Partial privatisation of airports finds no takers

Ahmedabad airport. Photo courtesy: Wikimedia Commons
The government’s efforts to partially privatise airports have run into rough weather as industry has refused to participate, citing lack of opportunity.

The Airports Authority of India’s (AAI’s) tender for privatising terminal operations at Ahmedabad and Jaipur airports did not receive a single response. The last date for submitting bids was October 20.

For the bidding process of the two airport terminals, the government has relaxed many guidelines to attract private players. First, the terminal management will be bid out for 15 years, during which the bidder will pay a pre-fixed rent to the AAI, based on the revenue it can generate per passenger. Second, all capital investment is to be made by the AAI.

Industry sources indicated that the reluctance to participate was due to the fact that the scope for revenue generation from operating only an airport terminal was too low.

“Private players want to play on a large scale, and prospective bidders want to operate an entire airport. Then the prospects of profit become higher, just terminal operation doesn’t provide any opportunity,” said an executive of a company that was among the prospective bidders. 

Big names among prospective bidders included GMR, GVK, Tata Realty, and Reliance Infrastructure.

Among global bidders there were DAA International and Flughafen de Zürich.

But civil aviation ministry sources indicated that it was unlikely the central government would go in for completely privatising airports before the general elections in 2019. Instead, the AAI has extended the bidding by one month and is likely to relax some bidding criteria.

In the changed rules, bidders are going to have a greater say in capital investment and operating airside development also. 

“The companies wanted the Operation Management Development Agreement (OMDA) model, saying that a process in which they have no say over capital investment may not be sustainable. We are looking to tweak some criteria to make it lucrative for them,” said a senior ministry official. 

The United Progressive Alliance (UPA) government wanted more airports to be privatised despite resistance from airlines, which said passengers and airlines would have to pay more to use these airports with upgraded facilities.

In August 2013, the government floated a global tender to give management contracts for airports in six cities — Chennai, Kolkata, Ahmedabad, Jaipur, Lucknow, and Guwahati — to private firms by 2014. However, the move did not take off.

In late 2014, the AAI had completed a Rs 2,400-crore upgrade of Chennai and Kolkata airports. Citing the expensive upgrade, the National Democratic Alliance (NDA) government decided not to go in for privatisation. Four of the six metro airports in the country — New Delhi, Mumbai, Hyderabad, and Bangalore — are currently run by private operators. 

Analysts have raised concern over the lack of private capital investment in airport development. An infrastructure bottleneck is likely to be a hurdle in India’s booming aviation story as consultancy firm CAPA (Centre for Asia Pacific Aviation) estimates that the 40 largest airports in the country will exceed their capacity in the next 10 years and will require around $45 billion to create an additional capacity of handling 500-600 million passengers by 2030.