Privatization of airports: pros and cons
Union
Cabinet on 8th Nov, 2018 has approved leasing
out six airports - Ahmedabad, Jaipur, Lucknow, Guwahati, Thiruvananthapuram and
Mangaluru through Public Private Partnership model. Unlike previous attempts,
this time the lease period is extended to 50 years with 100% private
participation. Four major airports (Mumbai, New Delhi, Hyderabad and Bangaluru)
were privatized in 2006 for 30 years with a provision of extending another 30
years. Only 74% private participation was allowed. Recently, Union Government
had cleared 100% FDI in aviation sector, thereby, now making a smooth passage
to foreign airport players to take part in Indian-airport-making. It reminds the
effort of earlier UPA government in 2014 to privatize five major airports –
Chennai, Kolkata, Ahmedabad, Jaipur, Lucknow and Guwahati. The effort bore no
fruit then for many reasons. One, the Airports Authority of India Employees’
Union challenged the decision in Madras High Court as AAI had by then spent
Rs.2000 Crore for the development of Chennai airport. Another was, no potential
bidder turned up as the proposal was prepared hastily with several open points,
many question remained unanswered and bidder did not find it financially
viable. The utmost effort of the then Civil Aviation Minister Mr. Ajit Singh to
privatize at least one airport (Lucknow) during his tenure too proved futile.
Airport privatization is not new to India. The country got its first
private airport in Cochin in 1999. Fact remains that Cochin airport was an
outcome without much plan and policy of the Government. Fund flew from ten
thousand NRIs residing in thirty countries. Mr. V.J. Kurian, IAS, the founder
Managing Director of Cochin International Airport Limited was the key person
behind this venture. The Government promulgated Greenfield Airport Policy only
in 2008. Airport Economic Regulatory Authority (AERA) the autonomous body to
regulate tariff and other charges at private airports was set up only in 2008
following the Airport Economic Regulating Act 2008.
Benefits of privatizing airports as projected among many others are the Airport
Service Quality (ASQ) and revenue generation. It is a fact that private
airports in India have managed to retain the top positions in ASQ survey
carried out by Airport Council International despite the challenges of “value
for money”. Regarding revenue generation, PPP airports have actually turned
into “golden ducks” for AAI. The revenue contributed to AAI by PPP airports is substantial.
The concession agreement requires DIAL (Delhi International Airport Limited)
and (Mumbai International Airport Limited) to pay 45.9% and 38.7% of their
revenue to AAI. At present AAI is operating 133 airports in the country but the
revenue shared by PPP airports to AAI’s total revenue is more than 30%. (2015-16:
31.2% and 2016-17: 30.6%)
How do private airport operators make money? Airport revenue is divided
into two major parts- aeronautical, that comes out of aircraft movement and
non-aeronautical, the revenue that does not relate directly to aircraft
movement. While government operator is satisfied with meagre 10%
non-aeronautical revenue, private operators thrive to enhance it to 50%.
Monetizing land, commercial ventures and business at airport are the principal
sources of non-aeronautical revenue. Aero city hotels near New Delhi airport,
retail area at terminal 3, duty free business at Cochin airport are some of the
apt examples of private operator’s endeavors.
An airport intended to be privatized should have a good revenue track
record and opportunities to generate non-aeronautical revenue. None of the
airports in NE Region has a good track record. All of them including Guwahati are
loss making airports. Expenditure at many airports are more than double than
they actually fetch. Therefore, revenue record will never attract any potential
bidder to develop, manage and operate Guwahati airport, for sure. However, the
hidden potential of the airport to grow as a hub in the North East can’t be
overlooked. North East requires a
reliable air transport service (preferably helicopter service) to connect its
cities and towns. In order to develop the hidden potential of the region, the tourism,
it will be a basic requirement. No serious attempt has been taken up by the
state governments yet in this regard. Besides, the NE airports can have better
air connectivity with the east Asian countries to result in economic progress.
Therefore, development of airports in the region are of course utmost priority.
International Civil Aviation Organization (ICAO), the global regulator estimates
that every $100 investment in aviation produces $325 in other industries
connected by the air transport. Similarly, creation of 100 new jobs in aviation
generates 610 new jobs in other related industries. This amplifies why civil
aviation is called the economic driver.
International Air Transport Association (IATA) has forecast that civil
aviation market of India is reaching the top 3 position by 2020. Air passenger
growth rate (Year on Year) in India is the highest in the world, more than 20%
against the world average 3.8%. In terms of “air trips per
capita” India remains at very low (0.04) whereas China, Brazil, Malaysia
remains at 0.15, 0.25 and 0.54. In terms of population, China has 15% more than
that of India but China’s domestic air passenger size is 5 times more than that
of our country. India has 1 aircraft for every 2.89 million populations but
corresponding population size against 1 aircraft in China, Indonesia,
Philippines and Brazil are 1.14 million, 0.96 million, 0.89 and 0.63
respectively. Economic growth and introduction of low cost carriers have resulted
in increase in air travel by businessmen, professionals and individuals. The
middle-income group population is also rising; 160 million (13.3% of total
population) in 2010 is expected to grow to 547 million (37.2% of total
population) by 2025. Low Cost Carrier which made air travel affordable to
common man carries now more than 67% of total domestic air passengers in India.
Moreover, demographic dividend (62% of the population belongs to age group of
15-60 years) and rising urban population (By 2030, 40% of total population will
live in cities) also suggest a rampant growth of aviation in India.
Of
late, after adoption of the new National Civil Aviation Policy in 2016 and
Regional Connectivity Scheme (RCS), the state Governments have also joined
hands with the Central Government in the development of civil aviation. Kerala,
Goa, Haryana, Sikkim, Mizoram, Arunachal Pradesh, Andhra Pradesh are some of
the states who have participated actively. Mr. Chandrababu Naidu, the chief
minister of Andhra Pradesh has set up “Andhra Pradesh Airport Development
Corporation Limited” with a plan to connect all the 13 districts by air.
The
main challenge of privatizing Guwahati airport still remains unchanged –
finding a potential bidder. The Operator will have to work in liaison with the state
authority to bring about sustainable changes in the region. Whoever gets it,
will have to adopt innovative plans to make it a profitable venture.
Aeronautical revenue alone will never be able to do so, right exploration of
the non-aeronautical resources surely will.
