New Delhi: A plan to boost the revenues of airports in smaller cities, by leasing out land to private developers, has run into rough weather because of plummeting real estate values.
The country’s largest airport operator, state-run Airports Authority of India Ltd, or AAI, which is spending Rs6,443.53 crore to modernize 35 non-metro airports, plans to go slow on such leasing deals. It fears it will lock itself into low lease rates as real estate prices drop.
Price disparity: The Bengaluru International Airport. Its fee for domestic passengers is capped at Rs260, while the same fee at Hyderabad, which handles fewer passengers, is the highest in the country at Rs375. Hemant Mishra / Mint
The operator, which is part of the government’s regulator for airports, had late in 2007 floated a plan to lease out land around non-metro airports. Each of the airports, after being modernized, were to farm out this land to private developers for hotels, convention centres and shopping malls.
The aim was to boost revenues at the airports, which currently are overly dependent on so-called aeronautical revenues, earned from charging airlines for use of the airports for services such as landing or take-off.
Udaipur’s Maharana Pratap Airport and the Amritsar International Airport, which have land of 50.93 acres and 11.24 acres, respectively, were the first to go for such a bidding process.
That plan, however, ran into trouble. AAI objected to the civil aviation ministry’s view that control of airport terminal buildings be given to the selected private operators to maximize “commercial exploitation”.
Shortlists of five bidders at each of these two airports were scrapped. AAI now plans to issue new tenders for the two airports in the next two months with new conditions, but will go slow before finalizing the bidders so as to get better real estate prices, said an AAI board member, who asked not to be identified.
“We will be ready with (tenders for all the non-metro airports) and as things improve (real estate) we will issue them,” this official said.
Since deferring land leases would drastically reduce expected revenues at the airport operator, which until 2006 controlled all airports including Delhi, Mumbai, Bangalore and Hyderabad, has requested the government to bail it out from the “financial squeeze”.
It has submitted to the aviation ministry a proposal to apply airport taxes or user development fee at nine airports that it has completed or is about to complete modernization of.
This follows a decision by the ministry in the last two months to allow two largest airports in the country by passenger traffic—GMR Infrastructure Ltd-led Delhi International Airport Pvt. Ltd and GVK Infrastructure and Power Ltd- led Mumbai International Airport Pvt. Ltd—to levy Rs200 on each departing domestic passenger and Rs1,300 for an international traveller. The fee is expected to yield Rs1,827 crore and Rs1,543 crore at the two reporters respectively over the next three-four years.
New airports at Bangalore and Hyderabad were already granted similar permissions when they were commissioned last year.
“We can’t compete and deliver the same level of standards unless you give a level playing field,” the AAI official said, adding any airport which has seen Rs100 crore or more investment will need to have an additional airport fee for four-five years to recover costs.
Civil aviation minister Praful Patel had said last fortnight that airport taxes could be levied at at least five airports being developed by AAI. “Competition (between private airport operators and AAI) has brought out the best and is giving a better deal to passengers and expanding employment opportunities,” he had said.
Some of these nine airports include Jaipur, Udaipur, Thiruvananthapuram, Trichy, Ahmedabad and Amritsar.
Kolkata and Chennai are “not yet” part of the proposal, the AAI official said.
Since many of these non-metro airports have lower passenger volumes compared with airports at metros, passengers will end up paying a higher fee each. The fee may range up to Rs300 for such airports or more. This would depend based on the annual passenger flow and the gap between investments and returns.
For example, at Bangalore, the airport fee for domestic passengers is capped at Rs260 while the same fee at Hyderabad, which handles lesser passengers, is the highest in the country at Rs375. International passengers pay Rs1,070 and Rs1,000, respectively. Both airports have spent nearly equal amounts in the being developed.
An aviation ministry official, who, too, requested anonymity, said the government would appoint a consulting firm to audit investments made at the AAI airports after which the fee at each of the airports could be fixed.
But this process could take longer as the civil aviation ministry believes that only international passengers should be taxed with a new airport fee while the domestic passengers should be spared at these AAI airports.
The AAI board member, however, said it was not possible to do so because unlike the large metro counterparts some of the smaller non-metros do not even host international flights. “Its not feasible,” the official said adding they expect the new fees to be in place from the next fiscal.