Airport privatization and the North-East

The decision of Union Government to privatize six more airports – Chennai, Kolkata, Ahmedabad, Jaipur, Lucknow and Guwahati made uproar all over the country. Employees’ Unions of the state-owned-airport-operator and the Parliamentary Standing Committee on Transport opposed vehemently to the government decision. The AAI Employees’ Union dragged it to Madras high court and honorable court restrained the process of privatizing Chennai airport from going ahead and adjourned the matter till May 2014. The parliamentary panel submitted a report on October 31, 2013 and recommended that instead of handing over the assets to a private player, why not allow AAI to give the airports out on long-term lease? Such opposition resulted deferment of the process for 5 airports barring Lucknow. However, failing to obtain bidders for Lucknow, of late, AAI has postponed the last date of sale of tenders for all the 6 airports to March 14.

          Privatization of airport emerged across the world as a part of its development towards the end of the previous century. Till 1980s all airports were funded by the governments or municipalities in their respective locations. Income and expenditure of airports were part of the government accounts. Individual airport was unaware of its income and expenditure. Operating an airport was considered as responsibility of the government. In 1978 civil aviation had a big boost with the introduction of the Open Sky Policy in the United States which soon after engulfed the entire globe. Private airlines began to emerge and airports had to cope up with the new demands. Thitherto, the income of an airport was broadly depended upon Aeronautical Revenues such as Landing Charges, Route Navigation Facility Charges, Passengers’ Service Fees, Ground Handling Charges and many of its kind. Other revenue sources like Space Rent, concessions of Food & Beverages, Retail outlets, Business Lounges, Entertainment facilities, Car park facilities, Advertisement which termed as Non-Aeronautical revenue at airport were not considered as dependable sources of income. The moment airports started making their own balance sheets, preparing Loss and Profit statement, it emerged as a business. The annals of Civil Aviation marked this time (1970s and 1980s) as commercialization of airport.

          A new concept evolved in Europe during 80s. If non-aeronautical revenue is enhanced adequately, it could be possible to run an airport without any government aid. Implementation of this idea gave birth of airport privatization. British Airports Authority (BAA) became private in 1987 which was handling Heathrow, Gatwick and Stansted airport in London and four airports in Scotland at that point of time. Privatization gathered momentum in the next decade, more precisely from 1996. Copenhagen, Dusseldorf, Rome, Birmingham, Bristol, Melbourne, Stockholm, Auckland, Wellington, Kuala lumpur, Beijing, Zurich followed under different model of privatization. This was the time when the first private airport in India was opened in Cochin, Kerala on 25^th May, 1999. Cochin International Airport Limited (CIAL) the joint venture comprised 74% share of NRI and the rest 26% jointly of Kerala Government and AAI at equal proportion.

          In 1996, Airports Authority of India recommended upgradation and development of Delhi and Mumbai airport with private participation. At that point of time Delhi and Mumbai handled 12.4 and 15.7 million passengers per annum (mppa) and the growth rates at both airports were 25.7% and 22.7% with respect to the previous year. AAI took a pretty long time to approve it in June 2003. That followed with formation of Empowered Group of Ministers in September and it was decided to involved private participation to develop airport structures in the country. The Government at Centre changed in May, 2004 but the process continued. Airports at Bangalore and Hyderabad needed more attention than anywhere else. The airfield of HAL at Bangalore was established in 1940 and used grossly by Indian Air Force. The infrastructure was made to sweat beyond acceptable norms. In 2003 the terminal building that can handle 3.6 mppa was made to handle 7.5 mppa, more than double its capacity. Even worst was in Hyderabad. Begumpet airport at Hyderabad began its journey in 1930 as “Hyderabad Aero Club” meant for the adventure of the ruler - Nizam. In course of time it evolved to be an international airport and the sixth busiest airport in the country in 2003. During 2004-05 the constraint was at the peak as only 40% of the passengers flying abroad from the state could use this airport.

AAI executed the concession agreement with the PPP for both the airports on 5^th July and 20^th December of 2004 with the BIAL (Bangalore International Airport Limited) and the HIAL (Hyderabad International Airport Limited). Both were entrusted the responsibility of building two brand new airports (Greenfield) and operate for 30 years. Delhi and Mumbai followed soon after. The operations, management, development agreement was signed on 4^th April, 2006. DIAL (Delhi International Airport Limited) and MIAL (Mumbai International Airport Limited), the Joint Ventures were formed with 26% stake retained with the government.

The PPP ventures turned into the “golden ducks” for AAI. It contributed a substantial amount to AAI in years to follow. As per the contract, the DIAL and the MIAL have to pay 45.9% and 38.7% to AAI on their total revenue generation. AAI received 1046.3 Crore and 1237.76 crore during 2010-11 and 2011-12 respectively from the PPPs which are 20.3% and 21% of the total revenue generation of AAI. On the other hand, none of the Joint Ventures is doing financially well. All of them are seen adopting different strategies to enhance the Non-Aeronautical revenues.

The airports situated at the North East have been notorious for making huge losses over the past years. A report published by AERA reveals that the expenditures to run these airports are more than double their incomes. During 2010-11, Guwahati airport generated 8.99 Crores but total expenditure was 32.8 Crores. The main resource of revenue at airport - the passengers and aircrafts, both are at declining trend at Guwahati in last two years. Comparing 2010-11, in 2011-12, growth declined by 7.47% for passengers, 4.09% for aircrafts and 22.52% for cargo.

The main challenge for privatizing Guwahati airport will be finding a potential bidder. Guwahati airport deserves to be developed. Tourism is the future of the NE and airports are its backbone. It is evident, whoever gets it, will have to do a lot to make it a profitable venture. They have to come up with innovative strategies to enhance both the sources- the Aero and the Non-Aero revenues. It they succeed, the airport is bound to flourish.

You can reach the author at: utpalbaruah@gmail.com

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