ppp position paper airports 052k9

8/6/2019 Ppp Position Paper Airports 052k9

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POSITION PAPER ON

THE AIRPORTS SECTOR

IN INDIA

May 2009


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AIRPORTS SECTOR

EXISTING SCENARIO

1. The civil aviation traffic has seen an unprecedented traffic in the past few years on

account of booming Indian economy, growing tourism industry, entry of low cost carriers

in the private sector, liberalization of international bi-lateral agreements and liberalization

of civil aviation policy. In future also the civil aviation traffic is expected to grow at the

same pace despite current slowdown due to global recession. But airport infrastructure

has not kept pace with the growth of the civil aviation traffic. This has resulted in

congestion and inefficient services in major airports, limited landing slots, inadequate

parking bays and congestion during peak hours for airlines. Development of quality

infrastructure will have an impact on international competitiveness and economic growth.

This requires faster development of civil aviation infrastructure on public private

partnership mode. In tune with the requirement many initiatives have already been

started in the 10 th five year plan and they are expected to continue in the 11 th plan also.

2. Of a total number of 454 airports and airstrips in India, 16 are designated as international

airports. The Airports Authority of India (AAI) owns and operates 97 airports. A recent

report by Centre for Asia Pacific Aviation (CAPA) states that over the next 12 years,

India's Civil Aviation Ministry aims at 500 operational airports. The Government aims to

attract private investment in aviation infrastructure. India has been witnessing a very

strong phase of development in the past few years. Many domestic as well as

international players are showing interest in the growth and development of the aviation

sector with immense focus on the development of the airports. With the opening up of the

domestic skies to private carrier in the second half of the Tenth Plan, air services have

become affordable and are now competing with other modes of transport. Propelled by

economic growth and liberalization, the sector experienced an unprecedented growth


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establish a standard. The newly developed airports will help releasing pressure on the

existing airport in the country.

3. The passenger traffic has grown tremendously during the last five years. It has grown

from 5.92 crores in 2004-05 to 11.68 crores in 2007-08 showing an overall growth

(CAGR) of 25%. The main factors contributing to this growth include the growth of the

economy, falling fares, and increasing capacities of domestic private airlines.

Notwithstanding the slowdown in the year 2008-09 and in the current year, the passengertraffic over the next 12 yrs is expected to grow from 11.97 crores in 2010-11 to reach

31.66 crores by 2022-23 with a growth (CAGR) rate of 8.44%.

Growth of Air Passenger Traffic

5.92 7.339.64 11.68 10.88

11.9715.7

24.02

31.66

0

5

10

15

20

25

30

35

2004-05 (A) 2005-06 (A) 2006-07 (A) 2007-08 (A) 2008-09 (A) 2010-11 (P) 2014-15 (P) 2019-20 (P) 2022-23 (P)

years

C r o r e s

No of Passengers (Crs) (A=Actual, P=Projected)

(Source: Review of Traffic at Indian Airports 2007-08 by AAI & Jan-Mar 2009 Quarterly Review of Traffic, AAI )

4. Keeping with the growth of the Air Passenger Traffic the fleet size also grown (CAGR)

at 28.74% during the period 2004-05 to 2006-07 from 184 aircrafts to 305 aircrafts. As


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Growth of Fleet

138162

184

243

305

0

50

100

150

200

250

300

350

2002-03 2003-04 2004-05 2005-06 2206-07

Year

S i z e

o f F

l e e t

Fleet Size

(Source: India Air Transport Statistics 2006-07 by DGCA)

5. Air Cargo Traffic grew (CAGR) by 10.27% in the last three years period of 2004-05 to

2007-08. Though there is a dip in the growth in the year 2008-09, the Air Cargo Traffic

expected to grow (CAGR) by 8.14% in the next 12 year period of 2010-11 to 2022-23.

This requires creation of additional cargo capacity. As on date there are only seven cargo

aircrafts in India compared to 100 in China.

Growth of Air Cargo Traffic

12.78 13.97 15.517.14 16.97

19.7525.9

38.5

50.52

0

10

20

30

40

50

60

2004-05 (A) 2005-06 (A) 2006-07 (A) 2007-08 (A) 2008-09 (A) 2010-11 (P) 2014-15 (P) 2019-20 (P) 2022-23 (P)

Year

L a

k h

T o n n e s


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Market Share of Private Sector in Domestic Traffic

6. The private sector is now playing a crucial role in the development of both airline andairport sector. Its market share in the domestic traffic as on March 2009 reached 84%.

Kingfisher Airlines has emerged as the market leader with a share of 27%. The details of

domestic market share of Indian air carriers by passengers carried as of March 2009 is

given below.

Market Share of Indian Air Carriers

Kingfisher , 27%

Jet Airways, 27%

Air India & Indian,16%

IndiGo, 13%

SpiceJet, 13%

Go Air, 2%

Paramount, 1%

(Source: Jan-Mar 2009, Quarterly review of traffic, AAI)

Global Scenario of Airport Sector

7. Globally United States is leading the airport sector with 5146 Airports serving a


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Details of Number of Airports in various countries

SN Country No of Airports Population(Crs) Population Coveredper Airport

1 United States 5146 30 60,000

2 Brazil 734 19 2,61,000

3 Russia 596 14 2,38,000

4 China 413 133 32,25,000

5 India 251 116 46,48,000

6 Germany 218 8 3,76,000

7 Unite Kingdom 198 6 3,11,000

8 Japan 144 12 8,86,000

(Source: Economic Times dt 07 July 2009 and Wikipedia dt 25 July 2009)

2 POLICY FRAMEWORK

ELEVENTH PLAN - Objectives and Strategies

8. The main objectives of the Civil Aviation Sector for the Eleventh Plan would be toprovide (i) world class infrastructure facilities; (ii) safe, reliable, and affordable air

services so as to encourage growth in passenger and cargo traffic; and (iii) air

connectivity to remote and inaccessible areas with special reference to north eastern part

of the country. The realization of above objectives would call for capacity building that

will include modernization and expansion of major international and domestic airports,construction of new Greenfield airports including that of the NER, enhancement of cargo

handling facilities at all airports, and up gradation / modernization of Air Traffic

Management (ATM) System.


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POLICY INITIATIVES

9. The following policy and regulatory frameworks are being initiated / already initiated inthe airport sector to ensure time-bound creation of world-class airports in India.

100% FDI is permissible for existing airports; FIPB approval required for FDI

beyond 74%.

100% FDI under automatic route is permissible for Greenfield airports. 49% FDI is permissible in domestic airlines under the automatic route, but not by

foreign airline companies. 100% equity ownership by Non Resident Indians (NRIs) is permitted. 100% tax exemption for airport projects for a period of 10 years. Open Sky Policy of the Government and rapid air traffic growth have resulted in

the entry of several new privately owned airlines and increased frequency/flightsfor international airlines.

A Model Concession Agreement is also being developed for standardizing and

simplifying the PPP transactions for airports, on the analogy of the highways

sector.

Upgrading of the ATC services at the airports. Issues relating to customs,immigration and security are also being resolved in a manner that enhances the

efficiency of airport usage.

A comprehensive Civil Aviation Policy is in the process of finalization covering

different areas of the aviation sector. India has entered into bilateral Air Services

Agreement (ASA) with 104 countries.Policy on Airport Infrastructure of India - 1997

10. This policy is developed for the use and development of airport infrastructure. The

objective of this policy is (a) to provide a boost to international trade and tourism, (b) to


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Greenfield Airport Policy - 2008

11. The Government on April 24, 2008 has promulgated the Policy for setting up of Greenfield airports. The Policy seeks to put in place detailed guidelines for establishment

of new Greenfield airports, procedure for approval of such proposals. Greenfield airports

at Hyderabad and Bangalore are in operation. Greenfield airports at Goa, Navi Mumbai,

Kannur (Kerala) and Pakyong (Sikkim) are in the process of being set up. There are

proposals to set up Greenfield airports in Bijapur, Shimoga, Gulbarga and Hassan

(Karnataka), Chakan, Sindhudurg (Maharashtra) and Karaikal (Puducherry).

The Airports Authority of India (AAI) Act, 1994

12. AAI Act, 1994 NO.55 OF 1994 As Amended by the Airports Authority of India

(Amendment) Act 2003 to provide legal framework for airport privatization. As per the

act it shall be the function of AAI to manage the airports, the civil enclaves and theaeronautical communication stations efficiently. It shall also be the duty of AAI to

provide air traffic service and air transport service at any airport and civil enclaves. AAI

expected to be revamped during the Eleventh Plan. It includes revamping of AAI in light

of the strain on aviation infrastructure resulting in traffic congestions and delays at some

of the airports resulting from the high growth in the sector. AAI would be revamped withmultidisciplinary staff and expertise along with independent directors. AAI planning to

go for up-gradation of technology from ground-based Communications, Navigation, and

Surveillance-Air Traffic Management (CNS-ATM) to satellite based CNS-ATM

facilities; installation of new facilities including security equipment at various airports;

installation of safety and facilitation equipment; development of airspace capacity

enhancement; and development of IT. (Eleventh Five Year Plan, PP.326)

Airport Economic Regulatory Authority (AERA)

13. The Airport Economic Regulatory Authority (AERA) was established on 12 th May, 2009.


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to join in the due course. The Authority is in the process of devising its processes and

procedures so as to discharge its functions. Once the processes and procedures are in

place, the Authority is going to be fully operational. As one of its first step AERA is

planning to review the hefty user development fee (UDF) charged by various airports. Its

also planning to lay down soon standards for providing amenities and services that

developers would be required to adhere to

Essential Air Services Fund (EASF)

14. Under the new proposed civil aviation policy, the Ministry of Civil Aviation has

suggested the establishment of an Essential Air Services Fund (EASF) to provide subsidy

to airlines that operate on uneconomical but essential routes such as the North-east.

With the success of Universal Services Obligation (USO) of the telecom sector, the

government is of the view that the subsidy support from the fund should be providedthrough a transparent process of minimum subsidy bidding. Under this system, the

bidder who asks for the minimum subsidy from the fund will win the maximum number

of routes. This would enable subsidies to be paid to the most efficient operator at the

lowest cost to the public and might lead to the development of specialized smaller airlines

as well, the policy states. The fund, however, is to be created through a cess levied on

both domestic and international air travel. After the new system is put in place, the route

dispersal guidelines would be progressively replaced. The current route dispersal

guidelines of the Directorate General of Civil Aviation (DGCA) make it mandatory for

all scheduled carriers to deploy at least 10 per cent of the total capacity of their trunk

routes on Tier II routes comprising the North-East, Jammu and Kashmir, Andaman &

Nicobar Islands, and Lakshadweep.

Air India Restructuring

15. The share of Air India in the domestic market is 16%. The merged entity with fleet size of more


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has been engaged as financial counsel for the current round of restructuring. In fiscal 2010, the

airline plans to overhaul its operations and financial structures. Air India plans to save between

Rs 1,300 crs and Rs 1,800 crs reducing costs in terms of fuel expenses, salaries and saving on

expenses flying on unprofitable routes. It also plans to increase revenue by Rs 1,200 1,400 crs.

This would be through a possible increase in passenger revenues, revenues from cargo and also

revenues through alternative use of its real estate. The airline also planning to make

redeployment of its 31,000 employees, review of performance-linked incentives. Its also

planning a low-cost model for domestic operations. In fiscal 2012, the airline plans to go in for

additional sale of shares to public, Indian financial institutions.


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3 INVESTMENT

16. During the Tenth Plan an outlay of Rs 12,928 crore was provided to the Ministry of Civil

Aviation (MoCA) out of which 60% was spent.

17. The anticipated investment in infrastructure in airports in the Tenth Plan is Rs 6771 crs.

The centers share is 56.46%, states share is 0.18% and the private share is 43.36%.

Chart 1: Tenth Plan Investments in Infrastructure of Airports

Outlay for the Eleventh Plan

18. The total projected outlay for the Eleventh Plan for MoCA is Rs 49267 crore at current

prices. In addition, the sector is expected to generate private sector investment of Rs

93,493 crore during this period. As per the data available with MoCA expenditure

incurred at the end of 2 nd year of Eleventh Plan is Rs 17,681 crores which is 35.89% of

the projected outlay.

19. The projected investment in infrastructure in airports during Eleventh Plan is Rs 30,968

crs. The centers share is 29.99%, states share is 0.16% and the private share is 69.85%.

The share of private sector investment in infrastructure is gone up substantially from


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attractive to the prospective bidders. Encouragement should also be given for utilizing the

Fund from IIPDF for taking the help of Transaction Advisors for successful bidding out

the airport projects

PPP Projects In India

23. As per the details available from the PPP India data base maintained by DEA, 300 PPP

Projects were undertaken on PPP mode with total project cost of Rs135876 crores.

Overview of PPP Projects in India

S E C T O R W I S E F I G U R E S

Sector TotalNumber

of Projects

Basedon

10 0crore

Between100 to

25 0crore

Between251 to

50 0crore

Morethan50 0

crore

Value of contacts

(in Rs

Crores)

Airports 6 - - 1 5 20,041

Ports 38 4 5 6 23 43,053

Railways 3 - 1 2 - 1,007

Roads 186 86 23 54 23 47,756

Urban Development 35 28 4 1 2 6,218

Energy 32 13 4 7 8 17,802

Total 300 131 37 71 61 135,876

(Source: PPP India Data Base)

PPP Projects in Airport Sector: Utilization of Funds from VGF and IIPDF:


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PPPs SUCCESS STORIES IN AIRPORT SECTOR

Cochin International Airport

Cochin International Airport was the first airport in India to be built in the joint

sector with public-private participation. An innovative financial structure

involving public deposits for non-resident Keralites was conceived to kick-start

the project. The total cost of construction was about Rs 283 crore.

Bangalore International Airport

Bangalore International Airport Ltd was formed as a joint venture between the

Karnataka government and private players like Siemens Project Ventures and

L&T. The airport consists of a 4,000 meter long runway, taxiways and an apron

area with aircraft stands and a terminal building. The airport has the capability to

be further developed to handle 40 million passengers in future.

Hyderabad International Airport

The consortium of GMR Infrastructure Limited and Malaysia Airports Holdings

Berhad was selected to develop Greenfield international airport at Shamshabad

near Hyderabad. The airport site measures about 5400 acres and is expected tohave an ultimate handling capacity of 40 million passengers per annum equipped

to handle large aircraft, including the Airbus 380. The total cost of the project is

Rs 2,370 crore.

Mumbai International Airport

Mumbai International Airport Limited, a consortium of GVK Industries Ltd and

Airports Company South Africa was entrusted the project of modernizing the

Mumbai Airport in February 2006. The Mumbai International Airport would

cater to 40 million passengers per year and one million metric tonne of cargo per


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contract was on a BoT basis with a 35 year concession period. Two modernized

terminals along with a brand new terminal, a new runway of more than 4400 m

is part of the concession contract. Delhi Airport would have 500 check-in

counters, 200 aerobridges, 150 immigration counters and the capacity to handle

over 100 million passengers a year after the completion of the project.

NEW AIRPORTS AND OTHER RELATED INFRASTRUCTURE

Kolkata and Chennai

25. Airports Authority of India (AAI) has been appointed towards modernization of Kolkata

and Chennai airport. After Phase I is completed, the revamped airport will be able to

handle 20 million passengers as against 5 million now. Though Tamil Nadu and West

Bengal have opted for modernization of the Chennai and Kolkata airports through the

AAI, the draft civil aviation policy envisages a role for the private sector in these ventures

since the AAI itself is proposed to be restructured. The approval for the construction of

an integrated passenger Terminal Building at NSCBI Kolkata Airport is already given.

The work is expected to be completed by 2011. The approval for modernization and

expansion of Chennai Airport amounting to Rs 1808 crores is given in August 2008. Theentire project is expected to be completed by end of 2010

New Airport at Navi Mumbai

26. For Mumbai, air traffic projections for passenger traffic is 27.5 million passengers

annually by 2010 which is expected to increase to 40 million passengers per annum in

2015 and peak at about 80 million in 2026. The Union Cabinet has accepted the proposal

to build an international airport at Navi Mumbai on account of saturation of existing

airport. The airport is to be developed as a Greenfield project through the PPP route and

is slated to be operational before 2013


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27. Delhi will soon have a second airport in suburban Greater Noida. The GMR Group,

which is currently operating Delhi Airport, has the first right of refusal to develop the

second airport that may come up near Delhi. The project cost is estimated at Rs 3505

crore as per the feasibility report submitted by the state government. This airport is going

to be a full-fledged international-cum-domestic one. The Delhi-Noida Metro link is

going to be connected to the Noida Airport.

New Airport at Mohali, Chandigarh

28. The Punjab government has sent a proposal to the civil aviation ministry for setting up an

international airport in Mohali, the second in the state after Amritsar near Chandigarh.

Punjab has also witnessed a rise in the number of international flights.

Non-Metro Airports

29. The AAI has decided to modernize 35 non-metro airports to world standards in a phased

manner with a focus on air side and city side development and enhancement of non-

aeronautical revenues at an estimated cost of Rs 41,000 crore. The government plans to

select the joint venture partner or private consortia that would take up the development of

these airports. Airports Authority of India is implementing the air side works at these

airports including the terminal buildings. Of these, 34 airports have been selected for cityside development through Public Private Partnership. The development works on the

Airside and City side are likely to be completed by March 2010. (Annual Report 2008-

09, MOCA, pp.09). The present status of 35 non metro airports is given in Appendix IV

No-Frill and Low-Cost Airports

30. After low cost airlines, it is the turn of no-frill and low-cost airports. In a bid to

encourage regional airlines and provide air links to small cities and towns, nearly twenty-

five Greenfield airport projects have been identified for development by various states.

Planned in the tier II or tier III cities these airports would be developed in addition to the


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identified for the purpose include Hassan, Shimoga, Gulbarga, Bidar, Mysore (all in

Karnataka), Shiridi, Jalgaon, Solapur, Akola (all in Maharashtra), Kannur (Kerala),

Madurai, Tiruchirapalli (Tamil Nadu), Rupsi (Assam), Ajmer, Mount Abu, Kailashar

(Rajasthan), Behala, Cooch Behar, Malda (West Bengal), Jharsuguda (Orissa),

Muzaffurpur (Bihar), Kamalpur (Tripura) and Passighat (Arunachal Pradesh).

Merchant Airports

31. Merchant Airports are those airports which are conceptualized, created and run by privateparties with their own resources and without any government funding. After private

roads and ports, the country is all set for its merchant airports. Infrastructure developers

such as Reliance Industries, Pragati Growth and Development, and Anil Ambani-

promoted Reliance Airport Developers have already shown interest in owning and

operating airports across the country. Internationally, merchant airports have been

developed as specialized low-cost airports, cargo centers of airports private business.

Merchant airports would be especially useful as cargo hubs, thereby providing a thrust to

freight handling. The merchant airport policy is being finalized. The private sector is

showing huge interest in the merchant airport policy, being prepared by the civil aviation

ministry for building dedicated cargo airports to boost logistics chain in the country.

Such cargo specific small airports can also be built with a small investment of Rs 200 crs.

The first Greenfield merchant airport is being set up in Durgapur in West Bengal. The

project is being implemented by Bengal Aerotropolis Projects Ltd. Changi Airports

International of Singapore has 26 stake in the project The project is expected to be

completed by 2011-12 with a project cost of Rs 10,000 crs on a land of 2,300 acres. The

focus is on cargo, supply chain, logistic hub with maintenance, repair and night parking

facilities.

Air Cargo Ports


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Regional Airlines

33. To improve regional connectivity and create regional hubs, the Civil Aviation ministryhas mooted a proposal to set up regional airlines, defined as carriers with aircraft having

less than 80 seats and which operate exclusively on regional routes from any one

metropolitan airport, which includes Delhi, Mumbai, Chennai, Kolkata, Bangalore and

Hyderabad. The ministry has also suggested that the first airline to connect cities that are

not linked by air should be exempt from all airport and navigation charges at both airports

for the first year of operation. For regional airlines, navigation and landing charges often

constitute up to 10 per cent of the overall costs (Source: India Infrastructure Report 2008.

PP.28)

New Opportunities

34. Private sector participation in airports has given rise to new opportunities for newbusinesses. GMR Infrastructure Ltd, which has MIAL concession, has made its first

foray in the international arena. A joint consortium that includes the GMR Infrastructure

Ltd has bagged the contract to develop Sabiha Goken International Airport in Instanbul.

The BOT project includes not only the construction of a new international terminal

within thirty months capable of handling 10 million passengers annually but alsomanaging the existing domestic and international terminals.

35. The GMR Group plans to set up an airport based SEZ near the new Hyderabad

International Airport, which it has the mandate to develop. Planned on the lines of free

trade zones in Hamburg and Dubai, the SEZ will house aircraft component

manufacturing industries and also see high end aircraft engineering support activities.Besides, the SEZ will house high end electrical and auto component manufacturing

facilities and software units. The group also has plans to set up high precision

pharmaceutical equipment manufacturing to cash in on international air connectivity. If


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nucleus of the countrys first aerotropolis, a new urban form that would house business

parks, hotels, residential units, and entertainment areas. The GMR group, which also

bagged the international airport project at Delhi with Fraport of Germany, will develop

the aerotropolis near Delhi airport as well (The Hindu, 12 February 2007). Maharashtra

Airport Development Company (MADC) is also developing an SEZ at the Nagpur

airport. Cochin International Airport (CIAL) has approved a 480 acres land utilization

plan for an aircraft maintenance facility, an aviation academy, and a golf course, among

other things. (Source: The Infrastructure Sector in India 2007, pp.29).

5 CONSTRAINTS

SUPPLY SIDE CONSTRAINTS

Long Term Funds:

36. The Infrastructure projects which are executed on PPP in Airport Sector are with a

concession period of 30 years are more. The Project development takes around 24 to 36

months. Considerable revenue generation takes place only in the years 10 to 20. But the

Financial institutions lending horizon is between 8 to 12 years due to average maturity of

the deposits or the borrowed amount. This gap needs to be addressed on an urgent basis

37. The following recommendations could be considered to address the supply side

constraints vis-vis long term funds

Airport Finance Corporation

Setting up of an Airport Finance Corporation on the lines of Power FinanceCorporation is required. This can facilitate lower interest rates and longer

maturity of loans. Dedicated amount will be set aside for this sector.

Non Taxable Bonds


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bridged.

Range of IncentivesThe range of incentives available to the PPP projects in airport sector should be

specified upfront. On a case to case basis, each PPP project will announce the

bunch of incentives available for that particular project to make the project

commercially viable. This brings clarity to all the parties to the project. The list

of incentives can be increased or decreased as growth in the sector takesmomentum.

Separate limit for External Commercial Borrowing

There should be separate sectoral limit for airport sector for utilizing External

Commercial Borrowing. Because of the bunching with other sectors, the amount

of inflow to the airport sector may not be that significant. The cap in the interest

rate may also be raised in case the amount is for subordinated debt and Mezzanine

financing.

Separate limit for investment in debt market by FIIs

There should be sectoral limit in investment in debt market by FIIs. This will stop

crowding in some particular sectors. The sector limits brings in reasonable

allocation to all sectors. There will be balanced development in all sectors.

Disinvestment of Equity and the Tax concession

There should be separate and comprehensive guidelines in respect of

disinvestment of equity by the developers and the tax treatment thereon. As mostof the infrastructure projects are handled by Special Purpose Vehicles, the

treatment in case of dividend declaration by parent company and the SPV should

be seen holistically without the burden of double taxation.


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Shelf of Bankable Projects

38. Shelf of Bankable Projects should be prepared on a continuous basis. These should bebidded out as per the demand, risk appetite of the developers, present market scenario.

These shelves of Bankable Projects should be kept in the website and intimated to the

prospective developers. Depending on the number of hits or enquiries or interests

projects may be bidded out. Recently some of the bids called in the airport sector has not

elicited any response.

POLICY CONSTRAINTS

Standard Documentation

39. Bidding documents like Request for Qualification (RFQ), Request for Proposal (RFP),

Model Concession Agreement (MCA), and various Legal Documents should be

standardized. This will reduce the time taken for the bidding process. This will also give

a fair idea to the prospective developers about bidding criteria. Because of

standardization, the bidders time in preparation of bidding documents will come down,

resulting in time and cost saving.

Vision Document Airport Sector

A comprehensive Infrastructure Vision Document for Airport Sector should be prepared

with a investment of horizon of next 20 to 30 years. This document also should contain

short term action plan of next 5 years and next 10 years. The document should clearly

spell out the infrastructure gaps in the airport sector at present and possible areas of

development. The linkage infrastructure investment should be spelt out. The total

investment requirement and how it can be raised should also be mentioned.

Empanelment of Transaction Advisors

40. Certain sectors like Road sector, Tourism Sector, Urban Infrastructure sector have


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projects whose cost is up to Rs 250 cr. The TAs are also general in nature and not sector

specific.

Land Acquisition and R&R Policy

41. Airports generally required large tracks of contiguous land. In case of international

airports the requirement will be much larger. There is lot of criticism that more land is

acquired than the required for the project. There is also lot of criticism that the amount

paid as compensation is not adequate. There should be proper and comprehensiveguidelines in respect of how much land is required for a particular airport and the way to

pay the compensation. The project affected people should be made as partners in the

project. The guidelines also should include how to handle the issues in case land

acquisition involves religious structures. It is a very sensitive issue.

For example Kolkata Airport faced lot of problem in extending its second runway as anancient mosque is situated next to the runway. Resistance to shift this religiousstructure forced the airport authorities to redraw the entire map to upgrade theKolkata Airport. This involved acquisition of an extra 25,000 square metres of land,spending of crores of rupees on building a detour and payment of compensation toseveral high rise buildings.

Replicable Models on Airport Sector

42. Data should be made available about the successful and replicable models both within the

country and internationally. The lessons learned from previous experience should be

well documented so that the possible pitfalls can be avoided. The documents used in

that particular model also should be made available.

Single window approval

43. All the required approvals for the developing an airport should be through one

government agency. Multiple agencies (Refer Appendix II) will delay the project. Since

one approval is linked to other approvals the entire chain gets delayed due to delay in


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44. The major airports in India are mostly at considerable distance from the city centre. They

are developed at one end of the city. Sometimes to connect to the other end of the city,

the distance is as high as 50 to 60 kms. One of the major challenges at present for certain

airports like Hyderabad International Airport is integration with the main city. The

airport should be seamlessly integrated with the main city / important areas of the main

city with dedicated rail, roads, Buses, Taxis, autos. The connecting infrastructure should

be made available before the airport comes into operation . Delhi Airport is setting an

example for rest of the airports by connecting Delhi Metro with Delhi Airport seamlessly.

Passengers can check in with and without baggage at various designated stations of the

dedicated Delhi Metro Line. Similarly a high speed rail link is being planned to connect

the Bangalore Main City to the Bangalore International Airport. There will be airport

check in counter in the city itself.

Capacity Building

45. PPP being a new concept, there should be a mechanism for continuous up gradation of

skills. Various cadres of officers should be trained in all aspects of the PPP Projects.

There should be lot of sharing of information about both the successful models as well as

failed models. Repository of information should be built continuously. Guiding

materials, tool kits should be made available to the participants. Lead Financing

Institutions and Bankers should be involved in the capacity building exercise.


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In addition to addressing the above mentioned various constraints, the following are

some more initiatives which can further enhance the effectiveness and efficiency of

service delivery. They will bring in growth in the air traffic and attract more

investment through private players

Setting up of an Aviation University

46. The passenger air traffic is expected to increase from the present of level of 96 million in2006-07 to 316 million by 2022-23. This tremendous growth requires large number of

trained pilots, technicians, air staff, and ground staff. Setting up of a separate Aviation

University will continuously produce trained manpower and also impart continuous

training to the existing staff.

Synergy between Aviation Industry and Tourism Industry

47. 97% of the countrys foreign tourists arrive by air and tourism is the nations second

largest foreign exchange earner. There is a tremendous potential for tourism in national

and international level. Setting up of Helipads in various tourist places and important

religious places will increase tourism and will also increase the air traffic. The mainline

air traffic and the feeder sector should be synchronized properly

Demand Analysis

48. The closer the traffic numbers from the demand analysis, to the real numbers, the greater

is the success of a PPP project. The robustness of a demand analysis depends upon how

well the future developments in and around the PPP Project is factored into during the

entire period of concession period. In airport sector, there are several developments

expected to take place simultaneously. In addition to several new airports in major cities,

35 non-metro airports, several regional airports are expected to be developed in the next


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49. If the project is developed completely by Government, the project parameters are set as

per the requirement of the user public. If the same project is developed under PPP,

project parameters are set at international standards. This will unnecessarily raise the

project cost, user charges and the government subsidy. This aspect should be taken into

consideration while fixing the project parameters

Capturing the value created by the Airport

50. Generally the value of the land which is surrounding the project goes up substantiallyduring the course of development of the project. If part of the value addition in the land

& buildings is captured as project development fee though stamp duty, government could

benefit substantially. The captured amount can be utilised for other infrastructure

projects.

Cross subsidy in Development of an Airport

51. Many of the airports which are expected to be developed in non-metro areas, small cities

and towns may not be financially viable. Here air side development may be done on

BOT Annuity and the non airside and the Operation and Maintenance may be done on

BOT revenue sharing basis.

Permission for Foreign Airlines to participate in Equity

With a view to attracting new technology and management expertise, permission may be

given to Foreign Airlines to participate in equity of Private Airlines.

Development of Integrated Cargo Infrastructure

Today, about 40% of the worlds cargo business, in terms of value, moves by air.Although cargo traffic is growing steadily in recent years it has not kept pace with the

passenger traffic growth because of shortcomings such as lack of facilities for

transshipment of imports and exports; absence of integrated cargo infrastructure;


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At present, there is virtually no credible third-party MRO facility in India to support the

requirements of the rapidly expanding aircraft fleets of private operators. Part of the

maintenance is outsourced to foreign companies. Owing to the availability of skilled

manpower, India has the potential to emerge as an MRO hub in Asia Pacific region.

India has become a manufacturing and exporting hub of automobiles in a short span of

time. Airports should also look at becoming a global manufacturing and exporting hub of

not only aircraft parts but also aircrafts itself on PPP mode. With availability of vast land

around the airports and the plenty incentives available under the SEZ act this is quite

possible. Investment by the private sector including foreign direct investment would be

encouraged to this end.

Making Route Dispersal Guidelines (RDG) Obligation Tradable

52. To make the air operation business more commercially viable and to attract more private

air operators the obligation under RDG may be made tradable. Alternatively, the routes

may be bifurcated into commercially viable and commercially non viable. The

commercially non viable routes may be offered with incentives or with subsidy.

Air Connectivity in NER and Other Remote/Inaccessible Areas

53. To increase the reach and the air traffic, the remote and inaccessible areas in the NorthEastern Region and other parts of the country should be encouraged with focus on

infrastructure and subsidy to the air operators under a special scheme.

Increasing Air Transport Security and reducing the chances of Air Accidents

54. To decrease the chances of air collision and to increase the air transport security, the legal

and institutional framework for civil aviation security needs to be strengthened by

evolving appropriate technology, training, and equipments.


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delivery. The VFM test is important as the Airport Authority of India can compete with

the private sector to redesign existing airports or build Greenfield airports

Speeding up of PPP Projects

56. Initially six airports have come up on PPP mode. They are all successfully operated now.

This momentum should be maintained on taking forward 35 non metro airports, no-frills

and low cost airports, merchant airports, air cargo ports and other new airports at various

places. The existing airport infrastructure gap needs to be filled up by bidding out

continuously more and more airport infrastructure projects on PPP.

Conclusion

57. The task at hand is very huge. Though there is a temporary lull in the traffic due to

global recession, but in the long run, growth in both the air passenger traffic and air cargo

traffic is expected to leave a huge gap in desired airport infrastructure. This challengecan be addressed through formulation of a comprehensive airport infrastructure plan,

formulation of policies and guidelines, changes in the existing policies and guidelines,

formulation of comprehensive financing plan, Spelling out the range of incentives and

concessions, coming out with standard documents, creation of shelf of Bankable Projects,

empanelment of sector specific transaction advisors, continuous publication of replicablemodels, continuous updation of skills through capacity building. All these initiatives will

enable the development of airport infrastructure on PPP to meet the growing demand of

airport traffic and offer the globally comparable service standards at competitive rates.

=======


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Appendix I

Projects Details of Airport on PPP mode

No. Project Name State Name Sector PPP Type Contract

Authority

Project

Cost

(Rs.

Crore)

Total VGF by

Ministry of

Finance

(Rs. Crore)

VGF by Sponsoring

Authority

(Rs. Crore)

1Hyderabad International

AirportAndhra PradeshAirports BOOT

Ministry of Civil Aviation,

Government of India2,478 -- 107

2Modernization of Delhi

International AirportDelhi Airports LDOT

Airports Authority of India

(AAI)8,600 -- 0

3Bangalore International

AirportKarnataka Airports BOOT

Ministry of Civil Aviation,

Government of India1,930 -- 0

4 Cochin International Airport Kerala Airports BOO Airport Authority of India 303 --

5 Kannur AirPort Project Kerala AirportsBOT -

Annuity

Department of Civil

Aviation930 --

6Modernization of Mumbai

International AirportMaharashtra Airports LDOT Airports Authority of India 5,800 -- 0

Total 20,041 107

(Source: PPP India Data Base)


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Appendix II

Project Clearances

S.No. Clearance Required

1 Ministry of Civil Aviation, Government of India

a. Clearance to establish the new airport

2

Director General of Civil Aviation

a. Final approval for the site

b.

License to operate the new airport

3Ministry of Defence

a. NOC to establish the new airport

4

Ministry of Environment and Forest

a. Environment clearance

b. Approval for use of the forest land for non forest purposes

5Department of explosives

a. NOC for location of the aviation fuel depot

6

Other Approvals and Clearances once the project awarded is

a. Municipal permissions, Permissions from Water, Power, Sewerage Departments, Permissions with respect to road

connectivity, linkage infrastructure, Transport, Security etc..


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Appendix III

Key Issues with respect to Hyderabad International Airport

Brief of the Project

Hyderabad International Airport is located in Shamshabad, which is around 20 km from the present Hyderabad airport at Begumpet.

The initial capacity planned was 5 million passengers per annum. This capacity will be gradually escalated to 40 million passengers

per annum. The airport is opened for public from March 2008. The initial estimated project cost was Rs 1760 crs. The estimated

project cost was revised to Rs 2478 crs on account of construction of additional facilities including a common fuel farm and

business hotel.

Bidding Parameter

The project is bided out on Built Own Operate and Transfer (BOOT) model. Bidders were selected through International

Competitive Bidding (ICB). The bid parameter is the percentage of share of revenue. The concession period is 30 years. The

concession period may be extended to another 30 years at the option of the HIAL. It is the only airport under PPP which has used

cash grant of Rs 107 crs from the government. As Concession fee in lieu of the concession granted, HIAL will pay GOI a fee

amounting to four per cent of Gross Revenue annually.


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Details of Equity Participation

Sn Investor Country % Holding Amount(Rs crs)

1 Airport Authority of India(AAI)

India 13 49.14

2 Government of AndhraPradesh

India 13 49.14

3 GMR Group India 63 238.14

4 Malaysian Airport HoldingBerhard (N|MAHB)

Malaysia 11 41.58

TOTAL EQUITY 100 378.00

Key Issues or lessons learnt

Connecting Road - 11.5 km long flyover: This flyover connects the main city to the new airport is not ready by the time the

airport get opened to the traffic in March 2008. The work is still going on even one and half year after opening of the airport.

Due to this lot of inconvenience is caused to the airport user public and also to the general public Connecting Road - Outer Ring Road (ORR): Around 160 km length 8 lane access controlled ambitious road comparable to

the best in the world is being executed around the city. Around 30 radial roads, connecting the centre of the city to the ORR are

at various stages of execution. Some of the stretches like the ORR connecting the Hitech City and the New Airport supposed to

be ready by the time of opening of the airport. It got completed only recently. 5000 acres of Land: Voices were raised at various fora about allotment of 5000 acres of land for the airport in the initial stages.

Though it may look justified with various plan to develop Cargo Hubs, SEZs and turning the new airport into aerotropolis which

contains Malls, Hotels, Woking places, Residing places in addition to SEZs etc.


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Resistance to shift the Airport: Initially there was lot of resistance and widespread criticism from the employees and the

general public to shift the airport from Begumpet to Shamshabad. There was pressure to operate both the airports

simultaneously. With great persuation and as per the conditions of the concession agreement the airport was finbally shifted to

Shamshabad Resistance for increasing the user charges: There was lot of opposition and criticism for levying the user charges. With great

amount of persuasion and convincing user charges are now being levied

Hyderabad International Airport 1


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Hyderabad International Airport 2


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Key Issues or lessons learnt from other airports

Absorption of Existing Staff: Delhi and Mumbai airports are facing a huge challenge of absorbing the existing staff from the

airports. The existing staff is not interested in joining the private airport developer. There is a plan now to downsize the existing

staff who are not willing to join the private airport developer through an attractive voluntary retirement scheme (VRS). This

amount is expected to be born by the private airport developer. This issue is going to be there in other airports also. It needs to

be dealt convincingly. There may be a comprehensive policy with regard to absorption, retraining, and separation through VRS.

Subsidies and Concessions: As the aviation industry is going through recession, there is a steep fall in the air passenger traffic.

Private developers are now asking for various subsidies and concessions in the form of increasing User Development Fee

(UDF). This is against the originally agreed terms and conditions. This may raise lot of litigations later. There may be a

provision in the concession agreement in extending or removing the subsidies and concessions if the traffic numbers falls outside

the expected or predefined range. So the entire risk of traffic is not born by the private developer.


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Delhi Indira Gandhi International Airport -1


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Delhi Indira Gandhi International Airport -2


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Chhatrapati Shivaji International Airport - 1


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Chhatrapati Shivaji International Airport - 2


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Appendix IV

Status of Development of 35 Non Metro Airports

(File is attached)