Flying in formation
Although India’s aviation industry is facing a downturn now, the country’s ambitious plans of making around 500 airports operational by 2020 does not seem to be much affected, says Syed Ameen Kader
By the time the economic slowdown took a toll on India, there were already many infrastructure projects set in motion. Most of them were in developing national highways and airports. So would the credit crunch bring to halt most ongoing development? The popular rhetoric seemed to have stood in good stead here – infrastructure spend could cushion slowdown.
Notwithstanding the crisis, most airport developers are determined to carry on with development work. They realise that some startup projects managed by private developers could face setbacks but are dauntingly carrying on with the work.
With the government creating a fine balance of private and public players through a Public-Private-Partnership (PPP), both parties are responsible for the project.
Some of large private players that are involved with airports development in India are GMR Group, Larsen & Toubro, GVK Industries, Siemens Project Venture of Germany, Fraport AG, Erman Malaysia, Unique (Flughafen Zurich AG) – Zurich Airport of Switzerland and Airports Company South Africa.
While ongoing airport developments are moving ahead, it is the expansion projects that seem to be bearing the brunt.
Examples here are that of the newly-opened GMR Hyderabad International Airport (GHIAL) and Bengaluru International Airport Limited (BIAL) where expansion plans have been put on hold. Officials at both these places have denied any credit crunch situation and attribute it to the reduction in traffic projections.
Moreover, rising airfares and increasing prices of aviation turbine fuel (ATF) have compelled flyers to look for alternate modes of transport.
K Sridhar Kumar of GMR, in charge of operating GHIAL along with other partners, says, “We have frozen expansion plans for the time being. The current capacity is capable of handling traffic for another couple of years. We don’t need an expansion now.” He denied that raising finance could be the reason for deferring plans.
For BIAL it’s the decline in passenger projection that has necessitated postponing expansion plans.
The current terminal is enough to last another two years, it says. It can safely handle 9.2 million passengers by March, as compared with the 13 million it had forecast. The airport authorities have deferred its planned Rs4,000-5,000 crore second phase expansion for another two years.
While Hyderabad and Bengaluru could afford to put off its expansion plans, the same is not applicable to the Mumbai International Airport Limited (MIAL) and Delhi International Airport Limited (DIAL). Both of them have signed an operation, management and development agreement (OMDA) with the government, and this makes it mandatory for them to complete capital projects based on the traffic projections.
Authorities at MIAL, modernised by GVK Group along with partners, say, “We are on track with the schedule and timelines specified in the master plan.” MIAL will invest over Rs9000 crore towards the modernisation of the Chhatrapati Shivaji International Airport (CSIA).
The company seems sure that they are not facing any credit crunch situation. “In 2007, we tied up long-term fund based debt requirements of about Rs4,200 crore with a consortia of banks and financial institutions led by Industrial Development Bank of India Limited (IDBI),” it assured Construction Week India.
Meanwhile, recently, the government of Karnataka has awarded Marg Ltd, India’s leading infrastructure and real estate development company, the contract to develop and operate the greenfield airport at Bijapur. To be developed under the PPP model and a BOT basis, the airport will come up on 727 acres of land. Marg will design, develop, operate and manage the airport for 30 years, which can further be extended for another 30 years.
GRK. Reddy, chairman & managing director, Marg Ltd says, “We are happy to be a partner in developing this airport, which will act as a gateway to north Karnataka.” In addition to the terminal buildings, runways and control towers, Marg will also develop access facilities and build utilities necessary to serve the airport during the operational phase.
A recent report by KPMG on airport development supports the developments around airports development. It says that the economic slowdown has substantially impacted the civil aviation industry and caused it to reassess its forecasts and change plans accordingly. KPMG India’s executive director Rajeev Batra says while BIAL and GHIAL can afford to freeze expansion plans due to a downturn in traffic projections, the same can become a problem for MIAL and DIAL since they have signed OMDA.
“Private players are wary of undertaking airport development projects as the environment in which they have to operate is less favourable. A reduction in passenger traffic, slowdown in freight traffic, waning interest of retail players have all had an effect on the positive outlook for airport development,” the report adds.
KPMG findings say airport projects require substantial investments and a monetary tightening in the economy is a cause of concern for airport developers as it limits the funds at their disposal. Regulatory norms for airport development in India are still in the early stages and there is a lack of clarity on several issues.
The report warns that in the current high inflation scenario, there is a possibility of overshooting planned costs due to cost escalation and scope expansion. These also challenge the operators. The returns for the early investors in airport development have lost their lucre.
While Batra does not deny the credit crunch, he cautions that it will be difficult for some private players to get finance for some upcoming projects.
But he does not see this impacting the overall airports development plans in India. He says the airports under development by the government will not be affected since the Airports Authority of India (AAI) has reportedly earmarked Rs12,000 crore. But the number of private players in this field are aplenty.
Most of these players are present in greenfield projects. What could affect whole-hearted investment here is that private investors may be hesitant to bring in 100% investment – the amount they can invest. But analysts are still optimistic. “Airports development is a long term process. Though the industry is facing a liquidity crunch, the situation will improve sooner than later,” says an industry analyst wishing to remain anonymous.
Meanwhile, airport operators are not downcast by the fall in traffic projection at some airports. They seem sure of a buoyant future. “Aviation is a cyclical business and there is bound to be an upswing after this downturn. Given that the demand for air travel will match the high rate of economic growth in the country going forward, forecasts for passenger traffic growth in India will be bullish in the long term,” MIAL said.
Aerotropolis – a new form of urban infrastructure
‘Aerotropolis’ or Airport City has emerged as a new form of urban infrastructure in India. KPMG’s latest report suggests this will offer immense opportunity to developers.
Aerotropolis is a cluster of aviation oriented businesses around airports and transportation corridors emerging from them. It will have an airport city as its core, which comprises retail malls, leisure and culture centres, logistics and air cargo, hotels and entertainment and is surrounded by clusters of aviation related enterprise.
The report says, “Airports in India are a future potential area not just from an aviation perspective but also from a real estate point of view. Globally, airports have embraced the concept of developing the surrounding commercial areas.”
A proposal to develop an aerotropolis at Asansol-Durgapur region of West Bengal is under consideration. An SPV ‘Bengal Aerotropolis Projects Limited’ (BAPL) will be building the eastern India’s first ‘Airport City’.
The project will involve setting up a greenfield Airport, industrial park, logistics hub, IT park with supporting infrastructure such as housing, tourism, healthcare and social interchange facilities. While the airport will be developed over 300 hectares, the supporting infrastructure will be developed over 650 hectares.
The total project is valued at Rs. 10,000 crore.