enrolled in the Digi Yatra scheme under which a pilot project was taken to test a facial recognition technology to make travel a hassle-free experience. With these smart measures, the airport has been consistently ranked in the top three airports. Delhi airport also took up similar digital initiatives because of which its ranking has improved dramatically from 101 in 2004 to first in 2019.
For developing an airport, a huge amount of funding is required, of which a significant amount comes by way of debt. At the time when Delhi airports’ Terminal 3 was being developed, the regulatory framework for lending to airports was not in place and banks were apprehensive of lending for long periods of time. Conventional methods of funding like short-term loans of seven to 10 years were used. As a result, there was a mismatch between the life of the asset (airport) and the time period for which funds were available. Nevertheless, adequate support was available and some of the funding was raised from external sources such as dollar bonds, the first such feat by a private airport operator (GMR). This external funding offered a longer moratorium period, ensuring a steady cash flow for undertaking operations and expansion works. Currently, all borrowings for the Delhi and Hyderabad airports are through dollar bonds and have proved to be a key value driver.
A sound regulatory understanding is essential for any airport operator to ensure that a project is viable. For this, working constantly with government agencies is necessary. Over the years, the regulatory regime has matured significantly. Initially, when the Delhi and Hyderabad airports were developed, there was policy paralysis and there were challenges related to conflicts among the parties involved. For smooth operations, close coordination with the regulatory authority and transparent dialogue was maintained. Delhi airport was the first to receive a tariff order from the Airports Economic Regulatory Authority (AERA), post which, those for other private players followed suit. Further, the operator gained an understanding of the concession agreement, and of the stipulations under the AERA Act that relate to different heads of aeronautical and non-aeronautical revenue. Now, the country has rolled out a new civil aviation policy that has further cleared the clutter and attracted investor interest in the sector.
When the Delhi and Hyderabad airports were privatised, the whole airport sector was at a nascent stage of development. There were not many private players and, as a result, there was a lack of skill sets, except with the Airports Authority of India. Airport development being a complex business, partnership with global players is essential for taking up various functions such as ground handling, cargo services, duty-free shops and ticket bookings. For this, global talent needs to be pooled to help understand the nuances of the business, besides improving the ranking of the airport.
Stakeholder management is another important step, as a number of stakeholders are involved in airport operations. Agencies like customs departments, immigration and securitycome into play for ensuring round-the-clock services. Therefore, for an airport operator, working closely with other stakeholders is essential. For the seamless functioning of Delhi airport, an overseeing committee was formed. A single-window clearance mechanism was also introduced that helped in developing the airport on time.
In a nutshell
India is a big market for players vying to enter the aviation space. Several new developments have already taken place and new players such as Fairfax, Adani Enterprises and the recent entrant Zurich Airports have entered the landscape. This is testimony to the kind of interest that the airport sector is garnering. The GMR Group is also gaining synergy from the various developments introduced and is planning to construct new airports as well. One of these will be at Bidar under the Regional Connectivity Scheme and is also expanding Hyderabad airport. Apart from this, the operator has won a concession for Mopa airport in Goa that was put on hold for almost an year after the expert appraisal committee of the Ministry of Environment, Forest and Climate Change quashed the environmental clearance. It was only in early February 2020, at that the clearance was granted. With this, work on the airport is expected to commence in two years’ time. Further, the operator is planning to tap the potential of ancillary businesses like duty-free shops and cargo at the airport. One such contract for duty-free shops has already been awarded at Kannur airport.
That said, the next big thing to look out for is the impact of the new tariff regime and new bidding model of per passenger fee and whether it works well for the sector.
Based on inputs from presentations by Rajesh Arora, Chief Executive Officer, GMR Airport and Arun Behal, Chief Operating Officer, GMR Hyderabad International Airport, at a recent India Infrastructure conference