Project Report on Airports Industry Analysis in
India
The country has
been developing its airport sub-sector, not only for the transport of goods,
but also to accommodate the growing numbers of international business
travellers and tourists. India has 454 airports and airstrips, of which the
state-run Airports Authority of India (AAI) owns and manages 97 airports and 28
civil enclaves at defence airfields. AAI handles around 40% of the total air
traffic, while the remaining 60% is handled by five private airports at Delhi, Mumbai,
Hyderabad, Bangalore and Cochin.
The airports
sub-sector has significant growth potential due to India's positive macro
fundamentals, and the country's strong project pipeline for both regional and
international airports. Under the 12th Five-Year plan, India's airports are
expected to need approximately INR675bn (US$13.86bn) in investment, nearly
INR500bn (US$10.27bn) of which is likely to be from the private sector. This is
part of the government's plan to invest US$30bn in airports between 2004 and
2020. The investment followed a two-stage plan: The first stage was to
establish connectivity to the six metropolitan cities (Bangalore, Chennai,
Delhi, Hyderabad, Kolkata and Mumbai), while the second stage would focus on
connecting the metro cities with tier-II and tier-III cities.
At present, all
of the metro cities have established airports and are scheduled to develop a
second airport by 2020. Besides the metro cities, seven non-metro cities such
as Ahmedabad and Pune are also expected to outgrow their existing
infrastructure and require new airports, according to a report by the Centre
for Asia Pacific Aviation (CAPA) and SITA. India plans to have 500 operational
airports by 2020. This target is to be met by constructing 10-15 greenfield
airports and upgrade 50 non-metro airports in the next few years, according to
Civil Aviation Minister Ajit Singh in October 2012. Modernisation work will be
carried out during the next two years, with the government expecting
double-digit growth in air traffic in the next few years, owing to growing
middle class and trade.
This was
reiterated in June 2013 and August 2013. In June 2013, AAI stated that it would
set up low-cost airports in 51 cities in Andhra Pradesh, Jharkhand, Bihar,
Punjab, Uttar Pradesh, Arunachal Pradesh, Assam, Madhya Pradesh, Rajasthan and
Maharashtra. In addition to these low-cost airports, the government has decided
grant new international airport status
to Bhubaneswar and Imphal at a cost of INR200bn. The government also announced
that it would award eight greenfield airports in 2013 under a public-private
partnership framework mode - namely, Navi Mumbai, Juhu in Mumbai, Goa, Kannur,
Rajguru Nagar Chakan at Pune, Sriperumbudur, Bellary and Raigarh, a statement
from Prime Minister's Office said. In August 2013, the Indian government
proposed an expansion plan to construct 17 new airports in 11 states across the
country. The plan has been proposed in the government's twelfth five year plan
for 2012-2017.
The proposed
airports are located in Karnataka (Gulbarga, Bijapur, Hassan and Shimoga), Goa
(second airport in Mopa), Kerala (fourth airport in Aranmula), Arunachal
Pradesh (Itanagar), Rajasthan (Kishangarh) and Jharkhand (Deoghar).
One of the most
significant airport projects in India is the proposed second international
airport for Mumbai, otherwise known as the US$1.9bn Navi Mumbai International
airport project. The Navi Mumbai project is the largest greenfield airport
project in India since the privatisation of the airport sector in 2006 and was
due to be up for tender in 2012.
The government
also plans to privatise some of the country's airports. In July 2013, the
aviation ministry announced that it has decided to privatise 15 airports, with
the first phase involving the international tendering of six airports -
Chennai, Kolkata, Lucknow, Guwahati, Jaipur and Ahmedabad - under a PPP format.
AAI will still have a stake in these airports.
This growth
potential is capped by the lack of regulatory reforms as the government is
relying on the private sector to finance projects in the airports sub-sector.
One of the key regulatory challenges is land acquisition. According to CAPA in
August 2012, the Airports Authority of India had requested the state
governments to set aside land for upgrading 61 airports, but only 26 requests
received a positive response from the governments. Furthermore, these projects
are also expected to bid for their required land, which could significantly
increase their costs, turning them financially unviable.
Furthermore,
there is a lack of regulatory clarity in the sector. In mid-2012, the
government has allowed AAI, the operating partner of the New Delhi and Mumbai
international airports with GMR and GVK respectively, to charge an airport
development fee to meet the funding gap as project costs escalated due to delays.
This hike was reversed in October 2012, where Civil Aviation Minister Ajit
Singh has directed AAI to abolish the fee, effective from January 1 2013. The
policy on the hike was once again changed in mid-January 2013, where India's
Airports Economic Regulatory Authority approved a 154% increase in airport development
fees (ADF) for the Mumbai international airport. However, the increase in the
ADF would only last from February to March 2013 - the development fee will be
reduced by around 20% from April onwards - and is far below the 875% hike
sought by the GVK. As of July 2013, the tariff for new airport concessions will
be fixed for the entire 30-year period, with price adjustment mechanisms
established to avoid price escalations as seen in the Delhi and Mumbai
airports.
The poor
visibility on regulatory reforms is already deterring investors from the
sectors. In April 2012, Singapore's Changi Airport withdrawn a planned
investment worth INR22bn (US $417.64mn) in the airport subsidiary of
India-based infrastructure group GVK, owing to regulatory uncertainty in
India, reports the Economic Times. We do note that Changi Airport has since
resumed talks since December 2012.
In November
2012, global airport operator Fraport said that it was in negotiations
with DIAL's majority stakeholder, India-based GMR Group, over the stake sale
(the Economic Times reports) - the Indian infrastructure operator has the right
of first refusal on Fraport's stake in DIAL. However, on November 5 2012, DIAL
said that GMR is not yet engaged in any discussions with the airport operator
on the sale (the Business Standard reports). Fraport had acquired the 10% stake
in DIAL for around IDR2.4bn (US$44mn) in 2006 and was part of the consortium
that secured the 30-year concession to operate the airport. Under the agreement,
Fraport must serve as DIAL's operator for at least seven years. This agreement
is scheduled to expire in May 2013. Besides the withdrawal from DIAL, Fraport
stated in June 2012 that it would be closing its development centre in India.
In addition,
some Indian companies, namely Reliance Infrastructure, are starting to lose
interest in non metro airports due to their long gestation period. In September
2012, Reliance Infrastructure was reported by the Economic Times to be looking
to sell its non-metro airports division. The subsidiary, known as Reliance
Airport Developers, owns five non-metro brown field airport projects in
Maharashtra (Nanded, Yavatmal, Baramati, Latur and Osmanabad). Reliance
Infrastructure is thinking of selling the subsidiary because it could be
seeking better returns for its investments by focusing on larger airports such
as those at Negpur and Pune - as of September 2012, only the Nandred airport
has scheduled commercial flights.
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