Mumbai: Foreign operators of airports who have been jostling to line up domestic partners for modernizing Airports Authority of India-managed airports in Chennai, Kolkata and some of the three dozen other cities in India may soon find themselves completely out of the picture, thanks to the government’s U-turn on privatization.
“Considering that the government has opened up only airside development to private players at the 35 non-metro airports, we will bid for this on our own and will not require any foreign airport operator in this area. We may, however, team up with real estate developers if the need arises,” says Manish Kalghatgi, a GVK Power & Infrastructure Ltd spokesperson.
GVK had tied up with Airports Co. South Africa to modernize the Mumbai airport.
“The announcement that Chennai airport will not be modernized in a public-private partnership has changed our whole investment outlook for India. The aviation programme in India changes all the time from ‘yes’ to ‘no’ to ‘no yes,’” says Ng Tim Peng, regional vice-president (India) for Changi Airports International Pte Ltd, which is partnering India’s Tata group for investing in building and modernizing airports in India.
Unlike core airport operations, where most Indian firms do not have the experience required to?improve?airport operations, city-side development encompasses developing food and beverage malls, convention centres and hotels. This calls for more of real estate development expertise and marketing in the hospitality industry, rather than expertise in reducing traffic congestion in the air or ensuring faster take-offs and landings for planes.
Civil aviation minister Praful Patel recently said the government would itself upgrade the Chennai, Kolkata and 35 other non-metro airports in India located in towns with a population exceeding a million residents. “We have appointed a consultant to advise us on the joint venture model for city-side development,” said Patel.
“There’s no role in this for airport operators per se as this is more for real estate players,” says Peng of Changi Airports. “On the other hand, if the idea is to develop an airport city— a meetings and incentives, conference and exhibitions destination for a city like Mumbai, then that’s where our expertise would come in to bear. In the given situation, our business plan will be modified to suit the current scenario.”
Bob Johnson, CEO of Dubai Aerospace Enterprise, says, “We are more interested in airport opportunities in India.”
By preventing foreign investors from participating across the airport infrastructure value chain, the government has effectively curtailed interest at a time when operators across the world were eyeing the Indian airports business.
“There’s $100-150 billion (more than Rs4-6 trillion) of infrastructure investments out there (in the global markets) waiting to come in. Companies like ours would like to add value through proactive development and participation, developing the market by stimulating volumes of passenger traffic,” says Kjeld Binger, CEO of DAE Airports.
Some of the best airports in the world get a majority of their revenues from non-aeronautical operations. A spokesperson of the Dubai Department of Civil Aviation says their airport grossed $712 million in revenues from duty-free shopping last year, helping the airport count non-aeronautical revenues as its mainstay. But even such airports are unlikely to be able to find ready partners for city-side development of Indian airports.
According to Mark Thompson, executive director Abu Dhabhi Investment Co (ADIC), hotels located next to major international airports always make money and there is a real upside to real estate development. However, given this attractiveness, Indian bidders are unlikely to want to share the spoils with foreign airports. Even financial investors such as ADIC and Macquarie, which had tied up with the Gammon group for the modernization of Chennai airport, might have a tough time wooing potential partners.
In addition to affecting those foreign airports that have already tied up with Indian partners, Schiphol of Amsterdam, Aeroports de Paris, Spanish state-owned Aeropuertos Españoles y Navegacion Aerea and Vienna airport were all on the verge of tying up with Indian partners to jointly bid for the modernization of the Chennai and other airports. Some others, such as Dubai’s DAE Airports and Istanbul’s TAV Airports too are looking for partners in India.
Malaysia’s Eraman already has a tie-up with the GMR group for the Delhi airport while DLF Ltd has tied up with Germany’s Fraport AG and ADIC with Mumbai-headquartered Infrastructure Leasing & Financial Services Ltd.
Airport operators are well aware of the risks involved with split responsibilities for the core airport, which brings passengers to the facility, and associated real estate development. The attractiveness of the associated city-side development depends largely on the quantum of passengers flowing through the airport and the on-ground experience they have. “We would like to influence how an airport operates, how tariffs are set, costs are cut and retail is developed,” says Ambalika Banerji, senior vice-president, Macquarie Securities (Asia) Pte Ltd. Adds Changi Airport’s Peng, “We need a meaningful stake to influence the outlook for the airport.” According to him, the city-side development in South India may not offer potential for huge retail consumption like that in North India due to different spend patterns and consumption habits.
With little control over the key input, passenger traffic, many foreign airport operators would be hard pressed to estimate accurately the kind of demand for associated real estate infrastructure, say analysts. As a result, they may put in conservative bids and lose out to the local, regional and national real estate developers.