K V Priya and Priyankar Bhargava
July - September 2017
Building the Future
Neglected for long, India has finally turned its attention to building a world-class aviation infrastructure. India is not merely building state-of-the-art airports but is transforming itself for the future.
Buoyed by a strong economic growth for nearly 15 years, creation of a large middle class with rising disposable income translating into a growing desire to travel, along with more business and leisure travel, has made India the fastest growing aviation market in the world.
“India led domestic air markets in yearto-year growth for the 22nd month in a row. January traffic soared by 26.6 pc, marking the 15th consecutive month of over 20 pc annual growth. Demand is being stimulated by strong flight frequency. (Globally) Domestic air travel climbed 9.9 pc in January year-on-year,” pointed out International Air Transport Association (IATA).
On the third anniversary of the Modi government in India, the Civil Aviation Minister Ashok Gajapathi Raju reaffirmed the robust growth story for the sector. He said, “The main motive has been to make flying more affordable. The average airfares fell by 18 pc during 2016-17. Indian carriers have operated about 496 aircrafts in March 2017 up from 395 in 2014. A large number of purchase orders have already been placed by different airlines. Cargo has registered an impressive growth by 10 pc. I personally believe that we have high potential and we need to devise and execute the right strategies to harness it.”
Similarly, the volume of domestic air cargo handled by Indian airports has registered a Compound Annual Growth Rate (CAGR) of 7.9 pc during Financial Year (FY) 2007-16.
Air cargo is the key in supporting the current global trading system, with an estimated 35 pc worth of global trade carried by air, even though it covers less than one pc by volume.
Now or Never
India launched the Regional Connectivity Scheme (RCS) to get more people to fly in what is already the world’s fastest-growing aviation market. Under the scheme, the government has capped fares and is offering incentives to attract airlines to fly lesstraversed routes. So, India is a key market. With a growing population and increasing propensity to travel, the nation’s civil aviation industry is witnessing a high growth trajectory. With 103 million domestic passengers taking to the skies in 2016, India is already the third largest domestic aviation market in the world, just behind the United States and China and even overall, India is expected to become the third largest aviation market by 2020 and the largest by 2030.
Not only India, but the whole of Asia is experiencing a major surge in demand. Edward Clayton of PwC
(PricewaterhouseCoopers) a major global consultancy cites three key reasons behind how airport infrastructure in Asia is coping with the demand surge. “Asia’s surge in demand for airport infrastructure is explained by three factors: liberalisation of the Asian markets, growth in wealth and size of the Asian middle class, and a lack of alternative modes of transport,” Clayton added.
No wonder with such an ambitious target, India during the last few months has unveiled several new policy measures to create an integrated ecosystem to make air travel affordable for the common man. The National Civil Aviation Policy (NCAP) 2016 envisions India to sell 300 million domestic ticketing by 2022 and 500 million by 2027, and international ticketing to increase to 200 million by 2027. Likewise, cargo volumes should increase to 10 million tonnes by 2027.
Similarly, the National Transport Development Policy Committee (NTDPC) of June 2012 issued by Ministry of Civil Aviation (MoCA) points out that the passenger volume will reach 747.5 million by 2026-27 and 1,144 million by the year 2031-32. The cargo volume is expected to touch 19.7 million metric tonnes per annum.
Based on the above forecast, it is estimated that India needs about 400 airports over the next decade.
“If there’s one place where airport infrastructure needs to catch up quickly with the growing demand, it is India. If we don’t, we may miss this golden opportunity of low Aviation Turbine Fuel (ATF) prices, high economic growth and high demand for travel. No picnic lasts forever,” warns Amber Dubey, partner and India head of aerospace and defence at global consultancy KPMG. (Read Interview: page 48)
No Frill Airports
Despite a heavy demand, the civil aviation sector so far failed to look beyond major metros and continued to neglect serving several Tier-II and Tier-III cities. At present there are around 450 used, unused and abandoned airports and airstrips spread all over the country, pointed out KPMG in a survey conducted in association with industry lobby Federation of Indian Chambers of Commerce and Industry (FICCI) in 2014.
Most of these airports are located near high business or potential tourism areas or are surrounded by industrial clusters. Realising the need to tap the potential in view of rapid growth of domestic airlines, expansion of infrastructure at airports including runway, terminal building and air space harmonisation has been undertaken by the Government of India through Airports Authority of India (AAI), state governments and private players.
Plans to revive 50 airstrips and airports over a period of three years, starting from 2017-18, at a total estimated cost of INR 45 billion, are in the works. However, the development of airports and airstrips is to be undertaken only in those states where the state government agrees to provide the requisite concessions and a firm commitment from airlines to fly from or to such airports.
The quality of airport infrastructure, is a vital component of the overall transportation network, contributes directly to a country’s international competitiveness and the flow of foreign investment. It triggers development in business of airlines, cargo, ground handling, aviation navigation services, retail business, real estate, and Maintenance, Repair and Operations (MRO). “The NCAP recognises that the development of the Indian aviation sector can have a multiplier effect on the nation’s economy in terms of investments, trade & tourism and employment,” concurs Satyan Nayar, secretary general, Association of Private Airport Operators (APAO), the industry body of the five Public-Private Partnership (PPP) airports in India. (Read Interview: page 46)
The government has granted ‘in principle’ approval for setting up 18 greenfield airports in the country. These 18 airports are Mopa, Navi Mumbai, Shirdi, Sindhudurg, Bijapur, Gulbarga, Hassan, Shimoga, Kannur, Durgapur, Dabra, Pakyong, Karaikal, Kushinagar, Dholera, Dagadarthi Mendal, Bhogapuram, and Oravakallu. In addition AAI has begun the PPP bidding process for operation and maintenance contracts for Jaipur and Ahmedabad airports. On completion of these airports, air travel will become more accessible and sustainable.
Can India take the pressure of huge expansion of civil aviation sector even as India is set to become the third largest buyer of commercial passenger planes in the world? Centre for Aviation (CAPA) has warned that, “Unprecedented expansion will place immense pressure on the aviation system.” They also added, “The industry currently appears to be underestimating the challenges ahead. Aircraft induction on this scale will require massive infrastructure development, skilled resources and aircraft financing at a pace that has not been seen before in India.” Indian airlines’ order book now stands at 1080 aircraft, the third largest in the world after the United States of America (US) and China.
Thus, it is of no surprise that the airports in metros are witnessing a space crunch, especially during peak hours, leading to flight delays. “Airlines are pleading with Mumbai airport to allow more domestic flights at night as the airport has no additional slots left,” reports a senior official. SpiceJet, a leading low-cost airline, reported a 30 pc delay of flights.
Acknowledging the acute infrastructural constraints and congestion at Chhatrapati Shivaji International Airport (CSIA), the Civil Aviation Minister Ashok Gajapathi Raju wants Navi Mumbai International Airport (NMIA) operation to be fast-tracked at the earliest. The INR 160 billion project is being executed by Mumbai International Airport Limited (MIAL), which won the contract in February 2017. MIAL is a joint venture between the AAI and GVK Industries Ltd-led consortium. Niranjan Hiranandani, president of National Real Estate Development Council (West) observes: “The fast-tracking of the NMIA project is having a positive impact on real estate development in Navi Mumbai and locations in the airport’s vicinity, especially the Panvel region.”
Developers: AAI or PPP
Airport modernisation in India is being carried out largely by AAI or private players. The state-run AAI, set up in 1995, manages 125 airports, including 18 international airports, seven customs airports, domestic airports and 26 civil enclaves at defence airfields. Second is a set ofprivate operators such as Bangalore International Airport Limited (BIAL), Cochin International Airport Limited (CIAL), Delhi International Airport Limited (DIAL), GMR Hyderabad International Airport Limited (GHIAL) and Mumbai International Airport Limited (MIAL).
A significant issue is who should be entrusted with the crucial task of developing airport infrastructure. Recently AAI has invited proposals to partially privatise its operations in two of the leading airports – Jaipur and Ahmedabad. Not only domestic players but also global aviation majors have shown keen interest. For instance, DAA International that operates Ireland’s airports and Vinci Airports Singapore, which has a global presence, have shown interest in Jaipur airport. Among domestic players, GMR Airports, GVK Airport Services and Bengal Aerotropolis are all in the running for development of the terminal building at the airport.
Swiss company Zurich Airport International and French firm Egis Airport Operation that operates 14 airports across the globe, have also registered to bid for managing the Ahmedabad airport terminal building.
But aviation domain experts are not interested in piecemeal reforms. Kapil Kaul, chief executive of CAPA (South Asia) recently warned that India could run out of capacity within three to five years: “We are not ready beyond 2020-21.”
About 66.5 pc of India’s total air traffic comes from Delhi, Mumbai, Bengaluru, Chennai, Kolkata and Hyderabad airports. These six cities would require new airports by 2025-26 and in some cases, much earlier, CAPA said in its report titled ‘India’s Airport Capacity Crisis’.
Dubey tells AIBM that India can’t afford to miss the golden opportunity to develop its airport infrastructure and believes strongly that building airport should be left to private players.
“Airports are a business and the government has no business to be in business. Government’s role comes in where there’s a lack of private enterprise for instance in rural education and healthcare.
The top 25-30 airports of AAI should be leased out to private operators in a phased manner,” he argues. Similarly, Nayarargues that entrusting airport development at metros and Tier-I cities with AAI will not give the desired results, he said, “Considering the positive transformation of India’s metro airports from just a decade ago it is clear that the PPP model has delivered what AAI may not have been able to do by itself.”
Of the several challenges, land acquisition stands as the primary challenge facing building of airport infrastructure. To combat this, the government is taking a series of steps. To begin with Union Finance Minister Arun Jaitley while presenting the 2017-18 Budget had outlined the government’s plans to monetise land bank held by the AAI, which is the third-largest land owner in the country after armed forces and railways. “Select airports in Tier-II cities will be taken up for operation and maintenance in the PPP mode. The AAI Act will be amended to enable effective monetisation of land assets. The resources, so raised, will be utilised for airport upgradation,” Jaitley said in his Budget speech. The AAI has lined up a capital expenditure (capex) plan of INR175 billion to be spent by 2019 for airport development and other purposes. AAI owns over 55,686 acres of land in and around its airports across the country and is likely to start the process of monetising about 10 pc of the land owned (about 5,500 acres).
AAI expects to monetise nearly 7,000 acres out of its total land bank of about 136,000 acres and use this land for building shopping centres, commercial offices and conference centres, among others. This development will boost building airport infrastructure.
Despite the struggles, both the government and the AAI are taking measures to ensure that infrastructure development in the nation continues unabated to keep up with the growing demand in the sector: