AAI to offer sops to boost commercial development at non-metro airports

Written by Shaheen Mansuri | Mumbai | Updated: Apr 27 2011, 07:22am hrs
In a bid to encourage more corporates to take up commercial development at non-metro airports across the country, the Airports Authority of India (AAI), which runs the 125 civil airports, will offer incentives in the form of concession on lease rentals. AAI, which works under the civil aviation ministry, has kick started upgradation of 10 airports across the country and wants to boost private participation in these projects.

AAI had, last year, announced it would take up the development of 35 non-metro airports in the country, starting with the development of 10 airports including Ahmedabad, Jaipur, Lucknow, Amritsar, Indore, Vishakhapatnam, Guwahati and Bhubaneshwar. The agency, which will carry out the development of the air side of the projects (runways, terminals, air traffic control tower and so on), has, however, found few takers for the city-side or commercial development of these projects. According to sources, AAI wants to offer land at discounted lease rentals, even as much as 30% below the market value, to developers interested in the commercial development of these airports, including duty free shops, internet cafes, business lounges and hospitality chains.

SC Chatwal, member (finance), AAI told FE, The AAI has already started construction of the air-side development of the ten airports in the first phase and is keen to invite bids for the city-side development a little later. We shall offer incentives to corporates who will bid for these projects. Though we have not yet decided on the revenue sharing model with these developers, it will be an attractive preposition for these players. The land in the precincts of these airports would be given on lease for 30 years which is again extendable

For undertaking city-side or commercial development of non-metro airports through private participation, the AAI, along with the Planning Commission and the Department of Economic Affairs (DEA) have already started to prepare the concession agreement.

The AAI is looking at revenues of R150-300 crore annually from commercial or city-side development of the non metro city airports.

Girish Shirodkar, partner at consulting firm Strategic Decision Group says, Return on investment in non-metro airport is not considered as attractive as it is in metro city airports. Airports in Mumbai, Delhi and Bangalore have attractive revenues from duty free shops, internet cafes, business lounges and hospitality chains. However, infrastructure companies who want to tap ongoing opportunities in the space will be keen to invest in tier I and tier II city airport projects. .

The airport agency is already finding it tough to undertake expansion or upgradation of non-metro airports, most of which are loss-making, due to a shortfall in revenues. AAI is currently facing a revenue shortfall of about R5,000 crore due to a slowdown in the aviation sector and reduced aircraft movement. AAI earns revenue through parking and landing charges of aircraft. For instance, currently, the Delhi airport handles 200 international and 486 domestic flights. Similarly, Mumbai airport handles 187 international and 473 domestic aircraft movements.