Airport Privatization

Topics: Airport, Runway, Chhatrapati Shivaji International Airport Pages: 14 (4685 words) Published: April 6, 2011
“Airport Privatization in India –Emerging Legal issues”


The business of owning and managing airports, once considered a safe haven, is challenging even the best managers. Higher fuel prices and an economic downturn that started in the United States and is spreading to other countries are reducing demand for air travel and causing airlines to make deep cuts in capacity. While the impacts of these trends vary widely by airport and region, one thing is clear: Fewer passengers mean less airport revenue. On top of the anticipated drop in passengers and revenue, several other trends are impacting airports, including huge airport development and operational challenges, increased pressure on airport costs, and much higher uncertainty with regard to future passenger demand. For the foreseeable future, airport managers face a much higher level of uncertainty and strategic risk. How they anticipate and manage these risks—and possibly turn the risks on their heads to create new sources of growth—will help determine how successful and profitable their airports are in the coming years.

Although privatization is a sensitive issue, the government has managed to bring about significant changes in the framework that governs sector investments. Today: (a) 100% FDI is permissible for existing airports; FIPB approval required for FDI beyond 74%; (b) 100% FDI under the automatic route is permissible for greenfield airports; (c) 49% FDI is permissible in domestic airlines under the automatic route, but not by foreign airline companies; (d)100% equity ownership by Non Resident Indians (NRIs) is permitted; (e) AAI Act amended to provide legal framework for airport privatization; (f) 100% tax exemption for airport projects for a period of 10 years. A survey by the International Air Transport Association revealed that for the year 1999, Delhi and Mumbai airports ranked amongst the three least favoured airports in the Asia Pacific region in each of the 19 service elements considered. The overall ratings for Delhi and Mumbai were 2.6 and 2.3 respectively on a 5 point scale, while the average for airports in the Asia Pacific region was 3.5 and for world airports was 3.8. Copenhagen, Singapore’s Changi, and Helsinki ranked among the top for overall passenger satisfaction out of the 57 airports covered in the survey, with a rating of about 4.3 to 4.4. Hence for GOI the driving force of the airport concession model was to capture private sector efficiency in developing a world class airport in a short period of time. "Privatization" refers to the private management of public facilities and services under a concession or lease contract. Although the concept of privatization in the airline industry goes back a long way, privatization of airports and airport facilities is a more recent concept, which commenced in the 1980's. There is worldwide trend to privatize airport because there always is a public interest in the operation of major commercial airports, which are both vital assets to the community and potential monopolies. It is generally impractical to transform airports into wholly private businesses. Most privatization projects involve substantial regulation of the private investors, detailing the design of airport services, the prices charged, and their openness to users. The term "airport privatization" is now an essential part of the industry vocabulary. In the past, the privatization approach has been applied to develop major highways, bridges, tunnels, power transmission and telecommunications networks under Build-Operate-Transfer (BOT) schemes. For these schemes, national and state governments have awarded commercial concessions to development consortia to construct and operate for a guaranteed period of time. In all cases, development of public infrastructure, including airports, had been the exclusive responsibility of public agencies. Capital funds for...
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