The Privitisation of Indian Airports
Business
The Indian government has decided to privatize the operations of six airports of India- Ahmedabad, Mangalore, Lucknow, Guwahati, Thiruvananthapuram, and Jaipur in the first phase.
The Union Cabinet on August 19 approved the proposal for leasing out three airports - Jaipur, Guwahati, and Thiruvananthapuram- to the Adani Group through a Public-Private Partnership (PPP). The Adani Group won the bid for all six airports in February 2019.
What does privatization of airports mean?
Privatization of airports means that private companies have been provided the lease of these airports, for a specific period of time.
Company will be responsible for the management and operations of the existing airport assets. They will also take care of the designing, engineering, financing, construction and development aspects of the additional air-side, terminal, city-side and land-side infrastructure for the airports.
The security of these airports will still be with the government armed forces.
How does this proposed privatization differ from the existing one under which Delhi and Mumbai were privatized in 2006?
The PPF Method
The PPF (Per Passenger Fee) method of privatization is considered more sustainable and predictable for developers as it is based on transparent criteria of passenger traffic. It also gives more freedom to a developer to maximize non-aeronautical revenue sources like retail, food and beverage and car parking as the income would not be shared.
Competitors
Adani Enterprises had placed aggressive bids for all the six airports and outbid GMR group and foreign entities, including Autostrade, AMP Capital Investors (UK) and Mauritius-based I Investments.
Pros
Absence of bureaucracy would lead to faster development across all 150 airports in India and not just centred on the major cities
Airports would be designed, operated and maintained on international standards, and will attract more passengers
Earnings from non-aeronautical revenue as in shopping centers, food courts will increase
Better parking management, efficient baggage handling, clean airport terminal and rest rooms will improve customer experience
Efficiency would increase helping in reducing the passenger congestion
Cons
To get return on investment, companies will increase fees in forms of UDF (user development fees) and ADF (airport development fees)
There will be loss of jobs for AAI employees due to privatization
Some experts fear this might lead to monopolization as the control can become centralized to a single or a group of private organizations with little to no regulation from the government and negligible competition
A case for a different model of privatization
The UK was the first country to privatize its airports in late 1980. Before that, the BAA (British Airport Authority) was responsible for management of Airports.
In 1986, the UK Govt transferred the power relating to running govt owned airports from BAA to the private sector. Hence BAA was converted to BAA Public Limited Company as a vehicle by which stock market funds could be raised.
Heathrow international airport, which is the busiest airport in Europe, by passenger traffic is owned by private company “Heathrow Airport Holdings” (Formally BAA PLC). This is an example of 100% airport privatization.
Writer’s Opinion
India is now the third largest and fastest growing aviation market in terms of domestic tickets sold. And to keep up with the ever-growing demand, its airports need to level up their infrastructure and facilities.
From past experiences we can see that the AAI is not able to keep up with this demand as 75% of airports owned and managed by the AAI made losses in FY 2018-2019.
It becomes a case of conflicted interest as the government who is regulating the market, is also running it.
Though one can debate that privatization can lead to monopoly but to avoid this, the government can introduce new policies to restrict any individual from acquiring more than a certain number of airports.