Post-Budget 2017, will regional airports be attractive to private players?

The Budget has proposed allowing the AAI to use its land bank for commercial purpose

The Union Budget has proposed allowing the Airports Authority of India (AAI) to use its land bank for commercial purposes. At present, the law allows an airport operator to use land only for aviation-related services.

With 128 airports, AAI owns almost 55,000 acres. The finance minister also said airports in tier-II cities would be taken for operation and maintenance in a public-private-partnership (PPP) model.

Will the move encourage private entities to bid for management contracts of airports in cities such as Ahmedabad or Jaipur? According to senior officials in AAI, the two Budget announcements have a history and should be seen in connection.

AAI, which functions under the ministry of civil aviation, had applied in 2010 for relaxation in the land usage norms after requests from private parties. The recent move is after AAI announced the city-side development of 15 airports through private participation. Private players said not allowing commercial development for non-aeronautical activities will make such projects unviable, as many of these airports have very low footfall.

"If the government wants private players to participate in development of airports at regional cities, it is necessary that they are allowed to monetise from the commercial development of those," a senior AAI official said.

A senior official of a major private entity which owns airports said their group would evaluate such opportunities "case by case".

"Awarding of O&M (operations and maintenance) contracts of airports in tier-II cities is welcome, as it will help to create a road map for private sector participation and improving operations at these airports," said Peeyush Naidu, partner at consultancy Deloitte India.

Kapil Kaul, chief executive, South Asia, at the Centre for Asia Pacific Aviation, observed the government had so far failed to encourage private sector participation in such airports. "The RFP (Request For Proposal) for the Jaipur and Ahmedabad airports are already out. There is no or limited interest from international operators till date," he said.

AAI chairman Guruprasad Mohapatra said: "It (Budget announcement) is a very positive move. The AAI Act prescribes land as only aviation-related, an old rule and not valid in the current market requirements. Now, the huge parcel of land available can also be used to build multiplexes or shopping malls. This will help to shore up our non-aeronautical revenue," he told this newspaper.

The GMR and GVK groups, which respectively manage the Delhi and Mumbai airports, will not be impacted — they are already bound by the original Operations Management and Development Agreement, which permits commercial development of five and 10% of the total land at Delhi and Mumbai airports respectively. The GMR-led consortium recently said it shortlisted entities to develop retail assets on 23 acres at Delhi airport.

"This rise in non-aero revenue, in turn, will help us to rationalise airport charges, making flying cheaper," says Mohapatra. In 2015-16, AAI earned Rs 1,203 crore from non-aero sources, about 11% of its total revenue of Rs 10,824 crore.