35 non metro airports of India – back from the dead?

In 2007 the stage was set for modernization of 35 non metro airports of India. The planning commission conducted long sessions with stakeholders to draft a master concession agreement for the project. The ministry of civil aviation was preparing the stage for Airports Authority of India (AAI) to share the burden of development with private investors and foreign airport operators. After much effort two airports (Amritsar and Udaipur) were put on the block as a pilot project. Both Indian and foreign airport operators were shortlisted on their technical bids. The deliberations on master concession agreement with planning commission reached its end with a final draft meant to be followed as a guiding document for all the projects to come. However, politics played spoil sport with immense pressure from the then powerful Left parties and successful lobbying by the AAI to stall the project. The project was unceremoniously put to a sudden death. Almost four years later media is buzzing again with reports on revival of the project.

The question is will the project take off this time around? Ground realities have not changed much. AAI will still be unhappy about private partnership (mainly due to HR issues and secondly due to loss of control over the assets). Political equations has come a full circle with Mamta Banerjee replacing the Left parties in opposing privatization of any kind. A newspaper report quoted the civil aviation minister saying that his ministry will soon prepare a cabinet note to revive the Public Private Partnership (PPP) for the 35 non metro airports (Livemint, 25 April 2012). To add more confusion AAI recently announced that it will develop at least 225 airports across the country by 2020 (Economic Times, 21 May 2012). No further details are available on the way forward for the project. Ground realities might not have changed much but a lot of money has been poured into these airports in the last four years. Just before the 2009 general election there were a string of inauguration of new infrastructure at these airports, new terminal buildings, extended runways, improved taxiways, car parking etc were dedicated to the public. The pace of modernization slowed down later due to lack of funding and inability of AAI to raise money from the markets (due to lack of government support). AAI has already invested INR 4,340 (USD 790 million at current exchange rate) on expansion of Chennai and Kolkata airports. Multiple delays lead to a cost overrun of 11.45% at Chennai and 19.72% at Kolkata airport (Livemint, 25 Aprill 2012). With massive cost overrun and shortage of funds, AAI doesn’t look in a comfortable position to undertake any more development projects on its own.

This brings us to another question. What is left to be modernized at these 35 non metro airports? Almost 20 of these airports have been provided with new infrastructure and a few will be completed in the near future, albeit with some delays. Unlike in case of the previous big ticket PPP projects the private partner will not incur any capital expenditure for a long time to come. What can be improved is the management of these airports. Just bringing in private money is not going to solve the problems; neither will developing 225 airports do the country any good. At best these airports will become white elephants with huge capital investment and recurring maintenance expenses. 70% of our current air traffic is being shared between Delhi, Mumbai, Chennai, Kolkata, Bangalore and Hyderabad, rest being distributed among the remaining operational AAI airports. Further airport development is unlikely to generate passenger growth by itself.

35 non metro airports
Amritsar	Agartala	Agati	Agra	Ahmedabad
Bhopal	Bhubaneshwar	Chandigarh	Coimbatore	Dehradun
Dimapur	Gawhati	Imphal	Indore	Jaipur
Jammu	Khajuraho	Lucknow	Madurai	Mangalore
Nagpur	Panaji	Patna	Port Blair	Pune
Raipur	Rajkot	Ranchi	Surat	Trivandrum
Trichy	Udaipur	Vadodra	Varanasi	Vishakhapatnam

The way forward for ministry of civil aviation and AAI is to reconsider the entire process of PPP. In the last attempt what started as a full scope of airport operations for the private investors ended up as a facility management contract for the terminals. Such a contract might keep the buildings clean but will not help in generating extra revenue for AAI. The 35 non metro airports should get priority over the 225 airports. These are the airports which are located in fast growing cities with ever larger demand for air travel. However, not all airports are attractive enough for private investment.

The ministry of civil aviation should create smaller packages of three or four airports to be handed over to the private investor. This will ensure that the unattractive airports get some investment and at the same time AAI is not unfairly stuck with unproductive assets. The ministry should carefully lay down the criteria for qualification of the potential investors. Stress should be laid down on technical expertise more than the financial pay offs. This will prevent non serious players from bidding and artificially push the bid prices up. The scope of the project should include full scale of operations including both airside and landside. This will give more freedom and flexibility to the investor to improve services and invest money in upgrading. Airport Economic Regulatory Authority (AERA) should encourage dual till model to encourage more private participation. The dual till model will also make it easy for the investors to raise money from the financial market.  

It is time for the civil aviation ministry to work on other aspects of the industry like improving air services within the country and to make it easier for Indian carriers to fly abroad. Improved airports can only benefit if there is improvement in air traffic.