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BW Businessworld

In AAI’s Interest

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Sometimes, not collecting dues can be a profitable proposition. Airports Authority of India (AAI) chairman Vijai Prakash Aggarwal should know this. 

With the aviation sector in the doldrums, the airlines' total dues to the AAI have soared to Rs 1,800 crore. While Air India's dues stand at Rs 1,200 crore, Rs 270 crore is owed by Kingfisher Airlines (the AAI has filed a suit against the airline in the Bombay High Court) and Rs 120 crore by Jet Airways. SpiceJet also owes around Rs 70 crore. The AAI is charging an interest of 18 per cent on these dues.

The airports authority, too, has borrowed money for the expansion and renovation of its airports, including those at Chennai and Kolkata. While a lot of the work is being funded by internal accruals, the authority has taken loans of nearly Rs 1,700 crore as on date. These loans bear an interest rate of 10.5 per cent. Therefore, even if the status quo continues, the AAI stands to gain, since the interest it is charging the airlines is much higher. 

AAI is looking to shore up its balance sheet as it has initiated a move towards corporatisation. A recent valuation by KPMG has valued the authority at Rs 20,000 crore. However, AAI officials believe that this valuation does not fully take into account the value of the assets and the land owned by the authority, which would take its total valuation close to Rs 1 lakh crore.


The interest that AAI is charging the airlines on their dues

According to Aggarwal, the AAI board is in favour of corporatisation as it will allow the AAI to raise funds from the market, and make it subject to a lesser government control and more competition and risk. AAI employees and unions, however, are opposed to the idea as they fear change. There are downsides to the move as well: the authority stands to lose some legal powers, including those related to land acquisition, once it is corporatised. But the board believes that the benefits outweigh the downsides. 

The authority is preparing to send a note on its corporatisation to the Cabinet for its approval. Since the move requires a change in the Airports Authority Of India Act, 1994, it will have to go through the Parliament. 

Corporatisation will ease the funding problems of the AAI, which is currently engaged in renovating 62 airports across the country; 42 are near completion. Over the 12th Five-Year Plan, AAI will need to raise Rs 17,000 crore for the expansion and renovation of its airports. A key source of internal accruals for AAI is the lease money from the privatised airports, which amounted to nearly Rs 1,200 crore in the past year (Rs 550 crore from Mumbai international airport and the rest from Delhi airport). 

However, according to AAI sources, the lease rent could be substantially higher if the joint-venture structure adopted by the private airports is done away with. AAI incurs a loss of an extimated Rs 120 crore every year in Delhi alone on account of the joint venture. The matter has been referred to the law ministry.

(This story was published in Businessworld Issue Dated 04-06-2012)