Reaching Terminal Velocity

Context: A transparent privatization spree is bringing efficiency, expertise and professionalism to our airports

Need of Privatization of Airports: Privatization of airports is both necessitated by, and contributes to, the phenomenal increase in air traffic

• Delhi and Mumbai post 2006 privatization, of 229% and 106% respectively in million passengers per annum (MPPA)
• Greenfield airports of Hyderabad and Bengaluru post 2008 privatization, of 248% and 269% respectively in MPPA.
• The move to lease another six airports — Ahmedabad, Jaipur, Lucknow, Guwahati, Mangaluru and Thiruvananthapuram — for operations, management and development through PPP has benefited from past experience.

Advantages of Current Spree of Privatization of Airports

• Shift from percentage revenue sharing model to “per passenger fee model”.

• The bidder’s offer of ‘per-passenger fee’ to the government is based purely on their future business plans and assessment of the revenue generated from 

• aeronautical, 
• non-aeronautical and 
• city-side real estate development.

• Efficient and Transparent international bidding process: reflected in the overwhelming response received from bidders.

• A total of 86 registrations from 25 bidders, and 32 additional bids received from 10 entities via the e- tendering portal.
• The final bidding process for Jewar airport in Noida, Uttar Pradesh, in 2019 saw the participation of a foreign entity that pipped the three other bidders

• No impact on tariff determination or User Development Fee: 

• Role of The Airports Economic Regulatory Authority (AERA):

• It regulates tariff determination at major airports to safeguard passengers from being overcharged. 
• Ensures reasonable return to the airport operator.
• Determines the charges for non-aeronautical services and city-ride services based on the prevailing market price.

• Provision of Cross subsidy: 30% of the revenue generated is utilized to cross-subsidize the aeronautical tariff, thereby benefiting the users of the airport.

• The concession fee payable to the Airports Authority of India (AAI) is not a cost pass-through for tariff determination.

• Growth in world-class facilities at affordable prices: In 2006, there was no Aera. Today, the whole privatization process is being led by AERA.

• The share of the six airports that have been leased out in the bidding process is only 9.72% of the total passenger traffic, while Delhi and Mumbai accounted for 19.73% and 13.45% of total passenger traffic respectively.
• There is no reason to discontinue a transparent and attractive bidding system where the bid for each airport was invited as an independent project.

Way Ahead: Apart from privatizing a number of airports, the Government plans to include the revival and development, and operationalization of 100 airports, including helipads and water aerodromes by 2024.