Will private players look at regional airports now?

Government envisages PPP model for regional airports, allows commercial development of land

State-owned airports will now be allowed to monetise the huge parcel of land that it holds across the country in order to encourage private sector participation in developing these airports. Finance Minister Arun Jaitley in his speech of the Union Budget  2017-18 proposed a change in the Airports Authority of India (AAI) Act allowing the airport operator to use the land bank for commercial purposes. At present, the act allows an airport operator to use land only for aviation-related services. With 128 airports across the country, AAI owns almost 55,000 acres of land.
 

The minister also said that airports in Tier-2 cities will be taken for operation and maintenance in a Public-Private-Partnership (PPP) model. Will the move encourage private players to bid for management contracts of airports in cities like Ahmedabad, 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 for relaxation in land usage norms back in 2010 following a request by the country’s private parties.

The move was made after AAI announced city-side development of 15 airports, through private participation. Private players said that 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 the development of airports at regional cities, it is necessary that those players are allowed to monetise from the commercial development of those,” a senior AAI official said.
 

A senior official of major private player which owns airport said that the group will evaluate such opportunities. “As an airport operator we are interested in either fully owning or just operation and maintenance of airports, we will evaluate on a case-by-case basis,” he said.

However, experts said that though the move is a step in the right direction, there remains little chance of private players expressing interest for such projects.
 

“Awarding of O&M contracts of airports in Tier 2 cities is a welcome move as it will help to create a roadmap for private sector participation and improving operations at these airports,” said Peeyush Naidu, partner at Deloitte India.
 

Kapil Kaul, CEO, South Asia at aviation consultancy firm, CAPA said that the move was in expected lines as the government has so far failed to encourage private sector participation in such airports. “RFP for Jaipur and Ahmedabad airports are already out and there is no or limited interest from international operators till date,” he said. 

AAI chairman Guruprasad Mohapatra sounded upbeat about the move. “It is a very positive move. AAI act only prescribes land only aviation related, that is an old rule not valid in current market requirements. Now the huge parcel of land available can also be used to build multiplexes or shopping malls according to demand, this will be helpful to shore up our non-aeronautical revenue,” he told Business Standard.

Private airport operators in the country, the GMR and the GVK group which manages the Delhi and Mumbai airports however will not be impacted by this move as they are bound by the original Operations Management and Development Agreement (OMDA), which permits commercial development of five and ten percent of the total land at Delhi and Mumbai respectively. The GMR-led consortium recently said they have shortlisted players to develop retail assets on 23 acres of land at Delhi airport.
 

Mohapatra expects the move will also help AAI to shore up its non-aeronautical revenue. “This rise in non-aero revenue will help us to rationalise airport charges making flying cheaper,” he said. AAI earns a very insignificant amount of revenue from non-aero revenue and primarily it comes from the airports in Tier 1 cities. In 2015-16 AAI earned Rs 1,202.81 crore from non-aero sources- 11 percent of its total revenue of Rs 10,824 crore.