Air traffic services in the country, so far the sole domain of airport regulator Airports Authority of India (AAI) and the largest source of that agency’s revenues, may soon be hived off as part of a restructuring planned by the civil aviation ministry to set up a specialist entity running air navigation operations—on the lines of the US federal aviation administration—across Indian airports.
To this end, AAI last month invited interest from consultants to conduct a study on possible options for the restructuring and shortlisted three after evaluation—UK’s air navigation service provider Nats En Route Plc., and consultancy and audit firms PricewaterhouseCoopers and KPMG International—before choosing the India offices of KPMG for the job.
The brief to the consultant is clear: to “assist in the corporatization of air navigation services (ANS) either by creating a new government company; or separating ANS from AAI to be undertaken by a subsidiary of AAI.”
MANAGING AIR TRAFFIC (Graphic)
KPMG will also need to estimate financial and commercial benefits, identify human resource issues and prepare a roadmap for creation of the corporate entity with specific milestones, according to the tender document for consultants.
The move to create an air navigation services entity different from AAI is to remove any conflict of interest between the two since AAI also owns equity stakes in airports through an eponymous unit.
The proposed restructuring of AAI, which in the past has been opposed by some quarters within the regulator, is part of the new civil aviation policy, called Vision 2020.
The draft policy has been referred to a group of ministers, or GoM, headed by external affairs minister Pranab Mukherjee and is awaiting approval.
A second meeting of the group is pending since August.
“That’s happening,” said civil aviation minister Praful Patel when asked if the AAI restructuring was proceeding even before the GoM finalizes its position.
Its “more of an internal restructuring. I think it is important,” he added.
At AAI, there are divergent views on what the restructuring would result in for the regulator in the long term.
The top management at AAI is worried about the impact of such a move on its long term revenues.
Already the Delhi and Mumbai airports—the largest revenue earner for the authority accounting for about Rs1,300 crore in 2005-06—have been handed over to private consortia for the next 30 years and most of the other 35 non-metro airports plan to lease out terminal and retail space to private entrepreneurs.
With the current plan of spinning off air navigation services into a separate company, about Rs1,300 crore revenues (of the total Rs3,490.46 crore AAI generated in 2005-06, the last year for which revenue break-up data is available), which were earned through such services, stands to be diverted out of AAI.
Such air navigation revenues include charges for route navigation facilities, terminal navigation, and instrument landing charges collected from domestic airlines that use these services across the country’s airports.
Apart from this, every time an international flight flies over Indian airspace—several airlines flying from South East Asia to Europe prefer using the route over the Arabian Sea route to save on jet fuel—it generates revenue for AAI.
An analyst predicted pressure on AAI’s finances. “AAI will be left with nothing then and the government will have to heavily subsidize other airport projects.
“It is as simple as that,” a Delhi-based aviation analyst, who did not wish to be quoted, said.
“Even the government has admitted in Parliament that only 15 airports are profitable.”
In the year 2006-07, AAI’s revenues stood at Rs3,726 crore with a profit after tax of Rs860 crore.
The same analyst, however, added that the creation of a new entity will help bring to the fore critical issues of air navigation resulting in a quicker resolution of problems.
Two important departments within AAI—communication, navigation & surveillance, or CNS, and air traffic control, or ATC—are short on staff.
For example, CNS has a sanctioned headcount for 2,713 employees but has just 1,891 on board.
Similarly ATC is also running short on trained air traffic controllers given the massive growth in aviation witnessed in the past few years.
Also, an AAI employee, asking he not be named, said he expects a salary revision after the restructuring.
KPMG, which has already started assessing the air navigation and other operations, has to submit their findings within two months on the best route for the government to take.
If the consulting firm advises hiving off navigation services into a separate unit, the prestigious Rs644 crore satellite-based navigation system, Gagan (short for GPS-aided augmented navigation) project, which is being implemented in coordination with the Indian Space Research Organization, will also become part of the new entity.
Gagan extends India’s ability to monitor airspace from Africa to Australia and is expected to be functional by 2010.