Non-metro airports can be viable on PPP if govt pitches in funds: Experts

With city side development, can non-metro airports be made viable? Should non-aero activities be bid out separately? Experts tell us.

Experts
Arun Chandran, Director Aviation & Project Management Services, Parsons Brinckerhoff India, currently engaged with projects at Delhi International Airport, Celebi, Maldives airport, support function at Hyderabad airport; Lender's engineer role at Gulbarga and PMC/CS for Kolkata airport.

Robey Lal, Aviation Planning Advisor, Intercontinental Consultants and Technocrats, who has 46 years experience in numerous airport projects in India.

Srinath Manda, Program Manager, Transportation & Logistics Practice, South Asia, Middle East and North Africa, Frost & Sullivan, an advisory and consultancy group.

Umesh Kumar Baveja, Chairman, Regional Airport Holdings International Limited (RAHI), which is developing the Gulbarga and Shimoga airports on PPP model.

Do you see non-aero participation in non-metro as a more viable option than taking on the entire operation?

Chandran
These non-aero revenue generating activities will mostly be on the city side.The traffic at these airports is not a factor anymore. If the airport is located outside the city limits where there is limited population and connecting infrastructure is underdeveloped, then these developments cannot become successful as standalone operations.In these cases, it would be prudent to take on the entire operations, including aero activities and non-aero activities, inside the terminal building.These activities will become the drivers for the developers to make efforts to work out strategies to improve traffic, flights etc, which in turn will improve the revenue streams and initiate opportunities to improve the city side aspects of the airport.

Lal
I don't see participation of non-aero agencies in PPP programmes that require them to handle only non-aero activities at the city side as a viable option to improving services provided to customers at an airport.Such a policy may encourage gross commercialisation of the land originally acquired for airport / aviation services as the prime reason.

The management of both the passenger terminal and the city side facilities ought to be the responsibility of the non-aero service provider.Terminal management requires a range of services, from coordinating actions with the airlines, regulatory agencies, providing protocol services for guests, operating information services by IT systems, maintaining cleanliness services, medical services and HVAC services etc, and provision of commercial services including providing baggage trolleys for passengers, operating restaurants and food courts, concessionaires, etc.

Similarly, on the city side non-aero agencies will be incapable of providing the variety of services possible.Therefore it will have to appoint specialised third party firms for the city side facilities, eg, for developing and managing the car park, operating petrol pump for the public, organising billboards and signs, operating food stalls for the public, developing hotels, undertaking landscaping etc.


Baveja
Participation in only non-aero activities, ie, removing the entire airport operations from the scope of the developer would reduce the role to that of a real estate / commercial developer, rather than an airport operator.This would dilute the essential 'airport' character of the project, and may not attract serious players from the airport industry.This may result in the ultimate aim of enhancing the standards and levels of service of non- metro airports not being achieved.

Do you believe PPP can be as effective in airports as in the highways sector?

Chandran
In highways, the cost of annuity based PPPs can be forecast and revenue models.The projections can be based on the traffic forecasts which can in turn be used to fix toll.The government sometimes pays an annual amount to make up for the gap as an incentive to the developer and also leaves flexibility in the toll collection to maintain the level of returns.

In airports, the number of variables that drive the revenues are higher.These can be as diverse and varied as traffic rights (bilateral for international operations), safety and security clearances, taxation, land use restrictions, state government support for connectivity, utilities etc.Our current aviation PPP scenario has a high dependency on the government regulations and policies and initial stabilisation of these policies is required to reduce the dependency and eliminate the volatility.Even though the PPPs are less risky in the highways sector, the potential returns in the airports sector can be much higher if the PPP models are well defined, stabilised and proper synergies are developed between the public and private sector.

Lal
The issues that may arise from implementing the PPP programme at airports are varied. The critical item, amongst many that can arise, to my mind is, what will be a fair rate of return that AAI will expect from the non-aero agency once AAI has developed the terminal and city side facilities: especially, when the facilities were developed without consultation with the non-aero agency?

Another major issue is whether the non-aero agency will be expected to invest in expansion of existing facilities in the future.

Baveja
The policy of the government with respect to regional aviation is not well defined.The government should provide sops to developers of regional aviation, including airports and regional airlines, to encourage regional connectivity.

Since large tracts of land are required, as in highway projects, land acquisition must be made both transparent and quick, in order to curtail project costs.

How can the government help in overcoming the challenges faced by airport logistics players?

Manda
Experts recommend additional support measures from government. Prominent among them are:
•Setting up of an Airport Finance Corporation, which can facilitate lower interest rates and longer maturity of loans
•Allowing long term Non-Taxable Infrastructure Bonds to fund the airport sector
•Facilitating larger Foreign Institutional Investments (FIIs) in these projects
•Facilitating easier procurement / acquisition of land in desired location

Why hasn't India seen the emergence of large multimodal hubs like Jebel Ali?

Chandran
Multimodal hubs like Jebel Ali have free zone establishments where companies enjoy the special privileges. India is still slightly behind in setting up establishments like these in key zones.Once this is established the obvious constraints like the various departments working together, bringing in the capital for development and sustaining the political will for this kind of development should be overcome.For the emergence of strong aviation hub, a strong home airline is required and currently we are behind on both the fronts.

Lal
Jebel Ali is a self-contained free zone in a compact area, with the airport being located near the seaport.This development is the result of proactive integration of development policy and infrastructure, in the immediate vicinity of a large number of industries, reducing time of transit, among other benefits.

In India, on the other hand, current practices at an airport do not even allow seamlessly moving air cargo-in-transit directly from one aircraft to another aircraft parked on an adjoining bay, but are required by procedures for the cargo to be taken to a cargo terminal and subjected to checks before being allowed to be 're-exported'.

The key appreciation must be that transaction costs of multiple-handling of freight, which is 3-4 times higher than those of smooth running facilities abroad, can be substantially reduced through well designed and functioning and operating multimodal facilities and transport links.Only when that happens is the development of relevant infrastructure likely to be encouraged.

The present cargo handling capacity at our airports are low, their accessibility is poor, they do not have space for expansion, the infrastructure and equipment are, in many cases, outdated.And the ports they are expected to have close links with have slow turnaround times for ships, berths are congested, the ports are shallow, and there are too many, far too many, check points in the moving and clearing of cargo with all their attendant ills.

Can multimodal hubs be built in India?

Chandran
Yes, they can be built if the government provides a clear policy directive and if the different government agencies work together to make it possible.As planning from various sectors and angles are required for a multimodal hub, it would be more suitable to introduce this on a greenfield project rather than at the existing airports.The proposed Navi Mumbai looks like the best bet for development of a multimodal hub.Airport cities are being planned in India these days but these are still in a nascent stage and multimodal hubs require a lot more planning.

Lal
Yes, of course.MIHAN at Nagpur airport provides an interesting example of a major attempt being made to develop an air-road-rail hub. Unfortunately, its location and timing of opening in the midst of a global economic downturn has not allowed the promise of its developers to be recognised as yet.

How do you foresee the financeability of a non-metro airport project, if you win a bid?

Baveja
Financeability of a non-metro airport would be similar to the recently privatised metro airports. The airports are not just relevant as the airstrip and terminal building, but also include the other development around them that will bring in investment.
The current downturn is putting pressure on easy finance being available or the growth of regional airports.

For non-metro airport projects to achieve financial viability, government support is critical.This could be in the form of sharing costs of mandatory services such as security, air traffic control, etc.The government's efforts in overall development of such non-metro regions would also boost demand for air travel to and from these regions. Further, financial institutions could offer loans for such projects at attractive rates and such loans could be subsidised by the government.

What activities do you believe non-aero activities can entail in a non-metro airport?

Baveja
Airports in non-metro locations, having adequate land space beyond that required for airport operations, can encourage several activities including:
a)Training institutes
b)Development of budget hotels for travellers as well as residents
c)Low cost accommodation
d)Industrial warehouses
e)Film sets for shooting of films and commercial advertisements
f)Industrial and educational exhibitions, etc.

Is it viable for cargo and logistics companies to operate in a small airport? What challenges do they face in smaller airports?

Manda
It is definitely viable and recommended.Smaller airports built or modified into exclusive cargo airports offer a wide range of benefits to logistics companies and target customer companies.Logistics companies can witness benefits such as fast turnaround of cargo planes and affordable costs for manpower and other resources, resulting in significantly lower operational costs.

Further, such airports when built or developed in locations with close proximity to major metro airports and large scale cargo origin-destination hubs and operated in cohesion with the larger airports (under same management or through strategic partnership) can result in significant benefits for both the airports:While the former will be able to reduce congestion and still serve its customer base, the latter would gain impressive returns and emerge successful.Development of such small cargo airports would reduce the environmental impact on the overall level due to lower noise and air pollution.

Challenges in small airports typically include lack of access to integrated network connectivity with other modes of transport, limitations in integration with other airports for cargo consolidation and limited targeted customer companies.