BIAL seeks continuance of UDF, says any reduction of fee may hurt expansion

Bangalore International Airport Ltd (BIAL), which operates the Kempegowda International Airport, has sought a continuance of User Development Fee (UDF) at the current level saying that any reduction in the fee structure will hurt the airport's proposed expansion plans worth Rs 120 billion.

While recent news reports have suggested that there is a likelihood of a reduction in UDF by Airports Economic Regulatory Authority of India (AERA),  there is no formal notification from the regulator yet.

"It is our appeal to AERA to continue with the current level of user development fee. This will help us to fund our expansion plans. If the UDF is reduced, it will definitely hurt these plans," said MD & CEO of BIAL, Hari K Marar.

Currently, domestic passengers pay Rs 306 as user development fee in BIAL, while it is at Rs 1,226 for international passengers.

According to the company, it is facing funding constraints due to the structure of the public-private partnership model which doesn't allow any reduction in the government's shareholding. So, any reduction in UDF will impact its ability for future investment.

While Fairfax holds around 54 per cent of stake in BIAL, 20 per cent is with Siemens Project Ventures. The rest 26 per cent is with the Centre and the Karnataka government in equal proportion.

"The current structure doesn't allow us to raise more equity from promoters. So, we have to fund our expansion plan from internal accruals and from the fees, we received from travellers," Marar added.

He also said that any reduction in UDF would not result in a reduction in ticket prices as pricing is more the dynamics of demand and supply than anything else.

BIAL is planning to expand its existing capacity by building a second terminal along with a second runway to take care of the rising traffic. Its current terminal has a capacity to handle 20 million passengers, while the traffic level has reached around 27 million.

According to the company, the new terminal will increase its capacity by another 25 million passengers. BIAL's traffic projection shows that it will reach 80 million level by 2030.

"Given any new project will have 70:30 debt- equity ratio, we will require around Rs 30 billion of equity capital for our expansion programme," said Bhaskar Anand Rao, Chief Financial Officer of BIAL.

The company also said that excess revenue would not help the firm to use it for expansion as this fund would be utilized in the next five-year control period starting from 2021.