Land woes may keep airport network plans grounded

Some airport developers say that instead of setting up airports, the govt should operationalise existing air strips for commercial flights

Consider the enormity of the challenge. To meet the civil aviation ministry’s target of building 100 airports, the government has to acquire land whose area is more than half of Delhi or nearly 1.3 times the size of Mumbai.

Last week Jayant Sinha, minister of state for civil aviation, announced that the government was planning to more than double the number of airports in the country in 15 years. 

And of those, 70 would be located in areas that don’t have an airport and the remaining 30 would be the second airports or an expansion of the existing ones.

The ministry has envisaged this would require around Rs 4,00,000 crore of fresh investment.

To achieve his objective, he would require around 200,000 acres (one acre=43,560 square feet), say experts. An assessment by the Centre for Asia Pacific Aviation (CAPA) recently said between 150,000 acres and 200,000 acres would be required for 50 top airports, which means 3,000-4,000 acres for each. It pointed out that land banks of this scale would become increasingly scarce and expensive and would compete with other uses. Smaller airports would require over 1,000 acres.

The record of land acquisition has been a disaster. Perhaps the most publicised example is that of Navi Mumbai, which has taken more than 10 years to get up the second airport, even as Mumbai’s airport chokes with hardly any extra capacity and possibility of growth. Says Amber Dubey, partner and India head of aerospace and defence in KPMG, which is involved in many airport projects: “Land acquisition can take four-five years if it does not get bogged down in agitation, violence, litigation and election. It is highly complex, unpopular, and politically risky, made more so by the land acquisition law of 2013.” 

Saturation point

The problem is clearly visible in the Airports Authority of India’s (AAI’s) plan for growth. Currently 25 of the 126 airports it operates have reached a saturation point. And another seven, according to its own estimates, will be saturated in two-three years. But despite that, the additional capacity might take years to build. That is because in the case of 12 of these airports, the AAI has only made requests for land acquisition with the state governments concerned. Identifying and getting the land could take years.

To be fair to Sinha, India’s aviation sector is exploding. According to the International Air Transport Association, by 2035 India will become the third-largest aviation market, just behind the US and China. And the CAPA estimates that the maximum current capacity of all airports (handling 430-460 million passengers a year) will be breached by FY22. And this could happen earlier if there are further delays in completing the existing airport projects. Also by FY27 it is projected that more than 700 million passengers will fly, more than two and a half times the 270-280 million estimated for FY17. To cater for this big jump, 1,200-1,500 planes will be added in the next 15 years (currently there are 300 planes). This growth can happen only if we have a huge expansion in airport capacity to cater for 500-600 million additional passengers annually by 2030, and enough investors and airport operators, beyond just the AAI, to put in the money to set them up. 

But the money might be a problem as global airport companies are clearly shying away from bidding for airports coming up on the basis of private-public partnerships. And Indian airport operators are not sitting on piles of cash, either. Says a senior executive of a leading airport developer: “In the initial stages we see six-seven companies showing an interest, but eventually there are hardly more than two bidders. The long delays, tariff-related uncertainties and costly litigation make the risks not commensurate with the returns. No foreign operator is interested as they have burnt their fingers.”

Global companies that had come to India, such as Malaysia Airport Holdings, have sold their stakes in Delhi airport, run by GMR, and German giant Fraport AG has not moved on with its tie-up with DLF a few years ago. And Changi Airport, which has invested in Durgapur, is facing serious issues of airlines flying to the city after Air India stopped its flights.

The response in the past few months in bidding for PPP projects put on the market — including Mopah (Goa), Vizag, and Dagadarthi (Andhra Pradesh) — has been very lukewarm. In most of the cases there were just two bidders and also only existing players such as GMR, the AAI, Essel Projects showing an interest. In Dagardarthi even the bigger boys shied away, leaving it to a local company to win the bid.

Dubey says that while some global operators are interested in brownfield projects, the AAI is strongly reluctant to lease its airports to private operators. It tried partially leasing Jaipur and Ahmedabad airports but did not receive bids from even domestic players. “Nowhere in the world do we have one company owning 125 airports. The AAI needs to take another look at its approach towards PPPs to create a win-win for all,” says Dubey. 

The government is looking at some solutions. One is pooling land and the other making farmers shareholders to ride out the land acquisition problem. But pooling land means that the government has to acquire double or triple the amount of land required for the airport, so that it can develop the land (set up commercial properties and residential enclaves, etc), raise its value, and return a percentage of it to the farmer. And experts say creating a company for 15,000 farmers (roughly the number justifying 2,000 acres) and explaining to them the value of a share certificate (if they are made shareholders) might be very cumbersome. 

However, a change in the PPP bidding process, which is currently based on only revenue share, could attract more players. A proposal is being considered that the bidding process will be based on whoever offers the lowest tariffs, and the revenue share will be fixed before the bids to compensate the landowner.

Some airport developers say that instead of setting up airports, the government should operationalise existing air strips for commercial flights. 

“There are 400 airstrips in the country, so we should concentrate on making them ready for commercial flights at a much lower investment.” But he also agrees that at least 20 per cent of them are with the defence services and many with state governments and that could be a stumbling block. 

AAI executives agree that many of routes that were given under the regional connectivity scheme are stuck because state governments, PSUs, private airports (like Mithapur in Gujarat, and Raigarh) are not confident of operationalising them.