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Specious logic

Airport privatisation deserves a sincere try

Business Standard Editorial Comment  |  New Delhi 

The plan to privatise the airports in Chennai, Kolkata, Ahmedabad and Jaipur currently run by the state-owned Airports Authority of India or AAI has been dropped, according to a report in this newspaper. While the airports in Chennai and Kolkata will continue to operate under the full management control and ownership of AAI, those in Ahmedabad and Jaipur would be opened up for limited private sector involvement - in just their operation and maintenance. A contract of that nature will allow the private sector player a restricted role, with payment terms likely to be linked to specified fees; the earlier plan for privatisation using the public-private partnership (PPP) model would instead have paved the way for the private sector party owning a majority stake in the airport company. This would have also allowed the joint-venture company to operate, maintain and develop the airports along with arrangements for revenue sharing with AAI.

It is not yet clear what precisely may have prompted the National Democratic Alliance government to drop the privatisation plan and, more importantly, whether this represents a final decision or is yet another instance of flip-flopping on as vital a matter as the country's aviation infrastructure. There are two possible reasons. One, existing employees of AAI may have been worried over their job prospects; and two, the AAI management may have argued against privatisation, since substantial investments have already been made in upgrading these airports.

Both these arguments are specious and betray poor understanding of the long-term benefits that privatisation of airports will bring to the aviation sector and the economy in general. About 2,000 employees work for the two airports in Chennai and Kolkata. The experience of privatisation of airports in the four cities of Bengaluru, Hyderabad, Mumbai and Delhi shows that, far from any adverse impact on job potential, opportunities for work at the aggregate level see a significant jump. With the induction of fresh capital and technology, it is most likely that certain kinds of jobs will disappear, but opportunities for a host of new jobs will also arise in the privatised airports. In the end, higher efficiency and productivity should secure overall gains for the aviation sector. But to hold up privatisation to address the short-term concerns of about 2,000 existing employees shows how the government has again meekly succumbed to the pressure of trade union politics. Equally true is the government's failure to recognise the need for retraining these employees to make them more useful after modernisation.

The financial argument against privatisation is even more flawed. An estimated Rs 5,100 crore has been invested by AAI in modernising the airports in Chennai and Kolkata. However, AAI's revenue share from the privatised airports in Delhi and Mumbai alone was over Rs 3,000 crore last year. AAI's earnings from the four privatised airports account for a third of its total revenue and they are already its single-largest component. Indeed, revenues of over Rs 10,000 crore from the privatised airports in the last few years have helped AAI fund the modernisation of many of the 105 airports it manages. Using the privatisation route, AAI can thus earn more revenue and fund more airports. It has to be, of course, mindful of the need to retrain existing employees, who may feel threatened by such winds of change, and frame privatisation contracts without any loopholes so that they protect AAI's revenue flows and the private players are not seen to be making windfall gains through unrestrained developmental activity.

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First Published: Thu, August 20 2015. 21:38 IST