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Private airports: Keep grounded while flying high

Apart from efficiency gains, quick airport privatisation will also provide much-needed funds to the cash-strapped government

May 11, 2020 / 01:40 PM IST
Representative image

Representative image


Airport privatisation in the country is quickly gaining altitude with the government overdrive providing a strong tailwind to its flight trajectory.

After bidding out half a dozen airports in February this year, the government is now planning to put six more airports on the block in another two to three months. Clearly the government is convinced that airports are better managed by private entities and the process helps in generating big revenue for the Airports Authority of India (AAI), a statutory body working under the civil aviation ministry that is responsible for creating, upgrading, maintaining and managing civil aviation infrastructure in the country.

The airports that the government may bid out in the next round are: Bhubaneswar, Indore, Trichy, Amritsar, Raipur and Varanasi. According to media reports, a draft note -- proposing to put up the airports for sale --  has been prepared and the Union cabinet is likely to take it up for consideration in December.

It is learnt that the board of the AAI has approved the plan and sent it to the finance ministry, which in turn has sought the law ministry’s opinion on it. Once the feedback comes, it will be forwarded to the Union cabinet for consideration.

India’s drive to privatise airports took off way back in the 1990s when Hyderabad and Bangalore were picked for two greenfield projects. These two new airports were developed on land acquired on the outskirts of the respective cities. Since the whole experiment was new, there were many shortcomings in the concession agreements and the private sector response was not very exciting. But when the next phase of privatisation was launched for the existing airports in New Delhi and Mumbai, some of the riders in the concession agreements were tweaked leading to a healthy interest from private participants.

After the privatisation of Delhi and Mumbai airports there was a long hiatus and sporadic efforts to privatise some of the smaller airports thereafter met with their own problems. In the meantime, the government too realised that the public-private partnership (PPP) model that had evolved over the period needed further liberalisation to attract bidders.

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Late last year, the government took another stab at privatising airports. Six of the country’s best brownfield airports -- Ahmedabad, Jaipur, Guwahati, Lucknow, Thiruvananthapuram, and Mangaluru -- were chosen and put on the block. Though these were profit-making airports, they needed heavy capital expenditure for modernisation. While bidding out these airports, the government made some key changes in the PPP model. Unlike Delhi and Mumbai where the concession agreements were for 60 years, the government this time reduced the time period to 50 years. It also removed the requirement of airport-operation experience of the bidder or consortium.

Moreover, the government decided that airports will be bid out according to the revenue-per-passenger model, which is different from the model that was followed for the privatisation of Delhi and Mumbai airports. Under this model, airport developers compete to win contracts based on the amount of revenue per passenger to be shared with the authority that gives the contract, instead of the extant norms of developers sharing a part of the profit from the venture.

The tweaked PPP model was considered to be attractive enough and the Adani group, bidding alone, emerged as the highest bidder for all the airports. However, certain legal issues have delayed the process of transfer of the airports to the winning bidder.

Even before this process could be wrapped up, the government is now going ahead with its plan to privatise more airports. In fact, just before demitting office in August, then AAI chairman Guruprasad Mohapatra had said the government was working on a proposal to privatise 20-25 more airports.

However, taking a cue from the February bidding process, the government is now planning to tweak the PPP rules further to cap the number of airports an investor can bid for. It is learnt that the finance ministry is not in favour of awarding more than two airports to the same bidder.

In all these tweaking of rules it is clear that successive governments have displayed remarkable flexibility in making airport privatisation an attractive proposition for private players. The issue of privatisation of airports is a hot topic for debate worldwide. There is no doubt that the privatisation of airports leads to higher efficiency, increased competition, improved customer base and deployment of modern technologies. But it also triggers concerns about expensive financing, increased user cost, difficulty in monitoring performance and reduced government oversight.

However, for India, which aspires to be a $5-trillion economy in another five years, airport privatisation is a no-brainer. It not only helps in building the much-needed traffic-handling capacity at different airports and improves passenger experience, it also delivers a substantial dividend to the government, including the AAI. For example, in the last financial year, about 25 per cent of AAI’s revenue was generated from private operators in Delhi and Mumbai airports.

There is no doubt that a cash-strapped central government, which is burning the midnight oil to keep its fiscal deficit in check, is sniffing quick money in airport privatisation. But it must be careful in picking the right developer to ensure that the whole process does not degenerate into a mega land sale exercise. The government must also see to it that airport privatisation does not lead to unwanted job loss and the revenue earned is put to good use for the development of the aviation sector and not frittered away in meeting non-productive expenditure.

Abhijit Kumar Dutta is a freelance writer. Views are personal.
Abhijit Kumar Dutta is a freelance writer.
first published: Nov 4, 2019 12:13 pm

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