Even as the country's aviation industry is projected to be among the global top three by the next decade, there is a need to address certain pressing issues to ensure that the growth momentum is maintained in the long-term.
As India stepped into 2019, the country's resource-rich and strategically important North Eastern Region witnessed the inauguration of two long-delayed, yet big-ticket infrastructure projects of profound national importance, namely the Pakyong Airport and the Bogibeel Bridge.
Take the first one for instance. The Cabinet Committee on Economic Affairs (CCEA) approved the construction of a greenfield airport at Pakyong in Sikkim in October 2008. Given the engineering challenges of executing such a project in the mighty Himalayas, it was expected to be completed in four years. Yet, issues pertaining to acquiring land directly affected by the project resulted in at least two major work stoppages in 2014 and 2015. Work picked up traction after the Narendra Modi-led National Democratic Alliance Government put infrastructure creation on fast track. The airport finally became operational in September 2018, with commercial operations starting the following month. However, owing to the long delay, the project's cost doubled from estimated Rs 3.09 billion to Rs 6.05 billion over the decade.
According to the report, India's Air Transport Sector: The Future is Bright but Not Without its Challenges published by the International Air Transport Association (IATA), in 2017 alone, over 158 million passengers flew on routes to, from and within India. An increase of almost 15 per cent over 2016, it was the third consecutive year of growth in the order of 15-20 per cent per year. In 2018, the country is expected to record its fourth straight year of impressive growth in airline passengers. The aviation sector in India is, therefore, witnessing unprecedented explosive growth. This increase in passenger traffic and new aircrafts have led experts to caution about the likelihood of a capacity crunch in terms of landing and parking slots at 30 of the country's major airports.
In an exclusive interaction with INFRASTRUCTURE TODAY for this article, Suresh Prabhakar Prabhu, Union Minister of Civil Aviation asserts that the double-digit expansion in air traffic requires the government and the private sector to work closely together. 'In order to bridge the gap between the existing capacity and the targetted capacity, it is essential for the Airports Authority of India (AAI) and the existing private airport operators to increase capacity commensurately.'
But the person helming the agency responsible for the creation, maintenance and management of India's civil aviation infrastructure, Dr Guruprasad Mohapatra, Chairman, AAI reassures that things are well on track. He says, 'We have planned capex close to the tune of Rs 250 billion over a period of five years, including the development of airports, upgradation of air navigation services infrastructure, and provision of new technologies and equipment, cargo facilities and associated infrastructure.'
The federal government intends to increase the number of operational airports by up to 200 by 2035 from the present 100, mostly through private sector participation. But other than a favourable policy environment, implementation also requires prompt execution of project timelines through the removal of hindrances like land acquisition and bureaucratic red tape. At least that is one of the biggest takeaways from the Pakyong Airport.
Amber Dubey, Partner and India Head of Aerospace & Defence, KPMG says, 'Greenfield airports are complex projects that require inputs and approvals from over 45-50 agencies at the central, state and municipal levels. That can be extremely painstaking and frustrating for the project team, with multiple agencies working at cross-purposes to each other.'
Given that airports are vital national assets with multiple impact on tourism, investment and jobs, Dubey recommends that the progress of airport projects be tracked at the highest level as a matter of routine. "Every greenfield airport needs to be tracked by a high-powered Project Monitoring and Implementation Committee (PMIC) headed by the state's chief secretary, with representation from relevant central, state and municipal authorities, regulators, and the aviation industry." He cites the example of Terminal 3 at Delhi's Indira Gandhi International Airport, which was built in a record time of 37 months ahead of the 2010 Commonwealth Games, because its progress was supported and monitored by a high-powered National Facilitation Committee (NFC) headed by the then cabinet secretary.
AIRPORT PRIVATISATION 2.0
The IATA report provides some other interesting statistics. In 1997, Indian carriers flew just 16 million passengers. 20 years later, India-based airlines have seen over an eight-fold increase in their passenger volumes. Along the way, the country has overtaken a host of major air travel markets such as Germany and Japan, and is now poised to displace the UK as the world's third largest aviation market by 2024. Similarly, of the top-ten growth airports in terms of passengers handled in 2017, two are from India, ie, Delhi and Bengaluru. In terms of global ranking for total number of passengers handled, Delhi ranks the 16th position, while Mumbai ranks 29th.
An upbeat Hari Marar, Managing Director and CEO, Bengaluru International Airport (BIAL) declared to the magazine from Bengaluru, "We aim to make BLR (Bengaluru) Airport a successful passenger and cargo hub with state-of-the-art infrastructure and technological advancements, delivering efficient airport operations. Going forward, BLR Airport will aim to transform into the gateway to a new India ù one that keeps pace with a fast-developing, knowledge economy."
BIAL is currently in the process of expanding infrastructure at the airport, with the construction of Terminal 2 and a secondary runway in Bengaluru. Expansion work on terminal buildings and addition of a fourth runway is slated to begin at Delhi Airport this year. In addition, the two greenfield international airport projects of Navi Mumbai International Airport near Mumbai and Greater Noida International or Jewar Airport near Delhi are the other major developments to watch out for.
The government also has plans to award six airports of Ahmedabad, Jaipur, Lucknow, Guwahati, Thiruvananthapuram and Mangaluru on a 50-year lease to private developers by the end of February. For these projects, unlike in the case of the existing Delhi and Mumbai airports where AAI is a joint venture partner, 100 per cent private participation for operation, development and management is being allowed by the investor. To make it attractive for prospective bidders, non-airside development for commercial purposes, such as building hotels or malls, will be facilitated to ensure project viability.
Asserts a confident Prabhu, "India's airport sector has attracted foreign investment to the tune of Rs 32 billion in Bengaluru Airport. Further, AAI has started the proposal of leasing six airports on PPP mode and we expect foreign players to participate in the bidding."
An earlier proposal inviting bidders for O&M of Jaipur and Ahmedabad airports drew a blank, despite both entities registering healthy growth in passenger traffic year-on-year, ostensibly owing to AAI's reluctance to lease out its airports to private operators. The concept of ceding partial control of the said airports to the private sector with AAI retaining responsibility for airside operations and capital investments was termed as a non-starter from the word go. It was suggested that unless the government backed these projects with the right environment that assured timely approvals and autonomy, it would be difficult to enhance PPP in the sector.
Says Jagannarayan Padmanabhan, Director and Practice Leader, Transport and Logistics, CRISIL Infrastructure Advisory, "Although the exact nature of the guidelines is yet to emerge in the public domain, from what is heard in the industry circles, the conditions have been relaxed significantly, and give enough room for wider participation. The quality of data, appropriate risk-sharing framework, and a transparent bidding process will ensure success."
He further adds, "There are two schools of thoughts: to have a combined aero and non-aero rolled out in one concession or to keep them separate. There is no clear winner here. In places where there is good traffic and in major metros, a standalone airport may be viable. But in other Tier-II locations, it would be more prudent to combine both, and thus provide a buffer to the concessionaire for augmenting revenues and not be completely left to the success of the airport."
Sandeep Gulati, the newly-appointed CEO, Egis India agrees, "The upward revision of term of concession agreement from earlier 10-15 years to 50 years in the current round of bidding, combined with a change in operating areas and in the revenue sharing structure to a per passenger fee should clear many concerns raised previously by some of the key players in the market." He is quick to add, "These changes, however, do bring in a different set of business risks from earlier concerns. The concession agreement should be evaluated closely by experts."
Bhuwan Agrawal, Head Aviation, Louis Berger opines, "The guidelines and conditions for the next round are a step in the direction of reduction in risks for bidding of these airports. The new bid parameter of per passenger fee is, thus, expected to reduce with the complications associated with the revenue share model, which has a higher probability of resulting in an unsustainable high revenue share. It would, thus, be important to have clarity in the new development anticipated during the concession period to ensure success for the Indian airport privatisation."
Another area with a huge potential for growth is the maintenance, repair and overhaul (MRO) segment which is expected to grow to over $1.5 billion by 2020. Once termed as the stepchild of India's aviation industry, the NCAP 2016 document lays special emphasis on its development. More so because the MRO business of Indian carriers is around Rs 50 billion, yet 90 per cent of that sum is currently spent outside India.
Nevertheless, things on the ground, reportedly, have not moved as fast as expected. Says Pulak Sen, Founder Secretary General, MRO Association of India, "Airport owners and airport operators have no plans to implement the airport MRO-related policies, and continue to charge a steep royalty of up to 20 per cent in some form or the other." He seeks government intervention for quick redressal of these issues.
CHALLENGING THE FUTURE
The federal government is optimistic about the industry's potential over the next decade, while also remaining mindful of the important socio-economic role that the aviation industry will play in boosting regional connectivity through initiatives such as RCS-UDAN. While agreeing that airports should be made self-sustaining units to make them an attractive investment proposition for all stakeholders, Dr Mohapatra says, "The private investors under PPP obviously will be attracted to the airports with established revenue streams and assured profits. However, AAI takes up airports not only for commercial considerations but also to uplift the socio-economic status of the area and the region, and provide vital connectivity to such remote areas."
Agrawal seconds the AAI chief. "While airports should be self-sustainable as much as possible, some may be required for strategic reasons, such as connectivity to remote and hilly areas, national security and second line of defence. These would continue to be investments from the government. The biggest challenge in the PPP model is the divergent objectives of the public and private partners." He feels that the efficient management of these objectives is the key to the success of PPP in airport development.
Sharing his outlook for the sector, Marar maintains, "Due to the surge in passenger volumes, growing demand for air travel and increased scope of building regional connectivity, strong growth can be anticipated in the Indian airport infrastructure sector in the coming years."
So, what areas will require immediate attention in the future? Responds Padmanabhan, "The government may work on identifying a project pipeline for both greenfield and brownfield airports and award the projects on the basis of priority in short to medium-term. This will also provide visibility to the private developers looking at long-term investment in the sector."
In Gulati's view, there is a need to look beyond the construction of new passenger terminal buildings. "In 2019 and beyond, we believe the focus should also shift to airside improvements and safety, land side connectivity, aeronautical and non-aeronautical commercial activities, retail and F&B planning, cargo business development, logistic centre development and other key related areas to keep up the expansion and improve sustainability."
However, attention also needs to be given to prompt resolution of project specific issues such as delays in land acquisition, change of ownership, termination payment and enunciation of regulatory frameworks around new models. For Pakyong-like delays in execution can play a spoiler in an industry that is otherwise projected to experience sustained growth for many years to come.
- Manish Pant