Infrastructure Management

Session 4
Airport and Aviation
Aviation sector in India
India is presently the 9
th
largest civil aviation market in the world.
~125 operational public access airports in India
11 airports are operating under PPP model
6 international airports & 5 domestic
79 airports are under AAIs management
11 international airports & 68 domestic
The passenger handling capacity has risen three-folds from 72 million (FY 06) to
165 million (FY 13)
The cargo handling capacity has risen from 0.5 million MT (FY 06) to 2.2 million
MT (FY 13)
Connectivity to North Eastern region has risen from 87 flights per week to 286
flights per week
Five Indian carriers are operating on international routes
Investment by private players in 11
th
plan period: ~30,000 crore
During the same period, AAI incurred ~12,500 crore of expenditure
Investment envisaged
Rs. 67,500 crore by 2017

Excluding investment in non-airport components of Aviation
Why?
A case study (Class discussion)
Expansion of Delhi Airport and Mumbai airports
What should be the process considering that this is the first attempt?
What should be the model of development?
What should be the bidding criteria/ion? What if there is same
preferred bidder for both airports?
What is project cost and how it should be funded?
What should be the entitlement of Private player and the Government?
What to do about employees?
What is revenue?
How to fix tariff?
How to determine the concession period?
Competing airport?
The robust process
1996: Modernization of Delhi and Mumbai airports considered
1998: PM declared developing world class airports in the country
1999: A task force on infrastructure recommended that a long
Term lease for outsourced management should be considered
June 2003: Modernization proposal costing approximately Rs 30
billion for Delhi and Mumbai airports approved by board of AAI
July 01, 2003: The AAI Amendment Bill notified from this date. It
was passed by the parliament authorizing AAI to transfer the
operations and management of its existing airports by way of long
term lease to private players
September 2003: Restructuring approved by the Government
74% stake by private players. EGOM constituted for implementing
the decision
October 2003: IMG formed to assist EGOM
December 22, 2003: Transaction advisors appointed
The robust process
February 17, 2004: RfQ issued
July 20, 2004: 10 bidders submitted EoI; 9 shortlisted
April 2005: Transaction documents issued to PQBs
August 2005: Transaction documents finalised
September 14, 2005: Five bids received for Delhi and six for
Mumbai
January 31, 2006: GMR declared successful bidder for Delhi and
GVK for Mumbai

Evaluation process of the bids was questioned at various
levels
Was revenue share of 45.99% for Delhi airport bid
sustainable?
Did this reflect early entrant strategies?



What happened?
Bidding criterion
Revenue share
Same preferred bidder for both airports
Upfront fee of 150 crore
Project cost and financing:
Mandate to set up world class infrastructure to cater to traffic requirement and
revise its Master Plan from time to time
To be funded by JVC through Debt and Equity
Rs. 7900 crore; Rs. 2800 crore at Delhi in first 5 years
Rs. 5900 crore; Rs. 2600 crore at Mumbai in first 5 years
Additional land priced at proportion of upfront fee
Permitted aeronautical and non-aeronautical activities
Pre-specified
Non-aeronautical activities restricted to 5% of the total land in Delhi and 10% of
total land in Mumbai; activities primarily meant for passengers or air transport
industry
Option to AAI to take over commercial ancillary assets to the end of CA
What happened?
Employees
The current employees of the AAI posted at the airport would be retained there
on for a minimum period of three years as AAI employees during which period or
at the expiry of which, the JVC would be required to make offers of employment
on terms which were no less beneficial than the current arrangement. The
employees would have the option to accept the JVC offer.
Revenue
Aero-nautical
Non-aeronautical
Tariff
Tariff for aero to be fixed by Government
Non-aeronautical services to be provided at rates fixed by JVC in competitive
manner
Duration of lease
30 + 30 years
Competing Airport
RoFR to JVC

Issues
Revenue share
30% per cent of the revenue generated from non-aeronautical services
considered for fixing tariff implications on Development Fee
Existing leases collected by DIAL (loss of 1 revenue share to the
Government)
Activities outsourced to JVs
Security deposits from JVs does not qualify to be shared with AAI
Revenue of JVC does not qualify to be shared with AAI
Additional burden on users
Loss of revenue for AAI
Tariff
Definitions of aeronautical services differed between OMDA and the AERA Act
Development fee introduced post award
Employees
Delayed retirement compensation to employees no provision for the same in
OMDA
Issues
Project cost
Equity contribution of Rs. 2350 crore
out of which the private consortiums
share was Rs. 1813 crore
Land leased at Rs. 100 per acre for
commercial exploitation. Commercial
rights of land valued at Rs. 24000
crore with a potential earning capacity
of Rs. 163557 crore.
Area for peak hour passengers higher
than most of the leading airports in
the Asia Pacific Region
Additional land at proportion of
upfront fee. Rs. 6.19 crore for 190.19
acre of additional land (150
crore/4608.9 acres)*190.19 acres).
The market price being significantly
higher for 5% of this land which is
eligible for commercial exploitation
Cost of 12,500 crore
3400 Cr.
Issues
Competing Airport
Right of first refusal in relation to second airport without triggers like saturation
point of existing airport, traffic census, rate of return on capital and expected
break-even period
Concession period
Lack of linkage between traffic, tariff and concession period not directly linked
with concession period
Extension right to JVC at identical terms and conditions; provided no JVC event
default had taken place during the 20
th
and 25
th
year of the first concession
period


Learnings