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The civil aviation ministry's decision to scrap privatisation of four airports will deprive the Airports Authority of India (AAI) of lease income it could have otherwise earned through public-private development of these airports. Chennai, Kolkata and Ahmedabad are amongst the eight profitable airports run by AAI (out of the total 105), but the authority's profits are largely driven by revenue share it earns from Delhi and Mumbai airports, which were privatised in 2005.
Revenue share from private airports (which is accounted as lease income from airports) contributes to a third of the total revenue of AAI in 2013-14. In 2012-13, the authority earned Rs 2,115 crore in lease income and it was the single-largest revenue contributor. The second-largest contribution that year came from route navigation charges (Rs 1,796 crore).
Over the last few years, AAI has received a whopping Rs 10,000 crore in the form of revenue share paid by these airport operators at Delhi and Mumbai in the last five years. Analysts feel if the concession fees paid by the other two privately-run greenfield (new) airports - GMR-run Hyderabad airport and the Bengaluru airport, in which GVK has a strategic stake - are also taken into consideration, the cash inflows would be slightly more. Under the public-partnership agreement, DIAL has to share 45.99 per cent of its revenue with AAI every year, while MIAL shares 38.7 per cent. For Bengaluru and Hyderabad airports, the model is somewhat different and entails payment of four per cent revenue as annual concession fee, and not revenue.
"Revenue share that could have come to AAI from PPP development of Kolkata or Chennai airport would have been linked to revenue potential, commercial opportunities and capital expenditure (capex) at these airports. While revenue potential of these two airports is lower than Mumbai or Delhi, the scope of work to be executed is lower," said an industry analyst, who did not wish to be named.
In 2014-15, AAI is estimated to have received Rs 3,000 crore in the form of revenue share from Delhi and Mumbai airport operators in 2013-14. This rose by around 12 per cent from the previous year in 2013-14 when the revenue share received by AAI from these airports stood at Rs 2,673 crore.
AAI's viability is linked with the performance of Delhi and Mumbai airports. This is evident from the fact that the contribution of profits towards total revenue of AAI has increased from 20.9 per cent in 2011-12 to 32.7 per cent in 2013-14. The total revenue earned by AAI stood at Rs 8,170 crore in 2013-14, up from Rs 6,849 crore in 2012-13, and Rs 5,878 crore in 2011-12. As a result, the profits earned by AAI jumped 67.7 per cent in 2013-14 to Rs 1,441 crore, from Rs 859 crore in 2011-12.
Experts said the cash flowing from these private airports is making AAI viable and helping the authority modernise other airports. "The revenue share contributed by the two PPP airports in Delhi and Mumbai alone is responsible for making AAI viable. This also helps AAI in meeting its objective of developing more airports across India and support a large number of unviable airports managed by it. AAI also meets its fund requirements for further expansion and modernisation of existing AAI airports," said Satyan Nayar, secretary general, Association of Private Airport Operators (APAO).
According to the profitability statements of 105 airports managed by AAI, only eight airports registered profits (before tax) in 2013-14. AAI didn't provide details of the profits after tax of all these airports. The profit-making international airports were Chennai (Rs 452 crore), Ahmedabad (Rs 58 crore), Goa (Rs 51.3 crore), Kolkata (Rs 44.6 crore), Kozhikode (Rs 18.7 crore) and Thiruvananthapuram (Rs 7.1 crore). The domestic airports which registered profits were Pune (Rs 20.3 crore) and Juhu (Rs 16.5 crore). The Jaipur airport registered a loss before tax of around Rs 50 crore in 2013-14. The government will not adopt a PPP model for Jaipur, Kolkata, Ahmedabad and Chennai airports. The revenue of all these four airports stood at Rs 2,071 crore in 2013-14, and this could have led to more earning through revenue sharing for the authority.
The government says the reason behind dropping the proposal to privatise airports was mainly because AAI had invested a huge sum in the development of these airports. AAI has spent Rs 2,700 crore on upgrading the Kolkata airport and Rs 2,400 crore on modernising the airport in Chennai. This means, the modernisation of one of these airports could have been fully financed by revenue shared together by Delhi and Mumbai airports.
"Certainty in policy direction is welcome, but this could have been done much earlier as continuous delays since 2013 have hurt investor interest and confidence. Given the challenges, investor interest in airports will remain muted. Post this decision not to go for PPPs, AAI needs to show more positive results as only eight AAI airports are profitable. Looking forward to seeing a dynamic AAI emerge under the new leadership but serious challenges are likely to undermine all efforts," said Kapil Kaul, chief executive officer (South Asia) at Centre for Asia Pacific Aviation (CAPA).
