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21 May, 2007

India Plans 100% Private “Merchant Airports”

Indian government officials last week met with representatives of private sector business organisations, consultants and investors to seek feedback for an upcoming policy on creating 100% privately-owned “Merchant Airports.”

Ministry of Civil Aviation Secretary, Mr Ashok Chawla said that “Merchant Airports” have been conceptualized as airport infrastructure entirely in private hands with private resources, including 100% Foreign Direct Investment.

Investors will be expected to set up and operate airports on the basis of commercial viability, with government responsible only for safety and security oversight.

As there would be no investment of government financial resources, a more liberal and only a license-based approval procedure could be considered, Mr Chawla said.

He noted that although there are no set international practices which could be used as benchmarks, the rapid growth of Indian civil aviation and the need for commensurate infrastructure had led to an urgent requirement for such airports, especially for the creation of cargo hubs.

These merchant airports are expected to emerge in areas of high population density and heavy air traffic. However, as large parcels of land would be required, and land being a state subject, the “assistance” of the state government would be necessary.

Central government clearances by the military, environmental and other such authorities would also be needed.

International air traffic movements have been growing at a rate of about 15% p.a., growth in domestic passenger traffic has at times surpassed 40%. Moreover, India expects to add aircraft worth about US$80 billion by 2020.

This would necessitate an investment of about US$30 billion in airport infrastructure. “Since it would be very difficult to generate such resources in public sector or even under public-private partnerships, the government felt the need to explore the option of merchant airports,” Mr Chawla said.

As airport development is known for its long gestation periods, a number of policy shifts have already helped expedite development and modernisation.

The airports at Delhi and Mumbai have been restructured through joint-ventures. Two new greenfield airports at Bangalore and Hyderabad are likely to become operational within one year. Proposals for several other greenfield airports are under consideration. The government has already permitted 100% FDI in the greenfield airports.

The country also has dozens of small airports where public money is being spent to upgrade and modernise them, in order to attract airline interest.

In the 10th five-year plan, which ended March 2007, the government has spent Rs. 3.6 billion (roughly US$ 88 million) on upgrading airports nationwide. These airports will open up significant business opportunities for Thai and ASEAN investors and airlines in future.

They include Rs. 1.16 billion spent on airports in the Northern Region (Dehradun, Jaipur, Khajuraho, Kullu, Lucknow, Pantnagar, Srinagar and Udaipur), Rs. 390 million for the Eastern Region (Bhubaneshwar and Gaya), Rs. 583 million for the North-Eastern Region (Agartala, Dibrugarh, Guwahati and Silchar), Rs. 803 million for the Western Region (Ahmedabad, Akola, Aurangabad, Belgaum, Diu, Goa, Gondia, Nagpur, Raipur, Pune and Vadodara) and Rs. 1.01 billion for the Southern Region (Agatti, Calicut, Madurai, Mangalore, Mysore, Tirupati, Trichi and Vizag).

The projects include new runways, international terminals, apron taxi-ways, control towers, drainage and rainwater harvesting systems, repaving of existing runways, etc.

While most of the projects are on schedule and set for completion by December 2007, there have been some delays due to non-closure of airports by State Governments in view of local elections, inclement weather, domestic disturbances, etc. A few will not start until 2008.

Earlier this month, the Indian government approved the establishment of the Airport Economic Regulatory Authority (AERA). Still pending parliamentary approval, the new body will create a level playing field and foster healthy competition among all major airports, regardless of whether they are publicly or privately owned or joint ventures.

The AERA will encourage investment in airport facilities, regulate tariffs of aeronautical services, protect the “reasonable interest” of users and facililate the operation of “efficient, economic and viable airports”. It will also determine the amount of development fees and passenger service fees.

The Indian aviation scene is also preparing for the merger of the two national carriers, Indian and Air India, for which the procedural formalities are likely to be completed by July 2007, according to Minister for Civil Aviation, Mr Praful Patel.

A new company, National Aviation Company of India Ltd., (NACIL) was incorporated on 30 March 2007 and the full merger is expected to be completed in phases over two years.

While the brand name of the merged airline is still under the consideration, the Minister said that the new airline would set “fresh benchmarks for efficiency and reliability”, and develop a seamless network of local, regional and global.

It will have Strategic Business Units (SBUs) in the areas of integrated passenger service, ground handling, low-cost airline, cargo and other related activities.

The minister said that presently, Air India has 38 aircraft and Indian 74 aircraft, including aircraft on lease, with an average fleet age of 14.6 years and 16.2 years respectively. The two airlines have recently received government approval to buy new aircraft – 68 for Air India and 43 for Indian.

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