Don’t ignore local governments

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: Air transport is a growth industry. While global GDP doubled between 1970 and 2000, passenger traffic quadrupled and cargo grew six times. Governments across the world have found it hard to sustain the capital investments necessary to cope with this growth. Hence, the need to bring private players into the airport infrastructure space is driven substantially by fiscal constraints, and partly by ideology. India is just beginning the process of private participation, with a handful of projects at the major metros. There are many debates about the extent and nature of private participation; different forms of ownership, investment and management come with their own trade-offs.

However, I want to focus on another aspect: ownership of the public interest and related governance issues. I want to set this in a federal context, ie the roles played by union, state, as well as local governments. There are close to 450 airports/airstrips in the country, and the Airport Authority of India (AAI) owns 92 of them, and civil enclaves at 28 defence airports. The doors are now being opened for states governments to take a stake in the build-out of airport infrastructure. Bangalore International Airport’s (BIAL) ownership structure is a classic example: while 74% stake is held by private players, the 26% public stake is held equally by AAI and the Karnataka government.

This structure has implications not only for investments, but also for governance, as it defines the primary stakeholders. There are two reasons why this is important. The first has to do with airport economics itself: there is a decreasing trend in ‘airside’ revenues, what you would typically think an airport is about—runways, aprons, terminals; and an increasing trend in ‘landside’ revenues—passenger services, food and beverage, parking, hotels, offices. The civil aviation ministry acknowledges, “Across the world, the trend is towards a very high percentage, from 60 to 70%, of the total revenue of airport operators being generated from non-aeronautical sources at major airports.” If only 30% of airport revenues come from airside activities, what justifies the exclusive jurisdiction of AAI over the airport?

The second has to do with the impact airports have on the regions in which they are located, right from the acquisition of land (4,000 acres were acquired for BIAL, much of which will be used for landside revenue generation).