By Group Captain Kapil Bhargava (Retd)
For five years up to 2008, India enjoyed a period of golden growth with its GDP increasing by an average of 9%, but like most countries it also suffered adverse trends caused by the global recession. Its GDP rate fell to 5.5% in the first half of this year though this was an improvement on the 4% forecast by the IMF. The rate is expected to rise to 6.5% again at the end of the current financial year, so, perhaps India will weather the recession better than almost every other country in the western world. Indeed, official economic policies – designed to prevent the country’s economy from overheating – were already in place to drop the ‘golden rates’ to 7.5% even if the global recession hadn’t occurred. This drop isn’t considered to be large and doesn’t distract from India’s long-term plans; the country continues to build up its infrastructure slowly but surely.
In 1997, India’s foreign exchange reserves were strained, interest rates went sky-high, and companies defaulted on loans and dragged down banks. But by 2008, India’s high foreign exchange (forex) reserves prevented any panic, even after foreign institutional investors withdrew $12 billion from the stock market and foreign credit suddenly vanished. Reserves of forex are on the rise again with fresh foreign direct investment in India’s stock market and other inward remittances. As recently as the end of July, forex reserves had risen to a healthy $267.71 billion. Investment in aviation is expected to catch up with original plans that were made when the sector was seeing growth of 25 to 30% per annum.
Though the global downturn started earlier, India’s aviation industry had the worst of it in the 2008/9 financial year, when passenger traffic for that period dropped by just over 10%. Some dire forecasts had expected the 2009/10 financial year to register only an average growth of 5% in the entire aviation industry, but the passenger traffic in August 2009 was a remarkable 26% higher than the same month of the previous year. Now the estimates are for a fairly respectable 10% overall growth in the current year and is expected to reach 14 to 15% in 2010/11. Naturally the airports will benefit from this recovery, perhaps somewhat better than the airlines will. Growth within the airlines has mainly resulted from attempts to increase load factors by reducing fares. Airports on the other hand, have mainly made progress through non-aviation earnings, so we can expect a greater emphasis on non-aviation growth from all airport operators.
In terms of ownership, Indian airports form three distinct classes – private, public and military. Investments or upgrades for these facilities follow different strategies. At the moment, 31 military airfields house civil aviation enclaves, some of which offer both domestic and international airline traffic. The recent drop in passenger traffic forced many airlines to cut the number of flights they offered to all categories of domestic airports and, while the military facilities do not depend on commercial revenues to survive, the private airports are being hit. Most public sector airports, nominally owned by Airports Authority of India (AAI), are expected to lose money but perhaps the AAI is able to accept this because these losses are absorbed by the government. However, having recently merged Indian Airlines and Air India into a single company, the Indian Government appears to be losing patience with the AAI’s ongoing losses. In fact the problems ahead of AAI are daunting.
Ever since commercial civil aviation began in India, the management of airfield services has been entirely government controlled through the appointed authority owning the airports. Thus, the AAI is solely responsible for all air traffic control matters, including the recruitment of all ATC personnel, plus the provision of navigational facilities and emergency services. In an attempt to streamline things, it is now been proposed that the AAI should be changed into a corporate body, thereby funding itself. This could be a risky move as there is already a national shortage of air traffic controllers and some training facilities are deemed quite inadequate for any rapid induction of new personnel. Despite all the shortcomings, a monopoly over airfield services allows AAI to determine landing charges as it sees fit. The airlines complain that these are exorbitant but AAI claims they are the lowest in the world. To help settle the argument the government decided to create an official body to control the charges airports are allowed to levy for their services.
The act to establish the Airports Economic Regulatory Authority of India (AERA) was talked about for three years. It was conceived in 2006, drafted and then tabled in the Indian Parliament during 2007 and passed in 2008. The act was designed to help airlines and passengers, but the eventual action has been slow to emerge; a Chairman wasn’t appointed until August 1, 2009. The authority is housed at Safdarjung, the oldest of Delhi’s airfields which has a relatively short runway, now partly restricted by a flyover on the final approach.
One of AERA’s first tasks is to try to reduce charges for navigation facilities and user development fees (UDFs) for new or upgraded airports. So far it hasn’t had any impact on fees and the clamour for their reduction continues unabated, but these are still early days and I believe it will become more proactive. Meanwhile, all proposals to impose or increase UDFs are met with
vociferous objections from passengers. Almost all airports still continue to ‘bleed money’ and of just under 450 airfields, about 120 are domestic facilities and only four are privately owned.
Though four of India’s biggest cities – in order of their population; Mumbai, Kolkata, Delhi and Chennai – are known as Metros (metropolitan towns), only Delhi and Mumbai are privatised to date. However, with a steadily increasing population, Bangalore is straining at the leash for its privately-owned airport to join this elite Metro group, and it may do so in perhaps three or four years. The other private airport is at Cochin.
Of the four private airports, Delhi (IGI) has created more excitement than the others as the GMR Group invested a significant sum of money to create a new ‘temporary’ structure named Terminal 1D. But there have already been problems with it – most notably, the roof came off in heavy monsoon storms. However, on the plus side, the introduction of an in-line baggage system has removed the need to x-ray luggage before it is checked-in at one of the 72 counters, but the building’s critics say it still has its shortcomings. Terminal 1D has eight gates and currently accommodates all the domestic services. However, its eventual use is unclear as IGI has a new Integrated Terminal scheduled to open in 2011, and it is possible that it will be used for all ‘legacy’ flights will be transferred to it, leaving, Terminal 1D to revert to low-cost operations. However, its eventual fate will depend on traffic growth. If it doesn’t rise significantly, legacy airlines may also continue to use it.
Mumbai’s passengers still need to commute between its domestic international terminals, though they have been substantially upgraded. The local press rather excitedly announced that an integrated terminal had been created when in reality only the foundation stone had been laid for it and it won’t enter service for some time to come. Many industry observers rate Hyderabad as perhaps the best airport in India while the once troubled Bangalore has now settled down to reasonably routine operations. Despite this, their future expansion plans depend on a recovery in traffic. Nevertheless, both of these airports are putting their available land to good use by adding facilities to generate extra non-aviation revenues.
Cochin International Airport needs a special ‘mention in despatches’. Its Managing Director Dr C G Krishnadas Nair, formerly the Chairman of Hindustan Aeronautics, has turned its fortunes around and made considerable profits. The airport is now upgrading its facilities and launched an aviation training academy. This will work in collaboration with the Indira Gandhi Open University, while the Kerala Airline is being created from a state demand, and will be launched and run by the airport.
For some years there have been calls for more commercial flights to be allowed into military airfields and recently three more military facilities have opened their doors to passenger services. The major problem with this approach to development is that most air bases have only 9,000ft (2,743m) or shorter runways that are inadequate for large jet airliners. Extending the runways will not be easy, perhaps impossible at some places and importantly the conflict of interests between military and civil operations can lead to delays. However, more civil enclaves look sure to be conceded by the three military services.
The number of functional international airports has now been raised to 18, but India’s Federal Government structure consists of 21 states; almost all of which demand an international airport within their domain, despite there being little chance of getting enough traffic to justify it. Nevertheless, ‘thinking out of the box’ has delivered some interesting solutions.
Mr Praful Patel, the Minister of State for Civil Aviation is carrying on with his energetic campaign to enhance civil aviation. As he had promised earlier, 35 airports serving Tier-Two cities will be upgraded with a view to several of them offering international services. However, the current financial climate has meant that progress so far is slower than he would like. To make matter worse, at one airport – Udaipur (Rajasthan) – bidders interested in developing it have stirred up controversy by alleging that the AAI had given out contracts for personal gain. Sadly the airport has very little traffic and currently loses money. There doesn’t appear to be any chance of improvement any time soon.
The small landing ground of Mysore, 90 miles (145km) from Bangalore, has been converted into an airport in a very short time. There was an interesting tussle to get it operational when the Directorate General Civil Aviation (DGCA) refused to certify it unless an airline decides to include it in its schedules, and despite some military use, its eventual fate is unclear.
A New Approach to PPP
In a departure from previous Private Public Partnership (PPP) ventures at other private airports, a new company, Bengal Aerotropolis Projects Limited (BAPL) will develop India’s first ‘aerotropolis’ (airport city) near Durgapur about 110 miles (177km) west of Kolkata. It will construct a Greenfield airport for general aviation, private charters and corporate jet operations while creating a new city. For this BAPL has induced Changi Airports India Ltd to take a stake of up to 26% in the project. The planning for it has been contracted to a Hong Kong company and its report should be ready in about six months. Construction could begin one year later and this will be a very interesting development to watch.