Business Today

Infrastructure network failure

Despite some marquee projects in the big cities, airports still stand for poor infrastructure. And that is changing far too slowly.

K.R. Balasubramanyam | Print Edition: July 11, 2010

Sanganer Airport in Jaipur, Rajasthan, is among India's fastestgrowing airports, with passenger traffic having increased almost five-fold over the past five years. But the Pink City's airport cannot take the wide-bodied aircraft that most international airlines use, and foreign tourists have to come via bigger airports, using the smaller jets of domestic carriers.

Nor can its runway be extended to the ideal 2,500 feet because there's a national highway at one end and residential colonies at the other. Ergo, at the present rate of growth, the airport is likely to be saturated as early as four years from now: fiscal 2014. So, the state government is getting a second airport built, at Viratnagar, 63 km from Jaipur. Rajasthan Aviation Infrastructure, a private enterprise, is building what it calls a multi-modal logistics hub that will also handle the incremental passenger demand.

"Cargo will form the primary revenue driver. We should see the first aircraft land at our airport by 2014," says Mark Martin, Chief Operating Officer, Rajasthan Aviation. Jaipur's second airport is also the country's first to come up within 150 km of an existing airport. India's Greenfield Airports Policy of 2008 makes for such exemptions in rare cases. Other states and regions are likely to get similar clearances, too.

Delhi is expected to get one at Greater Noida to the east of Delhi that will take care of traffic into west Uttar Pradesh. Congestion at the crowded Mumbai airport, hemmed in by slums, could be eased by an airport at Navi Mumbai east of the port city.

Going by Jaipur's example, the Union government's approach to civil aviation is markedly different from what it does in the road and rail sectors, with infrastructure being set up regulator, and its joint venture companies, are preparing to tackle future demand by building larger terminals, more parking bays for planes and extending runways.

Several others, too, are taking the initiative to build so-called regional airports, which have state government participation. So far, the Union government has approved new airports at Mopa in Goa; Sindhudurg in Maharashtra; Shimoga, Gulbarga, Hassan and Bijapur in Karnataka; Kannur in Kerala; Durgapur in West Bengal; Datia near Gwalior in Madhya Pradesh; and Paladi near Ramsinghpura in Rajasthan.

All this is happening at a time that India's big cities have got modern airports. At Bangalore and Hyderabad, new, swank airports on the outskirts of the cities have replaced AAI-owned airports as the main air gateway into the regions. In Delhi and Mumbai, on the other hand, modernisation projects have expanded the old and congested ones.

The Indira Gandhi International Airport at Delhi, for instance, opens its new terminal first week of July. Elsewhere, the AAI is upgrading 13 major airports, including those at Chennai and Kolkata, and 35 other non-metro airports-spending a total of Rs 12,500 crore on these projects.

That may be just the beginning in this decade. Civil Aviation Secretary M. Madhavan Nambiar estimates that India's airports will be ready to handle over 300 million passengers, including foreign travellers, annually by 2020-up from a little under 100 million currently. To build out this capacity, investments needed will be around $30 billion, including projects costing some $9 billion already identified.

Analysts say the country could have about 1,000 planes in the sky up from the current 400-odd by 2020 to ferry around the domestic passenger traffic of around 180 million. Funding for airports development of that scale will need private support. Not very long ago, the AAI was in a position of comfort; it used profits earned from large airports to develop smaller and not-so-healthy airports. After it lost control over four major airports- Delhi, Mumbai, Bangalore and Hyderabad-to private operators (it receives a near-half share of revenues in Delhi and Mumbai), its source of revenue is thinning.

In 2008-09, for instance, when private airports became operational in Bangalore and Hyderabad, the AAI lost Rs 125 crore and Rs 170 crore in revenues, respectively. By the end of that year, the number of profitmaking airports under the body declined from 11 to nine.

The way volumes are poised to grow, then, suggests private airport operators have healthy returns ahead in the years to come. A glimpse into the valuation of the unlisted Bangalore International Airport Ltd was available last year when GVK Power and Infrastructure-also the operator of Mumbai International Airport Ltd-paid a huge premium to pick up a 29 per cent stake in the Siemens-led Karnataka project for about Rs 1,175 crore.

Still, private and foreign investors are wary of investing in the sector because of age-old problems with land acquisition and road connectivity from a new airport site. "For India's growth story to percolate to its interiors, regional airports are vital. The government must develop a low cost airport model to facilitate the viability of the regional airports," says Amber Dubey, Director of the Aerospace Practice at consultancy firm KPMG. One innovative model, he suggests, could be making a state government and the urban local body key stakeholders in an airport project.

Some municipal bodies in Europe patronise airlines with incentives for bringing passengers into their town. Another reason could be India's nascent aviation industry. A regional airport at new location can be viable only if it gets on an average of 6,000 passengers and 60 landings by shorthaul aircraft a day. In comparison, most regional airports today are getting between two and 10 flights a day. The challenge, however, can be overcome if the government treats air connectivity as one of national importance and extends fiscal and other incentives, Dubey of KPMG suggests.

The benefits could be enormous, especially in agriculture and floriculture, which suffer from supply chain bottlenecks without airports. One example the Indian airline industry points to is in the increase in horticulture and agriculture offtake from the North-East after airline connectivity improved.

Farm produce from the region that could typically take up to two weeks to reach the markets of New Delhi or Bangalore, now reaches within four days, with local logistics companies taking advantage of flights by the likes of IndiGo and Kingfisher that carry cargo in the belly of their planes to compensate for sub-optimal passenger loads. Industry and tourism could also gain.

Airports and airlines make for the classic chicken-and-egg situation. Without the infrastructure on the ground airlines cannot expand and unless the carriers increase their reach into India's smaller towns and cities, the benefits of the efficient connectivity will not spread.

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