Nabh Nirman project: Rs 2-trn bill to manage the rush in Indian skies

Getting ready for 100 airports & 1 bn air trips a year by 2027

The government is planning to start a massive airport building project, in a move to handle the rush in Indian skies. The project would mean 100 new airports in the next 10 years, preparing the country to handle one-billion air trips per year.

The plan, Nabh (NextGen Airports for Bharat) Nirman, roughly outlined by Finance Minister Arun Jaitley in his Budget speech, will entail an expenditure of Rs 2 trillion and will see India easing its regulations to attract global airport construction companies as well as a possible public listing of the Airports Authority of India (AAI).

This is probably the first time the government is planning ahead of demand, in terms of airport capacity. While India is looking at a project till 2027, China had recently launched a plan to build 73 new airports by 2020.

“We do not want a situation in future where we are chasing demand. We want to be ahead of requirement. A study will be conducted to estimate the aviation infrastructure required in different places and the capital required for that,” Minister of State for Civil Aviation Jayant Sinha said.

A more-than-expected surge in the number of flyers, led by strong growth of low-cost carriers, has left India’s airport capacity wanting. For instance, airlines are expected to add more than 100 aircraft in FY2018-19, with the IndiGo fleet alone growing by more than 60 planes. In fact, AAI-owned airports have received request from airlines to add 375 parking bays in the next five years.  “This is unprecedented. Since the initial years of liberalisation in the sector, I have not seen such an aggressive growth plan,” said Kapil Kaul, chief executive officer, South Asia, at aviation consultancy firm CAPA.

The air traffic surge has already choked big airports like those in Delhi and Mumbai over the last three to four years. Nearly a third of the flights at Mumbai airport were delayed in 2017 due to congestion. Kaul said such constraints could slow industry growth, from the current 20% to 15%.

According to Sinha, the latest plan is to attract a major portion of the proposed investment from private investors rather than getting it from the government. Leveraging AAI’s balance sheet to raise money from the market is another route being explored. “The regulations have made it difficult for developers to get adequate returns from operating airports. We need to create an attractive policy framework for global airport developers in India,” he said. 

The current model revolves around the Airports Economic Regulatory Authority of India fixing airport charges for a period of five years, but it has often been a controversial affair with the Supreme Court intervening to fix charges for Delhi airport last year. Under the proposed model, the tariff would be decided prior to the airport bidding process.

Industry observers, however, argued that the government needs to further liberalise. “AAI is a government agency. It competes against private players in bidding. For the privatisation process currently under way, it wants to mandate capital expenditure (capex) decisions. How many conflicts of interest are we looking at here?” an executive of a private airport developer commented. The privatisation process of Jaipur and Ahmedabad airport terminals failed because investors were sceptical of the government’s larger involvement, he added.

A uniform model of development is difficult in India, Sinha said. Public and private investment models will vary according to passenger traffic, infrastructure, and geography, the minister pointed out.

Meanwhile, state-owned AAI would look at issuing masala bonds, raising debt, and tapping the bond market, both in India and abroad. “Next fiscal year, we will start capex works worth Rs 200 billion. In the next four years, we will execute projects worth Rs 210 billion, where 60% will come from debt and the rest will be equity,” AAI Chairman Guruprasad Mohapatra said.