All privately-built airports in the country?Delhi, Bangalore, Mumbai and Hyderabad?have earned considerable praise for improved infrastructure. But equally loud has been the clamour against private companies, for adding to the cost of flying, escalated passenger charges, higher office rentals and so on. Amid this din, developers are crying hoarse that airports are not making money, with the winner?s curse upon them.
GMR Airports chief financial officer Sidharth Kapur says, ?GMR-led Delhi International Airport Ltd (DIAL) reported a net loss of R455 crore in 2010-11. This year the company is expected to lose R900 crore. Before increase in airport charges, GHIAL (GMR Hyderabad International Airport Ltd) had accumulated a loss of about R300 crore. Airports have to be run in a way that they remain commercially viable.?
Questions have also been raised about the steep increase in project costs of Delhi and Mumbai airports. For instance, Delhi airport upgrade cost has gone up 42% to R12,718 crore over the original estimate. Since 2006, private companies like GMR and GVK have invested over $5 billion in creating greenfield and brownfield infrastructure. DIAL alone spent R12,857 crore ($3 billion) in building the world?s sixth biggest airport.
Moreover, regulatory concerns remain. It?s still not clear how the funds collected by AAI would be disbursed to private airport firms against the capital expenditure. As per the existing system, private airport firms directly accessed the escrow account meant for development fee, but now the escrow account would be operated by AAI and it would release funds based on AERA?s approval for airport companies. Ministry sources say the new set of rules, awaiting aviation minister Vayalar Ravi?s nod, could result in a time lag in transferring the development fee to airport companies.
Says a GVK official, not wishing to be named, ?The controversy around the project cost and development fee will certainly have an impact on us.?
Also, AERA has made it clear that the regulator would adopt single-till mechanism for calculating airport charges, which translates into lower earnings from commercial activities. While Delhi and Mumbai airports are governed by operation, maintenance and development agreement (OMDA) and would not be affected by the AERA decision, Hyderabad and Bangalore airports would be highly impacted. Currently, Delhi and Mumbai airport operators have to contribute 30% of non-aero revenues towards subsidising airport charges. In the single-till system proposed by AERA, the entire non-aero revenues have to be factored in while calculating airport charges.
Airport operators want airport charges to be fixed on dual-till basis as it allows them to levy higher user charges on airlines and they have appealed to the AERA tribunal against the decision. ?The hearing in the tribunal is yet to start,? says Satyan Nayar, secretary general, Association of Private Airport Operators (APAO).
Adds Amber Dubey, director (aviation), KPMG, ?Development of private airports is suffering on account of multifarious problems related to approvals, land acquisition, infrastructure, financial closure and regulatory issues. The single till system of tariff control has also dampened investor sentiment.?
Another concern is about revenue sharing. Sanjay Sethi,
executive director and head, infrastructure group for Kotak Mahindra Capital, points out that sharing huge revenue with AAI leaves private developers with no option but to absorb the increased cost of construction. While DIAL has to part with 46% of its income as per the agreement signed with the AAI, GVK-led Mumbai International Airport Ltd (MIAL) has to share 37.8% of its revenue earned annually. GVK?s other project, Bangalore International Airport Limited (BIAL), has to shell out 4% to AAI. Unlike Delhi and Mumbai airports, the Bangalore airport is a greenfield project in which the state government has 13% equity holding.
No wonder then, developers hotly defend increased user charges at airports to recover their investment. As per airline industry estimates, user charges at most privatised airports have increased three-fold. The overall charges per passenger have increased to R750 (inclusive of development fee) from R225 earlier.
?There are dozens of charges that have gone up. Private airport firms have levied charges on fuel to the tune of R2,000 per kilo litre. Office rentals have also been increased significantly,? adds a senior official of a private airline.
Airport operators, however, argue that the airport charges were fixed ten years back and have been revised upward by only 10% since then. They maintain that the cost of managing airports has risen three times during the same period. ?Besides better airports are benefiting the economy,? adds Kapur of GMR Airports.
And, not without reason. The Delhi, Mumbai, Hyderabad and Bangalore airports have reduced the turnaround time of aircraft, with the average turnaround time down to 45 minutes now from 90 minutes earlier. For passengers, too, the waiting time has come down and they have to queue up for 30-45 minutes to board an international flight against three hours.
Even as the private parties and the regulator settle the issue of tariff-fixing, trouble is brewing for the country?s largest airport operator DIAL. The Comptroller and Auditor General (CAG) has directed the aviation ministry to examine if the government is losing revenue as a result of DIAL taking joint venture routes in areas like cargo and retail. In an earlier communication it had told the ministry that in some areas the revenue share for AAI would be in the range of 10-15% instead of 46%.
DIAL has formed 11 JV companies for non-core activities like retail, advertising, cargo and IT. But DIAL has maintained that its equity participation in JV companies is in compliance with the terms of OMDA. Clearly, the private-public partnership (PPP) model is yet to evolve to the satisfaction of all.
With domestic airlines high on expansion plans, the need for airport infrastructure will only grow. Also, as the PPP model has emerged as one of the most preferred routes for infrastructure building, the government is likely to offer more projects to private firms in the coming years.
?There is certainly an upward movement in the cost of using privatised airports. But with appropriate monitoring and regulations, privatisation is the desired option in the airport sector,? sums up Amrit Pandurangi, senior director, Deloitte, Amrit Pandurangi.
