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BW Businessworld

Digging Its Heels In

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Passengers getting in and out of the city of Udaipur must be very thankful for the swank new terminal inaugurated last year. Almost 10 times larger, the new terminal looks a lot better than the old one (which was more like a small, tacky railway platform), and can handle many more flights and passengers. Plus it is a far better introduction to one of Rajasthan's most beautiful cities.

Built at a total cost of roughly Rs 150 crore by the Airport Authority of India (AAI), what many people do not know is that there is no real increase in passengers or aircraft flying in and out of the airport and, consequently there is no increase in the revenue the airport will tot up year after year. The airport — which made losses to start with — will now turn in a much bigger loss every year. The cost of maintaining the grand new facility will aggravate that loss.

While one can't deny that everyone wants the airports at various non-metro cities to go the Udaipur way (in other words, stop resembling dirty, decrepit railway platforms found across India), one cannot understand the logic behind what the government is doing. Surely, allowing AAI to spend large amounts on airside and terminal development without ensuring any consequent increase in revenues from each airport can only be a recipe for disaster?

It is, however, hard to feel any sympathy for AAI in this. Sometime in 2008, the civil aviation ministry had worked out a plan by which the private sector could be involved in upgrading these airports (35 non-metro airports). Initially, it was decided that the airport terminal and city-side development would be handed over to the private player through a public-private partnership (PPP), and AAI would restrict itself to the airside and runway development activities. This way, the private sector player could use the revenues from the real estate attached to the airport to cross-subsidise the large amount it would spend on the new terminal.

But AAI officials perceiving this as some kind of loss of power dug in their heels. It was then decided that while, both development of airside and terminal building would remain with AAI, the private sector would be invited to maintain the terminal building.

Even now, AAI maintains most terminals through a series of complex contracts. Surprisingly, very little inside airport terminals is done by 20,000-odd AAI employees themselves! Anyone with any experience at various airports across the country will agree that AAI's track record of maintaining terminal buildings leaves much to be desired. Not only do most terminals look dull and dismal, one never knows when some part of the roof, escalators or some electrical wiring will give way and cause panic, if not injury.

So, it was felt that even if the AAI was keen to develop the terminal and airside, the private sector player could come in to maintain the terminal. Instead of a series of small, often dubious contractors, one large private player would be responsible for whether the roof caves in on some passenger's head or not (no pun intended on the recent Delhi airport fiasco!). There would be someone to penalise for slack maintenance.

Since the terminal maintenance would not really be a revenue-generating proposition, revenues from real estate, cargo, car park and other advertising potential could be exploited by the private party to cross-subsidise managing the terminal. Based on this premise, the ministry went ahead and invited private sector bids for two airports — Udaipur and Amritsar. There were 23-24 bidders for each airport with many fairly strong private players leading the consortia.

That's when AAI dug in its heels yet again. It argued that the surplus staff from Mumbai and Delhi needs to be absorbed at these other airports and also that offering the maintenance of the terminal was never part of the original mandate. It insisted it cannot give the rights within the terminal away to anyone, no matter what. The matter acquired political overtones immediately, and the government quickly caved in before mounting pressure.

What was left unsaid was the real reason why AAI is so stubborn in protecting its right to grant contracts at terminals. Anyone who has worked with AAI on any airport work will tell you that contracts are usually granted on any criterion, but your ability to deliver. Large amounts of money exchange hands for grant of a contract. Sole advertising concessionaires have more often than not found unexpected advertisements in nooks and crannies of airports, deals that have clearly happened without their knowledge right under their noses. Protests, needless to add, fall on deaf ears.


(This story was published in Businessworld Issue Dated 05-10-2009)

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