Why India must invest in airport infra to be ready for a billion air trips

In the first of a two-part series, the author argues that we must invest ahead of current demand to propel the aviation sector and the overall economy forward

In the past four years, the aviation sector has boomed with air traffic doubling from about 100 million trips in 2013 to 200 million trips in 2017. Total aviation sector revenues now match those of Indian Railways and the telecom sector. While lower oil prices sparked this growth, it has been the Modi government’s innovative policies that have sustained it. These policies include the first-ever National Civil Aviation Policy, the highly successful UDAN Regional Connectivity Scheme, the AirSewa passenger-centric measures, and many ease-of-doing-business actions. India is now poised to grow from 200 million passenger trips per year to more than a billion trips over the course of the next 15-20 years, thus requiring a matching 5x growth in airport capacity. Airlines are already preparing for this traffic growth. The closing fleet size for 2017 was 495, and currently there are 900-plus aircraft on order from our various airlines.
 
To ensure that these growth rates are maintained, a comprehensive capacity expansion plan NABH (NextGen Airports for Bharat) Nirman has been announced in the Union Budget 2018. NABH Nirman will be a multi-year programme to expand India’s airport capacity: instead of playing catch-up with demand and incurring high congestion costs, we must invest ahead of current demand to propel the sector and the overall economy forward.
 

Finding space for airports
 
Many city airports in India are operating at or above capacity: over the last four years, we have created significant capacity through both new airports and new terminals. Cities like Delhi, Patna, Pune and Mumbai and states like Goa and Sikkim are planning or building new airports. Many cities are building new terminals at existing airports, among them are Bengaluru, Vadodara, Jaipur, and Gorakhpur. Twenty-five airports have already opened up over the last two years as part of the UDAN scheme.
 
In many of these cases, the single factor most hindering development of new airports and terminals is land. There are unique issues with respect to land in airports as compared to, for example, roads. Large contiguous parcels of land are required for airport construction. However, the shape of the land and location of the land pose significant constraints on places which are viable for airports. In many cities with currently unused or under-utilised airstrips, the development of buildings and structures around the airport severely constrain the type of aircraft that can land.
 
In the case of airports, land is acquired by the state government or Air Force facilities are used. Like the National Highways Authority of India (NHAI), the Airports Authority of India (AAI) has a robust balance sheet. However, while NHAI has the authority to acquire land for road construction, AAI does not have the right to acquire land for airports. This can meaningfully delay the process as the state government may be fiscally constrained and may not be able to acquire the large tracts of land required — between 500 and 5,000 hectares, depending on the size of the airport.
 
NABH Nirman programme
 
Keeping these realities in mind, NABH Nirman programme has five key aspects:
 

• Forge partnerships with states: If airport infrastructure in cities is completely reimagined, this opens up many possibilities of redesigning the overall transport plan of the city and the connectivity plan for the country. Creating mega multi-modal transport locations, say 10-15 km outside the current city limits (which integrate train, bus and airport infrastructure), can help shape the direction for the city to expand into. This will be cheaper and effective in decongesting the current city by creating new urban areas. This requires close coordination between Centre, states and the local urban development body.

• Develop many possible models for land acquisition: Some possibilities include: (1) States acquiring the land and then transferring such land into a Special Purpose Vehicle (SPV) as the state’s equity contribution to a PPP airport project; (2) working with the AAI for land acquisition — from legal, financial and capability perspectives; and (3) swapping the land of an old airport within the city with land outside.

• Establish regulatory framework to spur private investments in commercially viable airports: For new greenfield commercially-viable airports, the current Operations and Maintenance Development Agreement (OMDA) is being refined taking into account the concerns raised by the domestic airport operator industry and global investors to make it more predictable, stable and transparent. It is expected that between Rs 2.5 trillion and Rs 3 trillion of capital expenditure can be funded by the private sector in such viable airports over the next 15-20 years. The current AERA Act is proposed to be amended to provide for tariff-based bidding.

• Strengthen Airports Authority of India: Via a proposed change in the AAI Act, we are trying to find ways for AAI to develop land commercially so that these resources can be ploughed back into airport construction. Significant enhancement in execution capacity and building of new capabilities will also be required at AAI. Some airports may not be attractive for private players due to low throughput of passengers and may need to be developed by the public sector. The total investment in such airports is estimated by industry experts to be around Rs 1.2 trillion and Rs 1.5 trillion over the next two decades. Careful financial planning and structuring of the Airports Authority of India’s balance sheet can generate these resources. The Union Budget 2018 paves the way for leveraging AAI’s robust balance sheet.

• Prepare for a diverse aerospace future: The aviation ecosystem today largely deals with narrow-body and wide-body planes. With the successful launch of UDAN, the turbo-prop or the regional jet market is beginning to develop. Helicopters have also been incentivised in UDAN 2.0. Business models for seaplanes are emerging. As India spells out its drone policies, it is possible, over the next decade or so, that drones may outnumber the other man-made flying objects in the sky for freight and also, possibly, for passengers. India’s air navigation services will have to prepare for such a variegated, complex future.

 
Airports will shape not just India’s economic future, but also influence its urban geography. We want NABH Nirman to define the building of the next wave of airport hubs — the Temples of New India. (To be concluded tomorrow)

The author is Minister of State for Civil Aviation. He acknowledges the support of Akhilesh Tilotia, his OSD, in the series.
The views are personal