Crisil Infra Airports 2005

8/8/2019 Crisil Infra Airports 2005

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CRISIL Limited

Mobilising Private Investment in AirportDevelopment In India

Presentation in India Infrastructure Summit

Marc h 29, 2005

Sanjay K SinhaDirec tor CRISIL Infrastruc ture Advisory

[email protected] om

Tel: +91 22 56913230

Fax: +91 22 56913050


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Need to a ttrac t private

investments into Ind ian a irports

Airports Authority of India (AAI) manages 126 airports(89domestic airports, 11 international airports, 26 civil enclaves at defenceairfields)

Indian aviation sector has lost out on the aviation boomwitnessed in the 90s

The Government now has major plans which focus onupgradation of 5 metro airports and development ofselect regional airports

Need for private funds will be inevitable because ofcompeting demands on tax collections

Airports are gateways for economic development

Airports are gateways for economic development


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DesignDesign

FinanceFinance

ConstructConstruct

O&MO&M

OwnershipOwnership

ManagementContract

Lease Concession Divest

Private Sector Public Sector

BOT/ BOO

PPP variants for a irports: Full

p riva tisa tion does not seem likelyDelhi and

Mumbai airportsHyderabad, Bangalore and

Cochin

PPP: Public Private Partnerships


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Interna tiona l p rec edents of PPP

transactions

BOT/ Concession Schemes :Private entity invited to buildand operate a third terminal at Pearson International Airport inToronto on a long-term lease basis

Canada

Strategic Partner/ Partial Divestiture Schemes :A strategicpartner is being sought to participate in development andoperation of a second international airport at Bangkok

Thailand

BOT/ Concession Schemes :BOT contract to build secondrunway and operate both runways at El Dorado InternationalAirport, Bogota

Columbia

Full Privatisation :17 airports sold on long-term leases of 50years, with an option for additional 49 yearsAustralia

Full Privatisation :Privatisation of British Airport Authorityresponsible for the operation of 7 airports

United Kingdom

Management Contract Schemes :Private company awarded

management contract of Kai Tak new airport

Hong Kong


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Ind ian a irports: Revenue

streams & benefic ia ries

AAI

AAI

Beneficiariesin AAI owned

airports

Beneficiaries inproposed

private airports

ComponentsRevenueStream

Private airportdeveloper

RNFC wouldremain with AAI

Other charges toairport developer

Duty Free Shopping

Catering and restaurants

Car Parking & Car Rental

News, Shops, Banks etcAirline terminal rents & RealEstate

Other ( Hotel, Travel services)

Non-aeronautical

revenue

Route Navigation Facilitationcharges(RNFC)

Landing, Housing and ParkingCharges

Terminal Navigation LandingCharges(TNLC)

X-Ray Baggage charges

Aeronauticalrevenue

Indian Airports currently get bulk of their revenue from aeronautical revenue

streams, in the non-aeronautical revenue segment metro airports are thehighest contributors (~20%)

Indian Airports currently get bulk of their revenue from aeronautical revenue

streams, in the non-aeronautical revenue segment metro airports are thehighest contributors (~20%)


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Aero vs. Non-aero

revenueInterna tiona l c omparison

51%49%Zurich49%51%Paris

58%42%Changi, Singapore

43%57%Los Angeles

54%46%Kuala Lumpur

53%47%Heathrow

81%19%Houston

71%29%Sydney

62%38%Toronto

72%28%British Airports Authority

Non-AeronauticalRevenues

AeronauticalRevenues

Airports

Mature international airports earn a high proportion of revenues from

non-aeronautical revenues

Mature international airports earn a high proportion of revenues from

non-aeronautical revenues

Source:Annual Reports of Airports


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Key is to c rea te a robust revenue

stream

Indian airports are expected to derive major revenue fromaeronautical streams

Existing level of aero revenues(principally landing charges) doesnot make a new project viable

IATT and FTT have been abolished RNFC(major component of aero revenues) has been retained by AAI

New airports allowed to levy Airport Development Fees(ADF) andUser Development Fees(UDF)

However, large scale greenfield investments by private sector willneed to be supported by subventions


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Key risks and mitiga tion

mechanism

Institute independent regulator

State Support Agreements

Contractual mitigation

Policy delays

Change in policydirection

Regulatory Risk

Transparent tariff fixationmechanisms

Application of cost recoveryprinciple

Lack of independence tofix and revise tariffs

Inadequate operationalrevenues to cover costs

Tariff/Price/Revenuerisk

Adequate project preparation

Strategic interest of airlines builtinto project structure

Unreasonable demand

estimates

Competition from othermodes of transport

Demand/Market risk

Mitigation MechanismDescriptionRisk Source


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Ind ia s roadmap to grea ter PPP

in a irports

Transparent bid processStringent pre-qualification criterion

Strong airportdevelopers

Institution of an independent economic regulatorRegulatoryUncertainty

Subventions both from State and Central GovernmentsPhased projects

Revenue shortfall mechanisms

Lack of bankableairport projects

RecommendationsKey Issues

AAI could share aeronautical revenues with prime objectiveof airport sector developmentClearly delineated process for fixing charges

Insufficientaeronauticalrevenue

Are a function of traffic build-up; to pick up only in the

medium to long termTarget selective synergistic bundling of commercialdevelopment

Nascent non-

aeronauticalrevenues


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Gap Ana lysis: Ind ia s roadmap

to grea ter PPP in a irports

Rationalise sales tax to 4% across statesPrevent monopolistic pricing

ATF pricing

Create an aviation development corpus similar to NHAIPrioritise and disburse from this corpus to support airportsector development

Revenue shortfallmechanisms not inplace

Bring ATC services under domain of Economic Regulator toprevent monopolistic pricing

High ATC charges

RecommendationsKey Issues

Encourage PSP in air transport services; could result inefficiency and lower charges

Costly airtransport services

Bundle few airport concessions to increase attractiveness

State Government subventionsEncourage airlines to create hubs and maintain airports

Regional airports

are not viablepropositions

ATC: Air Traffic Control

ATF: Aviation Turbine Fuel


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Proposed regula torIssues and

suggestions Airports should have flexibility to levy new tariffs

Lighting, Fire services, Safety and Supervision, Noise charges etc

Regulator to promote differential pricing

Landing charges today in Mumbai are the same as landing charges in Amritsar

Most developed country airports follow differential pricing that mirrors local

economics and congestion at a given airport

Create free market for ground handling services

Regulator to be empowered to conduct reviews of the airport,determine tariffs and monitor performance of airports for any anti-competitive behaviour


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Proposed regula torIssues and

suggestionsWhich airports to regulate?

Airports having potential to abuse market power

Say, airports handling more than 1 million passengers per year consecutively for last 3 years

Monitor other small airports and impose regulations on observance of anti-competitive behaviour

Principles of regulation Start with Single Till and graduate on to Double Till as and when the system

evolves

Single Till All revenues of airport are regulated

Double Till Only aero revenues are regulated; could result in as much as 185% increase inairport charges)


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THANK YOU

Crisil Infra Airports 2005

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