India today ranks among the top 10 aviation markets of the world. Total passenger throughput (arrivals and departures) for FY12 stands at 162 million, growing at a CAGR of 14 per cent over the last six years. Total cargo throughput handled by the Indian airports in FY12 is 2.3 million tonnes, showing a 8.5 per cent CAGR growth since 2005. The growth in the passenger and cargo traffic requires significant investments in terms of construction of new airports, expansion and modernisation of existing airports, improvement in connecting infrastructure (road, metro, sea link, etc.) and better airspace management. Estimates received from the AAI and private sector indicate that the Indian airports would require an investment of about `65,600 crore during the 12th Plan (2012-2017) of which around `50,000 crore is likely to be contributed by the private sector.
Notwithstanding the growth, there are significant challenges facing the airport sector. The key actions required are as follows:
a) Facilitation by government: A large number of institutional clearances are required for airports. Facilitation support by the government would be absolutely vital for new airport projects. A case in point is the National Facilitation Committee, headed by the Cabinet Secretary, which played a key role in the timely completion of the Terminal 3 of Delhi Airport.
b) Reforms regarding policy and regulations: There are certain key areas where there is a diversion of opinion between the regulator AERA and the industry. This is likely to affect the investor sentiment when we go for other airport projects in the country—e.g. the $3-billion Navi Mumbai International Airport. There is need for a stable, transparent, predictable and investor-friendly regulatory regime with a mechanism for time-bound resolution of issues to create a sense of certainty in the sector.
c)Evolve innovative funding solutions: Given the risks, lenders are cautious when issuing long-term debt to airport operators. Financial support, especially for developers and airlines serving Tier II/III cities, is critical. Following ideas can be evaluated:
■ Allowing airport companies to issue tax free infrastructure bonds
■ Ensuring greater external commercial borrowings for the sector by specifying separate sectoral limit
■ Facilitating Airport Development Fee (ADF) for pre-funding of airports. This reduces the returns that need to be provided to airport developers and hence helps keep tariffs down
■ Creating an Aviation Infrastructure Development Fund (AIDF) to support air connectivity to Tier II/III cities. This could be on similar lines as the Airport Improvement Program (AIP) in USA, or the India Infrastructure Project Development Fund (IIPDF) used to support other infrastructure sectors in India
d) Ensuring independent decision-making and protection of sensitive business information by PPP airports: There is a serious concern among the PPP airports about coming under CAG/RTI regulations. Business-logic driven decision-making and confidentiality of sensitive information must be ensured to sustain the interest of private
investors.
Airports are a part of a holistic infrastructure plan for the city and state as a whole. Airports have a symbiotic relationship with trade and tourism opportunities in the airport’s hinterland, as in, each feeds the other. The support from the state governments for the airport’s success is therefore vital. This needs to come in the shape of multimodal connectivity, utilities, security and lower sales tax on ATF. Development of India as an aviation hub would also have a positive rub-off on other sub-sectors like cargo, MRO, aerospace manufacturing and general aviation.
The various ministries of the government and the industry need to work closely together to address the great opportunity that lies before us. The choice is ours.
The author is Partner and Aviation Head of KPMG India
(with inputs from Kunal Sinha, Consultant, KPMG India)
The views expressed are personal