India’s booming aviation business has attracted the attention of General Electric Co., which wants to enter the airport development business in the country. The conglomerate has approached the GMR Group, which is developing the new airports at Delhi and Hyderabad; the Maharashtra Industrial Development Corp. (MIDC), which is developing airports in smaller cities in the state; and Maharashtra Airport Development Co. Ltd (MADC), which is developing the cargo hub at Nagpur, for possible partnerships in this context. GE runs one of the world’s largest aircraft-leasing operations through GE Commercial Aviation Services (Gecas), and is also in the business of making and maintaining aircraft engines.
“We see airport development as a good growth area for us and an investment that also helps our airline customer base of half-a-dozen customers that need a well-developed airport infrastructure. For the large metro airports, we will look at investing through the joint venture fund we have with Credit Suisse whereas for regional terminals, which are geared perhaps towards low cost carriers, we will invest on our own,” said the US-based Norman Liu, executive vice-president, commercial operations, Gecas. In June 2006, GE Infrastructure, which manages the infrastructure businesses of the conglomerate, and Credit Suisse formed a $1 billion (Rs4,100 crore) infrastructure fund.
Norman Liu sees airport development as good growth
GE has already put together a small team in India that is scouting for airport development opportunities. Harshawardhan M. Gajbhiye, a senior vice-president at MADC, confirmed that GE had expressed interest in the proposed cargo hub at Nagpur
Kamlakara Rao Yechuri, associate vice-president (strategic finance), GMR Group, which is developing the Delhi and Hyderabad airports, said the firm had received an enquiry from GE. “Initial interest has been received by us from GE for airport development,” he added.
Rajiv Jalota, chief executive officer of MIDC, said it too had received an enquiry from GE. “The airports we plan to develop include those in the tech city of Pune, Sindhudurg, Latur, Amravati, Nanded, Yevatmal and Osmanabad,” he added.
The investments in airport development will fit nicely into GE’s other business interests. GE Aviation, the engine-making business of GE, has received a significant number of orders for engines from state-owned carrier Indian airlines. Air India placed an order for jet engines worth $2.2 billion (at list price) to be delivered by the end of 2008 with GE. Jet Airways placed an order for 10 engines, worth $300 million, in February 2006, and has ordered 10 more now, according to GE. And GE Commercial Aviation Services has, to date, financed around 40 planes in the country for half-a-dozen airlines, tripling its India business to around $1.5 billion. But India needs bigger and better airports to accommodate all those extra planes.
Airport modernization in India is likely to require investments of about $12 billion in the next 15 years, according to a study by industry lobby Federation of Indian Chambers of Commerce and Industry and the Centre for Asia Pacific Aviation; the amount includes major projects already under way in Mumbai, New Delhi, Bangalore and Hyderabad. The international airport at Chennai, the third-busiest in the country, is also up for modernization but the ministry for civil aviation has not decided on whether or not it will follow the model used in Mumbai and New Delhi, where the Airports Authority of India (AAI) partnered with private companies. At Kolkata airport, the state government has insisted that AAI carry out all the work, which is likely to cost at least Rs1,500 crore.
Outside the metros, AAI has shortlisted 35 non-metro airports for modernization at a cost of Rs7,000-8000 crore, and work has already begun on about 10 of those, including airports at Amritsar and Lucknow. AAI expects to fund this work from revenue generated from its partnerships in the metro airports and regular operations. Some of that work, especially developments in the city side, or non-aeronautical work, will be contracted out to private players.
That suits GE, which wants to build and develop smaller passenger terminals in India. “We think there may be an opportunity in secondary and major airports. For secondary airports that will cost $10-50 million, we will invest directly using the Gecas balance sheet. For the metro airports, the investments will probably be in hundreds of millions of dollars and will also be dictated by the regulatory framework in India,” said Liu.
“We will come up with the basic design and technology for the airports and use local contractors to build them for us. Some of the contractors may also be offered equity stakes in the smaller projects. Insofar as the large metro airports are concerned, AAI is involved, as will be an international airport operator and we will bring in local and international financial institutions in a consortium,” he added.
GE is also looking to build airport cargo facilities leveraging the expertise of US-based air cargo specialist Lynxs Holdings, Llc., with whom it formed a 50:50 joint venture in February this year.
“The global cargo integrators (such as UPS, Fedex) want to build secondary locations (airports) now as they have already built up their global hubs. We hope to be able to develop, build and finance these hubs for them worldwide, leveraging the relationship built with these companies by the Lynxs group,” said Liu.
According to sources close to the development who did not wish to be identified, GE is trying to acquire a specialist firm in the UK that has expertise in the design, construction and operation of passenger terminals and low-cost airline passenger terminals. Liu declined to comment on the UK deal, but sources close to the development said GE would finalize a deal with the target in the next two months. The sources requested that they not be identified, citing confidentiality agreements.
If it is successful in its airport development bids in India, GE said, it would also look to enter the business of developing ports and container terminals, railway networks, mass rapid transport systems and toll roads in the country in partnership with other developers. “We are going from active financing of the transport business to development of transport infrastructure as well,” said Liu.
In October 2006, GE and Credit Suisse, through their fund Global Infrastructure Partners, and in association with the American International Group, acquired London City Airport from Irish billionaire Dermot Desmond. This marked the company’s entry into the airport business.
GE expects sales in developing markets such as India to grow at rates up to 20% a year compared to single digit rates in the US and other developed markets. For the first time in its 128-year history, the company will derive an almost equal percentage of sales from US and overseas this year. Through its infrastructure division, GE is already a major manufacturer of aircraft engines, rail locomotives and wind turbines.
Around 25-30% of GE’s engineering resources (employees) are located in India. The $168 billion company, ranked sixth in the Fortune 500 list, directly employs over 12,500 people here; in 2006, its Indian operations earned a revenue of $1.9 billion.
The company’s move to enter the business of developing transport infrastructure is part of chairman and CEO Jeff Immelt’s goal of growing the conglomerate’s India business to $8 billion by 2010.
“India is now on the cusp of a new growth cycle—a dynamic transition to a 21st century marketplace where we want to grow our business,” Immelt had said at the time of announcing the target.
Mehul Srivastava in New Delhi contributed to this story.