For a growing economy like India, privatisation and modernisation of airports is non-negotiable and India’s decision to privatise its metro airports in the past has delivered significant results.
Ajay Sawhney and Aditi Misra
The civil aviation industry in India has been growing at the rate of 20 per cent for the past four years making it the fastest growing aviation market in the world. According to reports generally available, India is set to become the world’s third largest aviation market in terms of passenger throughput, much before the predicted timeline of 2024.
Over the next few years, the improving economic growth in India along with encouraging demographic factors such as higher middle class disposable income are expected to result in higher spending on travel as well as increased trade. The growth story is here to remain and rapid development of infrastructure, including that of airports, will only fuel the growth further.
Privatisation of airports has been a debateable yet growing trend across the globe. While higher efficiencies, increased competition, improved customer base, and deployment of modern technologies continues to support the debate for privatisation, concerns around expensive financing, difficulty in monitoring performance and reduced government sight catches up and continues to cast doubts. In the Indian context as well, the story has not altered much from the day India’s airport modernisation programme commenced with the award of greenfield PPP concessions for Bengaluru and Hyderabad and the award of brownfield PPP concessions for Delhi and Mumbai.
For a growing economy like India, privatisation and modernisation of airports is non-negotiable and India’s decision to privatise its metro airports in the past has delivered significant results. It has not only transformed the passenger experience but has also delivered a substantial dividend to the government, including the Airport Authority of India (AAI).
Although, capabilities of the AAI in airport development and operations are not being doubted, the modernisation of Delhi, Mumbai, Bengaluru and Hyderabad airports in the last decade have established that privatisation has delivered results far in excess of what would have been achieved otherwise. Modernisation of our airports has traditionally been crippled by the government’s inability to adequately leverage aeronautical and non-aeronautical opportunities, a position which dramatically altered with induction of private capital in the airport sector.
Privatisation plans for airports in India, while pleasing to some, have also ruffled feathers of a few in the past.
Privatisation of airports continue to face tough challenge at the hands of trade unions who echo concerns on job stability and airlines who fear that it will only augment their financial woes with operational costs rocketing upwards. What however remains unnoticed is that ‘life is not a bed of roses’ for the private sector as well. Privatisation of airports is a daunting task as the civil aviation sector in India is extremely regulated and is under the constant supervision of the Ministry of Civil Aviation, the Directorate General of Civil Aviation, and the Airports Economic Regulatory Authority.
The private sector continues to endure challenges on account of delays in tariff determination resulting in revenue mismatch during the control period, disallowance of expenditure in tariff determination, growth of other transport modes, reduction of flight operations and poor financial health of airlines, macroeconomic events such as change in fuel prices and currency exchange rates, enhanced security measures, change in governments, long-drawn and expensive disputes with the AAI on computation of revenues sharing, and issues of conflict of interest on account of the AAI being a stakeholder in the airport as well as a competitor operating other airports.
While, the problems facing the successful privatisation of airports in India continue, the government seems to be committed and is introducing policies and initiatives for the longer term benefit of the aviation sector. The launch of ‘Aviation Policy 2016’ with the aim of making flying affordable for the masses, followed by announcement of the regional connectivity scheme ‘UDAN’ in 2016 and the international air connectivity scheme ‘International UDAN’ in 2018, to improve the overall regional as well as international connectivity, establishes the Centre’s resolve to back and improve India’s aviation sector.
Privatisation of traditionally government-controlled sectors has never been an easy task and the airport sector is no exception, especially owing to the number of stakeholders involved and larger interest of the public. It has its ‘pros’ and ‘cons’ and it will always be up to the stakeholders to collaborate and implement effective and rational choices that enhance the civil aviation industry, including the quality of airports in India.
In essence, the trade-offs, on the whole, would have to be beneficial to all stakeholders and ensure that no single stakeholder is put to a disadvantageous position, including the private sector.Ajay Sawhney is partner, and Aditi Misra is principal associate, Cyril Amarchand Mangaldas. Views are personal.Get access to India's fastest growing financial subscriptions service Moneycontrol Pro for as little as Rs 599 for first year. Use the code "GETPRO". Moneycontrol Pro offers you all the information you need for wealth creation including actionable investment ideas, independent research and insights & analysis For more information, check out the Moneycontrol website or mobile app.