Combating Terminal Sickness

The case for privatisation of India’s WW II-standard airports is causing considerable turbulence as militant unions and the communists stoutly block the runways, but the Government is keen on a quick takeoff

Empire Bureau

Travellers in India are hit by terminal sickness. We aren’t talking about yet another bird-flu type epidemic erupting; we are talking about the creaky state of the country’s airports that can leave even the most hard-boiled tourist tearing his hair out. Already, a lack of runway space forces delays and keeps planes waiting for landing spots. A shortage of terminal space compels passengers to travel by bus between terminals and planes. With aircraft thus spending more time than needed in the air and on the ground as well, passengers pay higher fares, reimbursing airlines for fuel and other costs. G.R. Gopinath, chief executive of the first low-cost Indian carrier, Air Deccan, estimates that smoother airport operations could raise his airline’s net profit by 50 per cent. Civil aviation minister Praful Patel said in an interview that the shock of scarcity was at last pushing the country to modernise its airports after many years of disagreement among politicians and haggling by unions. “There are two models for growth,” Patel said. “There’s the Chinese method, where you first develop infrastructure and await economic growth, which is primarily supply-driven.” The second model, he said, is demand-driven growth. “This might initially have teething problems,” the minister said, “but I strongly believe it is more sustainable in the Indian context.” 

That demand is booming is apparent. Indian airlines together own fewer than 200 jets. But with the industry expanding by 25 per cent a year, the carriers are forecast to more than double their fleets by 2010. If 10 per cent of Indians were to fly, a figure Patel expected to be reached within a decade, India would need 1,800 more planes, costing about $100 billion. The big question: where do you accommodate those birds?

Sky watchers saw a ray of light when early in February the civil aviation ministry initiated the process of handing over the Delhi and Mumbai airports to two private consortiums, GVK and GMR, following the payment of $110 million each as bank guarantees. “The process of handing over the airports will be complete by April,” says an official in the ministry. The modernisation process is mandated for completion in 36 months.

The GMR consortium has Fraport, the Frankfurt airport managers, an Indian fund and a Malaysian airport subsidiary as its partners, while the GVK-led group has tied up with a South African airport company and a fund from that country.

Explaining the process involved, the official said both airports will have a separate holding company—called a special purpose vehicle—in which 26 per cent stake will be with the government and the remaining with the consortium.

The Government will now invite bids for the other major metro airports, including Bangalore airport, the primitive sight of which shocked Bill Gates

Officials said the Delhi airport will need two independent runways and extended passenger facilities before March 2010 for the Commonwealth Games, while Mumbai needs to cope with the increasing cargo and traffic rate. As the Delhi and Mumbai airports are the two main gateway cities to India, the government wants them modernised soon.

Industry executives and regulators say three things must happen for the privatisation plan to work. The first is to cede control of the country’s two most important airports to private firms that specialise in running airports. The theory is that doing so would turn the airports into profitable centres with amenities, while also making them more efficient, with shorter ground time, lower costs and more streamlined takeoffs and landings. Patel is pushing a plan to do just that, and it is progressing over the objections of trade unions.

The second element is to bring more of the 300 or so airports into the national grid by adding flights to functional but obscure airstrips and by upgrading navigation equipment and buildings at long-neglected facilities. Singapore Airlines, for example, has begun operating flights to second-tier cities little known outside India. 

There is no question now that most of India’s large airports are in a mess, badly short of space and services. This has adverse implications which go beyond the convenience of passengers, since airports have become important hubs of trade. So there is an urgent need to increase not just passenger capacity but also the ability to move goods in and out of the country. Jacques Creeten, FedEx country chief in India, says the government is realising what FedEx had long argued: that an airplane carrying goods generates considerably more economic activity than one carrying people. India now loses out on much of that activity by preventing cargo carriers from working at peak capability. FedEx wants its own facilities, but Indian law prohibits foreign carriers from making domestic flights.

With the reds off its back—at least for the time being—the government will now invite bids for the other major metro airports, including Bangalore airport, the primitive sight of which reportedly shocked Bill Gates. The entire exercise may, however, prove to be much easier to carry out than, say, privatising the coal industry or the railways. There is a sense that when compared with other infrastructure woes, airports may be the least contentious battle. Robert Blake, a senior US diplomat in New Delhi, said recently: “The aviation sector can be a model that demonstrates the ability of infrastructure development to propel growth and job creation across India.”

March 2006

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