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Business News/ News / India/  Govt’s airport privatization plans may face challenges
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Govt’s airport privatization plans may face challenges

Poor demand for air travel could potentially hamper investor interest, said experts
  • FM Sitharaman said that the govt will privatize airports run by AAI in Tier II and III cities in next fiscal
  • ndia’s air passenger traffic is expected to rebound next fiscal though it will lag the levels seen in FY16, Icra said.Premium
    ndia’s air passenger traffic is expected to rebound next fiscal though it will lag the levels seen in FY16, Icra said.

    NEW DELHI : The government may find it challenging to privatize the next set of airports that are mostly located in smaller cities as the pandemic has adversely affected demand for air travel and could potentially hamper investor interest, industry experts said.

    “There is still some uncertainty on the timelines for rebound of traffic to pre-covid levels at the Tier 2 and Tier 3 locations," said Jagannarayan Padmanabhan, practice leader and director of transport and logistics sectors at Crisil Ltd.

    “Also, the non-aero revenue potential is limited and this can act as a dampener to bidders, who are not pure-play airport developers," Padmanabhan said.

    Finance minister Nirmala Sitharaman said in her budget speech last week that the government will privatize airports run by Airports Authority of India (AAI) in Tier II and III cities in the next fiscal.

    Post the budget announcement, civil aviation secretary Pradeep Singh Kharola said state-run AAI will start the third phase of airport privatization comprising 6-10 airports in April.

    The government will use a new approach to privatize these airports by clubbing a profitable airport with a loss-making one, Kharola said last week. “AAI is examining the feasibility of giving a non-profitable airport and a profit-making airport as a package. We could see six to 10 airports being taken up," he added.

    AAI recently awarded airports in Ahmedabad, Jaipur, Lucknow, Guwahati, Thiruvananthapuram and Mangalore to the Adani group for operation, management and development under the PPP (public- private-partnership) model.

    The AAI board has also approved leasing out airports in Bhubaneswar, Varanasi, Amritsar, Raipur, Indore and Trichy to private parties. A proposal has also been prepared to club these airports with smaller airports nearby for joint development.

    “AAI is in the process of identifying more airports that could be privatized with the six proposed names. The decision to club a loss-making airport with a profitable one was taken keeping the current conditions of the sector in mind," said a senior AAI official, requesting anonymity.

    The official said airport privatization, especially at a time when the economy is emerging from the pandemic, could be challenging. “However, the long-term potential of the aviation sector is massive, which will attract investment," the official added.

    India’s air passenger traffic is expected to rebound next fiscal though it will widely lag the levels seen in FY16, ICRA said in a January report. The credit rating firm expects air passenger traffic to reach pre-covid levels of January 2019 by 2022-23.

    “As things stand, the aviation industry—airlines and airport operators alike—has been adversely affected by the pandemic. So, companies will definitely not go out of their way to make high bids like last time around. Also, most airports that will be up for grabs will be ones located at smaller cities with limited potential non-aero revenue," a senior industry official said, on the condition of anonymity.

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    ABOUT THE AUTHOR
    Rhik Kundu
    Rhik writes about the Indian economy and its crucial indicators. He is constantly navigating corporates, decoding policies, and dabbling with everything in between.
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    Published: 10 Feb 2021, 05:21 AM IST
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