Delhi Airport Report

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MEASURES FOR IMPROVING CASH FLOWS AND PROFITABILITY OF DELHI INTERNATIONAL AIRPORT LTD

PREPARED BY ANEK AGRAWAL MAY 2012
Disclaimer: The contents of this document are entirely based on the opinions and ideas as suggested by me. This document in no way represents any views and opinions of Feedback Infrastructure Services Pvt Ltd.

Executive Summary This document discusses about the current state of Delhi and Mumbai International Airports and their recent decision to hike the Airport Development Fee to increase their revenues and meet their expenses including interest cost for capital incurred towards Airport Development and Modernization and the revenue share with the Airports Authority of India. Taking the case of Delhi airport, we believe that the step taken to increase passenger fees, which has been approved by Aviation regulator AERA (Airports Economic Regulatory Authority) will be levied from May 15th onwards is another retrograde step taken to distress the aviation sector further. It will make air travel in and out of Delhi Airport more expensive. Considering the present state of the Aviation sector, any further cost increases are only likely to make the Indian aviation sector more expensive. Our policy makers continue to suffer from the myopia of viewing Aviation as a luxury rather than a necessity. This is evident from the high taxation of various airport services including ATF. Mumbai and Delhi Airports too have been built at a substantially higher cost compared to the original planned modernization costs. This has been due to delays in awarding the OMDA (Operations, Management and Development Agreement) and higher construction costs than planned. While Airports need to recover their capital and operations costs, they need not raise their charges to an extent that it drives airlines and flyers, their primary users and customers away from the airport, which many international airlines are currently threatening. Instead of increasing their revenues, the airports may see a decline in passengers and subsequently the number of flights moving in and out of the airports thus making the fee raising exercise a zero sum game for the airport. The following paper attempts to identify some measures that may cost negligible compared to the benefits that it can potentially bring to all shareholders for both the Airport projects.

Background
The process of private participation for Delhi and Mumbai Airports had begun as early as 2003. Delhi and Mumbai being the political and commercial capitals of India respectively had airports that were experiencing high passenger traffic growth (as India’s growth story initiated by the IT and Telecom sectors) but did not have the necessary infrastructure to manage the growing traffic. Airports Authority of India (AAI), the incumbent state-owned operator lacked the expertise necessary to increase the capacity at the airports. Both Airports badly needed upgradation as fliers were increasing and service levels were dropping making these airports “passenger unfriendly”. The Airports also needed massive security infrastructure upgradation as the Airports were not equipped enough to prevent a September 11 kind of attack. The decision to induct the private sector had also been initiated in part considering the success story of Cochin International Airport, scope of better services that can be offered by a private partner, tourism promotion and to bring in global expertise in airport operations as India was becoming increasingly global. However due to the strategic nature of both these airports, it was also decided that the government would not give up complete control in private hands but would retain ‘some control’ considering security and national interest issues. The Inter Ministerial Group (IMG) constituted by the Ministry of Civil Aviation (MoCA) to assist the Empowered Group of Ministers (EGoM) had been apprised of various issues in the course of awarding the long term...
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