Flying from Delhi, Mumbai to get cheaper

Passengers might not have to pay airport development fee every time they fly abroad or within the country from these cities

Passengers flying from the Delhi and Mumbai airports are in for some welcome relief. From January 1 next year, they might not have to pay airport development fee (ADF) every time they fly abroad or within the country from these cities. The civil aviation ministry on Tuesday directed the Airports Authority of India (AAI) to infuse more equity into the two airport companies, in which it has 26 per cent stake.

Mumbai International Airport Ltd (MIAL) is a joint venture between GVK Group and AAI, apart from other partners. Delhi International Airport Ltd (DIAL) is operated by GMR Group. A senior GMR executive said, "This is a positive step. By putting in more equity, the return will also improve."

Airport operators will not require the Airport Economic Regulatory Authority's (AERA) approval to abolish ADF. They will have to file revised means of finance, based on which AERA will calculate revised tariffs for the airports. AAI will have to shell out a third of the revenue share it collected from DIAL and MIAL, which was Rs 1,212 crore in 2011-12.

Civil Aviation Minister Ajit Singh has asked AAI to infuse additional equity of approximately Rs 288 crore in the case of MIAL and Rs 102 crore in the case of DIAL, against its 26 per cent equity share in each. A MIAL spokesperson said, "We'll study the current development, assess its impact on our project and means of finance and, after consulting our board of directors, partners and lenders, respond to the relevant authorities in due course of time."

A DIAL spokesperson said, “We will, at the appropriate time, based on further communication by AERA, if any, take the views of lenders and equity partners and analyse the financial structure, including ability to raise further debt and equity, and also the consequential increased impact on aeronautical tariffs, and respond appropriately to AERA.”

A domestic passenger pays Rs 200 and an international one Rs 1,300 as ADF at the Delhi airport. In Mumbai, Rs 100 is paid by domestic passengers and Rs 600 by international ones.

Singh said, “Earlier, AAI did not have money but now they have a cash surplus. The objective of the government is to make air travel affordable and to ensure passengers are not subjected to any extra burden. AAI has been asked to take on priority the equity infusion with the purpose of abolition of ADF. The proposal regarding equity infusion by AAI will be soon submitted to AERA.”

If the present funding gaps in case of MIAL and DIAL are met in terms of equity infusion and proportionate raising of loans by the airport promoter including AAI, the ADF will stand abolished, he added.

The reason why ADF was conceived was because AAI had taken the plea that it was not in a position to contribute more equity in the two companies in view of its critical financial condition. It was necessited on account of the inability of AAI to infuse further equity. Acording to civil aviation ministry the expected financing gap in case of MIAL is Rs 4,200 crore, while in case of DIAL it will be approximately Rs 1,175 crore if the ADF is abolished with effect from January 1, 2013. While AERA has approved a 345 per cent increase in rate at Delhi airport, Mumbai's rate revision is pending before AERA. The regulator has considered Rs 3,400 crore in ADF for Mumbai airport in its consultation paper which was released last week.

“It may sound strange at first, but removing ADF may make cost of air travel higher for the passenger. This is because ADF is a capital receipt and is not subject to revenue share or tax — UDF is. Let’s assume Rs 1,000 cr of ADF is disallowed. In that case the airport operator has to bring in the same in the form of debt and equity. According to the project agreements, the operator is allowed to recover the entire Rs 1,000-cr plus returns on the same, plus the additional taxes if any from the passengers. That’s what will make airport tariffs higher for the passenger. The biggest beneficiary would be AAI who would gain a 46 or 38.7 percent share of the increase in tariff at Delhi and Mumbai airport respectively as a result of the removal of ADF”, said Amber Dubey, partner and head-aviation at global consultancy KPMG.