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Airport zone Facilities


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Airport zone Facilities

Airport privatisation in India is still at a nascent stage when compared with international standards. Internationally, airports offer more than core aviation services. They are centres of hospitality, retail spaces, and even sometimes function as alternative central business districts for the cities they are located in India. Airport zone Facilities

In India, the era of airport privatisation has begun with airport development in Hyderabad , Bangalore ,Mumbai and Delhi. However, in terms of expansions around the airport vicinity, there is still a long road ahead. The plans for the same are in place, but issues such as lack of land availability, inadequate connectivity to airports, and other related issues are proving to be bottlenecks in the growth plans.

As far as the core aviation functions are concerned, like India, even in other global markets, they are largely treated as aspects of public utility in terms of operations as well as economics and are, therefore, closely regulated.

According to a report by Indian brokerage Edelweiss Securities titled ‘Airports: Wings of Growth’, airport operators in the global market, however, have several avenues to earn higher returns by developing airport-enabled activities such as free trade zones and knowledge parks in the extended airport city.

Airport cities

The report suggested that even in India, the Ministry of Civil Aviation has taken some measures to help key airport locations such asHyderabad, Bangalore and Delhi develop into integrated airport cities on the lines of Dubai and Hong Kong.

Though the progress on Indian airport projects seems satisfactory so far, components such as fuel costs, regulatory uncertainty regarding airport projects, and passenger growth remain some of the short- to medium-term concerns. In addition, since these projects are capital-intensive, the tight monetary regime raises financing concerns as well, said Edelweiss.

According to the report, domestic and international air traffic expanded at a compounded annual growth rate (CAGR) of 22 per cent and 14 per cent, respectively over 2002-07, driven by growth of low-cost carriers and the emergence of India as a business and tourist destination.

“These figures outstrip government forecasts of a CAGR of 6-7 per cent over the same period and have shown up the inadequacies of India’s aviation infrastructure,” said the report.

It adds that airport developers are likely to see their projects achieve higher-than anticipated capacity utilisation in the early years of development. However, as airlines are forced to cut capacity on certain short-haul routes because of high oil prices, it could lead to lower traffic growth in the short term.

On the regulatory side, returns from airport projects also depend on relevant operating agreements that developers have with the government and the regulatory framework.

Regulatory framework

Regulatory nuances for airport development in India are still in the early stages and there is a lack of clarity on various issues.

All the agreements currently executed have a provision that they will be covered under regulations from the airport regulator once the airport economic regulator (AERA) Bill is passed.

However, the Bill has been pending for over a year in Parliament and is unlikely to be passed before the term of the House expires in April 2009, said the Edelweiss report.

There have also been recent instances of disputes between the civil aviation ministry and airport operators that have remained unresolved in the absence of the regulator.

For instance, the report says the 10 per cent hike that was allowed to the Mumbai and Delhi airports in FY09, under their respective Operation Management and Development Agreements (OMDA) has not yet been granted by the Civil Aviation Ministry.

Since the viability of the airport business model depends on continued growth in air and cargo traffic, any negative change in the two are likely to impact the airport operators.

Though traffic figures have been on a growth trajectory for a while, there have been short- to medium-term blips in the past, which reduce air traffic and cause losses for airport operators.

In India, the report suggests, developers have had only positive surprises with respect to traffic growth.

The privatisation process commenced in 2005, and returns for early investors have exceeded projections. However, “this may not be the case for newer airport privatisation projects, where traffic growth expectations will be much higher from all bidders.”

Air traffic growth has historically witnessed periodic shocks, the report said. The two main events to cause the same in the recent past were concerning security issues in 1991-92 due to the Gulf War and the 9/11 attacks in the US in September 2001.

Another concern that looms large for the aviation sector in India is the steep rise in crude prices that has hit profitability and could slow growth, going forward. However, the long-term picture remains positive.


Also, airport development projects involve high capital expenditure. Edelweiss, in its analysis of the problems that airport operators in India could face in terms of capex, says each airport project is unique and there are no benchmarks of capital cost for different projects. In the high current inflation scenario, the possibility of cost overruns in these projects is high.

“The modernisation projects of theMumbai and Delhiairports have already undergone upward revision in capex by as much as 50 per cent on account of material cost escalation and expansion in scope of projects.

This risk is partly mitigated by government-mandated returns in the aviation charges. But all the capital costs associated with the projects need to be approved by the Government before the revised charges are approved and this involves a certain degree of discretion with the government.”

The report adds, given the high capex involved, the projects are typically funded on a debt-to-equity ratio of between 1:1 and 3:1. The high debt component in projects entails a high rate of risk in the rising interest rate scenario.

Airport projects have been trying to mitigate the costs by taking foreign currency loans at more competitive rates. As international airports typically have foreign currency receivables, they provide a natural foreign currency hedge against loan repayments.

If you have a business establishment in india, contact us to list your business related to any logistics categories. Please Contact No - 9246535456
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