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The growth challenges

The growth challenges

The growing aviation market in India demands for improved airport and allied infrastructure. Nitin Bhasin highlights the need for improved regulatory framework and long-term planning and investment to address the key challenges in the Indian airport sector.
India is currently the ninth largest aviation market in the world and may be set for a transformational growth to become the third largest in the world by 2020: Centre for Aviation (CAPA) projects that given an 8 per cent GDP growth overFY2011-21, airport passenger traffic may grow to more than three times (12 per cent CAGR) to 452 million from 143 million, scheduled airline fleet may grow to 1,030 aircraft from 430 and general aviation could see even faster growth from to 2,000 plus aircraft from 750. Similarly, the growth expectations in cargo handling are in excess of 12 per cent over the next decade from 2.33 million tonne handled in FY2011.
Such an expected high growth rates require im­proving regulatory framework, long-term planning (horizon of 20-30 years) and investments in not only airport infrastructure but also related infrastructure (conne­ctivity, Air Navigation Services (ANS), cargo handling, Maintenance, Repair and Overhaul (MRO) and ground handling). The government should address the follow­ing key challenges so that India can grow effectively its aviation industry.

Long-term airport planning
A number of airports are getting announced without properly assessing the catchment areas and the potential for airlines as quite often political con­siderations take precedence over commercial viability. Some­times the airports are planned without considering the medium to long-term require­ments and growth (Mumbai and Bangalore). Hence, instead of using the Five Year Plans as the planning base for airport infra­structure, the government should build a two-decade avi­ation policy or master plan framework under which the new airports should be planned for metros and non-metros.

Long-term planning also requires that government should plan for the land availability for future (primary as well as supplementary) airport development in most cities and states as land availability may be a challenge when these cities grow much bigger urban agglo­merations. McKinsey estimates that by 2030, India will have 66 cities with a population of more than one million (presently 42) and nearly 260 million people will be staying in these cities as compared to 133 million in 2006.
Such a large shift in urbanisation will require a number of Greenfield airports in presently connected cities as well as non-connected cities. CAPA estimates that India may require construction of 40-50 Greenfield airports by 2025 and many of these new airports may replace the existing smaller military airports (Pune, Bagdogra, Leh, Jammu, Jaisalmer, Jodhpur, Kanpur, etc) or connect larger cities of states such as Uttar Pradesh and Bihar which are presently poorly connected. This implies that the Centre should gradually withdraw from airport operations but should provide facilitation support for implementation/execution as was the case in Terminal 3 of Delhi Airport, wherein National Faci­litation Committee, headed by the Cabinet Secretary helped with clearances.

Connectivity infrastructure to airports
Indian airport development seems to have negligible planning for the multi-modal connectivity of the air­ports, especially for the airports handling the largest amount of traffic. Globally, surface connectivity is con­sidered to be a critical factor while planning airports as airport users place considerable demand on local roads, intersections, highways and transit systems. Stress on surface access facilities can adversely impact public travel systems to airports; hence in large urban areas airport officials should participate in the development of the region's long term transportation plans. Investments required in surface transportation can be very high and this requires greater coordination between airport and the transportation authorities as many a times, high costs can lead to private developers or states not under­taking/delaying these investments.
In India, Delhi Air­port has taken the lead providing train connectivity over and above the highways con­nectivity, but the operational track record of train con­nectivity has been poor. In Maharashtra, Navi Mumbai and Nagpur airports are developing multi-modal conn­ectivity, but both the projects remain delayed. Improving multi-modal conne­ctivity to airports can also improve cargo handling at the airports as Inland Container Depots (ICDs) and Air Freight Stations (AFS) in the hinterland can be conne­cted for faster handling.

Stable regulatory framework for
private participation
Civil Aviation Ministry reports highlight that
$12-13 billion may be invested over FY 2012-17 in airport infrastructure and CAPA estimates that India will require up to $40 billion investments in airport projects by 2025 (equally split between metro and non-metro airports). Government expects that a large share of this investment will be brought in by the private sector. We believe such large private investments will have to come from foreign investors and large private infrastructure developers. In order to attract private ca­pital, there needs to be a significant improvement in the project pipeline planning, regulatory framework, exe­cution and coordination between multiple stake­holders. A stable, transparent, predictable and investor-friendly regulatory regime with a mechanism for time-bound resolution of issues is a must for private par­­ti­­­ci­pation.  

ANS technology
Air space and air traffic management infrastructure assume critical importance as India's air traffic grows. India must invest in developing a world-class ANS infrastructure with a rigorous focus on safety as the primary objective, while maintaining cost efficiency and matching with the progress in airborne technology. In order to achieve this, the Airports Authority of India (AAI) will need to make significant investments in technology, people and training. Not only are the capital requirements massive – possibly up to $6-7 billion – but also there is virtually a need for a completely new culture which will require a focused approach. The Department of Civil Aviation expects Rs 44 billion of investments in ANS infrastructure during FY2007-12. Moreover, Air Traffic Control (ATC) infrastructure also needs upgra­dation in most of the airports (excluding the large metro airports) wherein still the landings are not all-weather and night landings are few. Investments in technology will also enable 24 x 7 operations especially for the cargo handling and movements of low cost carriers (LCCs).

focus on commercial operations
State-owned airport operator AAI has been ineffe­ctive in exploiting the commercial opportunities at the airports, from either through retail or through property development. AAI airports generate just 17 per cent of revenue from non-aeronautical sources, compared with 40 per cent at the public-private partnership (PPP) air­ports. A noteworthy case in this aspect is the Cochin International Airport, the very first PPP airport project in India, which has been a profitable airport, by develo­ping non-aeronautical revenues.
Hence, there is a need for a clear structural and commercial re-orientation of AAI. The bulky business needs to be broken down into smaller business units. For example, airport construction should be separated from airport management, and these operations could further be divided into regions. AAI should establish a cycle of developing value in its airport assets, privatising them to raise capital and then re-investing in new projects.

Non-conducive environment for MRO
Indian MRO industry is expected to triple in size to Rs 70 billion in 2020 from Rs 22 billion in 2010. Despite this growth, India has limited in-country third-party MRO facilities. However, due to discriminatory tax policies (in terms of import duties, VAT and service tax) Indian carriers have been taking  their aircraft to other MRO locations like Dubai, Singapore, Malaysia etc, as it still works out to be more cost-effective than in India. Unless these policies are reviewed, Indian airports and the aviation industry may not be able to effectively monetise its infrastructure or operate effectively despite high growth in traffic. Incentivising airlines to set up their dedicated MRO hubs in India through three-way joint ventures with MRO service providers and airport companies can effectively address this challenge.

Essential Air Services Fund
Poor connectivity to certain areas can be addressed by the Essential Air Services Fund. Despite some degree of success of Route Dispersal Guidelines (RDGs) in ensuring air connectivity to north-eastern region, Jammu & Kashmir and other places, it is a fact that air connectivity has largely been confined to very few air­ports in these regions. RDG  in itself offers only a partial solution to the issue of regional connectivity as airlines prefer to resort to cherry-picking or cream skimming and adopt only those routes which  are comparatively more promising or lucrative while leaving the unviable sectors unserved or underserved.
Hence, a fund such as Essential Air Services Fund (EASF) should be promoted for the development of low cost airport and to improve air connectivity to remote cities of the country. EASF may be created with the help of government and airport operators. Such support should be allocated through a transparent process of minimum subsidy bidding, which is a well-established practice in countries such as the US and Australia.

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