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Traffic control unit spin-off to cost AAI half its revenue

Traffic control unit spin-off to cost AAI half its revenue
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First Published: Mon, Aug 01 2011. 12 02 AM IST
Updated: Mon, Aug 01 2011. 12 02 AM IST
Mumbai: State-run Airports Authority of India (AAI) will lose at least Rs2,000 crore, or about half its revenue, if the government goes ahead with a plan to turn the air traffic control (ATC) division into a separate unit.
The move could also scuttle AAI’s aspiration for navaratna status, which provides a state-run company a degree of financial independence. It’s currently a miniratna, which gives it the freedom to invest up to Rs500 crore without government approval. A navaratna can invest twice that amount without government permission.
ATC manages communications, navigation, surveillance and traffic management for aircraft on the ground and in the air. The government wants to spin it off to upgrade and benchmark services to international standards. The civil aviation ministry hired consulting firm KPMG India to carry out a pre-feasibility study for splitting the ATC from AAI by April 2012.
Constituted by an Act of Parliament, AAI came into being on 1 April 1995, with the merger of the National Airports Authority and International Airports Authority of India. It manages 125 airports across India and oversees at least 2.8 million nautical sq. miles of air space.
“The key issue that AAI will face is profitability and capability of the firm to invest in airports’ upgrade once money-spinner ATC is carved out into a separate entity,” said an AAI official, requesting anonymity. “The risk of losing miniratna status is secondary and achieving navaratna is a distant dream.”
In fiscal 2009-10, the latest figures available, AAI reported a net profit of Rs712.29 crore on Rs4,615.29 crore revenue. Almost half of this revenue, Rs2,125.84 crore, came from air traffic management services.
“The ATC division is the cash cow. AAI may lose the miniratna status and find it difficult to source loans for airport development from the market,” another AAI executive said. AAI has earmarked Rs14,000 crore as capital expenditure needed to modernize airports across the country.
AAI’s latest annual report (2009-10) said capital expenditure incurred on infrastructure at various airports rose to Rs2,742.54 crore from Rs2,547.52 crore in the previous year.
“The disturbing factor has been the fact that AAI has to resort to borrowings to finance its capital projects,” the report said. Borrowings in 2009-10 amounted to Rs550 crore. AAI is already short of funds to support extensive airport modernizations across the country.
AAI chairman V.P. Agrawal could not be reached for comments. Nasim Zaidi, secretary, ministry of civil aviation, did not offer any comment.
V. Somasundaram, member (air navigation services), AAI, who is in charge of the ATC functions, said he was not aware how the division would be implemented.
AAI’s profitability will be impacted but the government should not treat ATC as a commercial enterprise as it relates to the safety and security of air traffic management, said Vishwas Udgirkar, senior director and partner, Deloitte Touche Tohmatsu India Pvt. Ltd.
For the miniratna tag, a public sector enterprise needs a three-year track record of profit, at least Rs30 crore pre-tax profit in one of the three years and positive net worth.
AAI may lose its miniratna tag for failing to fulfil these requirements, said Arun Kumar Sinha, joint secretary, department of public enterprises.
“The implication of lower revenue will naturally lead to losing miniratna status for AAI,” Sinha said. “However, a final call will be taken by the administrative (civil aviation) ministry.”
The department of public enterprises acts as a nodal agency for all public sector enterprises and assists in laying down policy guidelines on performance improvement and evaluation, financial accounting and personnel management.
On 27 July, news agency Press Trust of India reported that AAI had sought navaratna status for greater operational autonomy, citing Bhaskar Chatterjee, secretary, department of public enterprises.
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First Published: Mon, Aug 01 2011. 12 02 AM IST
More Topics: AAI | Revenue | Aviation | Airlines | Air Traffic |