In a sweet spot

Reforms in land acquisition and airport tariff regulations can’t be held off any further, writes <span style="font-weight: bold;">AMBER DUBEY.</span><br />
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First the good news! The economy’s doing well, the stock market’s touching new peaks and Indians are flying like never before. <br />
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Now the not so good news. Almost all of our top 30 airports are choked during peak hours or are about to, soon. With new aircraft coming in by the dozens every year in anticipation of the gold rush, we are fast running out of landing and parking slots at most leading airports. One major accident can push us back by a decade. <br />
India’s domestic air traffic during Jan-Oct 2017 grew at a whopping 16.6 per cent, making it one of the fastest growing domestic markets in the world. International traffic growth has been stable at around 9.8 per cent. At this rate, India has the potential to become the third largest market, domestic and international, in the world by mid-2018. <br />
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New airport infrastructure India is building new airports and expanding existing ones to meet the growing demand. The bidding process for the second airports in Mumbai, Goa and Vizag has been completed. Expansion projects in metro airports are underway. The hybrid system of tariff determination in National Civil Aviation Policy (NCAP 2016) has brought back private sector interest in the airports sector though we have a long way to go. AAI is trying to operationalise low-cost, no-frills airports under the government’s ambitious Regional Connectivity Scheme (RCS). <br />
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The aviation ministry’s ambitious plan to operationalise over 80 unserved airports and another 18 greenfield airports is fantastic. However, progress is snail-pace since land acquisition in India has a highly adverse risk-reward ratio for the politicians and officials involved. <br />
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We need a national consensus to amend the LARR Act 2013 that has made land acquisition practically impossible. Abroad, governments acquire land for airports under their ’eminent domain’ powers, with advance notice and fair compensation to the land owners. <br />
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<span style="font-weight: bold;">Bringing FDI back</span><br />
Foreign firms are generally interested in brownfield airports since their cash flows are relatively more predictable and less risky. India permits 100 per cent foreign direct investment (FDI) in brownfield airports. Yet, there have been hardly any foreign investors coming in, other than at Bengaluru Airport. In the greenfield airport bids at Navi Mumbai, Mopa and Bhogapuram, there were no bids by global airport companies other than Incheon Airport bidding for Mopa. <br />
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Most brownfield airports, 125 in all, are owned by the AAI, one of the largest airport companies in the world. Abroad, large airports ae generally owned by private sector or by the state or district government. AAI and the country would gain immensely, if AAI leases out 20 of its top airports to private operators. It will free its bandwidth to focus on airports where no private capital would come. <br />
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To make public-private partnership (PPP) in airports to succeed, the onerous airport concession agreements have to be redrafted and the tariff approach completely rehashed. The concept of revenue share as the bid parameter has hurt Indian aviation. One possible option is to keep revenue share at 5 or 10 per cent and award the airport to the bidder quoting the lowest yield per passenger. This would make Indian airport charges competitive and prevent the acrimonious legal disputes between AERA and the industry. <br />
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<span style="font-weight: bold;">Other reforms</span><br />
India lacks a strong national carrier like countries in the Gulf, ASEAN or European Union. Indian airports therefore could never achieve hub status. Once Air India is privatised, we may see the revival of the airline as a strong global player over a 3-5 year period. It may lead to a significant increase in long haul international traffic. <br />
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It’s an irony that while the growth of air traffic and aircraft fleet in India is one of the fastest in the world, the maintenance, repair and overhaul (MRO) sector is down in the dumps. The biggest reason is the goods and service tax (GST) charged by the government and the royalty imposed by airports. Ironically, in no major country is MRO taxed because of the common sense logic that the object being taxed can easily fly to a more tax-efficient location. <br />
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The NCAP 2016 clearly stipulated that MRO cannot be charged a royalty by airports. Umpteen discussions between government, airports and MRO operators have happened on the subject. One hopes this issue is settled at the earliest. <br />
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India is one of four countries other than US, EU and Japan to have built a satellite based navigation system – called the ‘GPS Aided Geo Augmented Navigation’ (GAGAN). It is an advanced air navigation system, which has applications beyond aviation. From Jan 1, 2019 onwards, all new aircraft being registered in India shall have to be GAGAN compliant. All this requires rapid development and certification of LPV procedures, infrastructure and on-board equipment. AAI, Indian Space Research Organisation (ISRO), Ministry of Civil Aviation (MoCA), Directorate General of Civil Aviation (DGCA) and the industry will have to work very closely to facilitate this as the deadline gets closer by the day. <br />
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Future, airports in India should be low cost, efficient and environment-friendly. The various proactive steps taken by MoCA, Central Industrial Security Force (CISF) and Bureau of civil Aviation Security of India (BCAS) to enhance passenger convenience are welcome. Use of baggage self-drop, e-Gates for immigration and Aadhaar based biometrics for e-boarding need to be introduced soon. Airport charges on MRO, cargo, ground handling and ATF should be bare minimum and the real profits should be earned through increased traffic flow and non-aeronautical revenues. <br />
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<span style="font-weight: bold;">No 1 by 2030 </span><br />
Overall, Indian aviation is currently in a sweet spot. If the proposed improvements in infrastructure, skilling and regulatory mechanism are implemented in letter and spirit, the next ten years could be India’s. Close collaboration between MoCA, other overlapping ministries like finance, home, tourism, etc; aviation regulators like DGCA and AERA; and the aviation industry at large is the need of the hour. <br />
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If that happens, there’s no reason why Indian cannot be the largest aviation market by 2030, dethroning China and USA that are far ahead at the moment. We’ll get there!<br />
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<span style="font-weight: bold;">Amber Dubey, Partner and India Head of Aerospace and Defence at KPMG</span>. Assisted by Jodhbir Singh Sachdeva, Associate Director, Aerospace and Defence at KPMG in India<br />