What it will take to rescue AAI's mess in Chennai, Kolkata airports

The Airports Authority of India (AAI) owns and operates a majority of airports in the country. It built and upgraded two major airports in recent months: Kolkata's Netaji Subhas Chandra Bose International Airport and the Chennai International Airport but now, the Ministry of Civil Aviation wants both these airports to be managed by private airport developers and is launching global bids for both these airports soon.

So is AAI incapable of efficiently managing large airports and their expanding demands or is the Government sold out to the Public Private Partnership (PPP) model and thus wants all large airports to be managed by private players? Is AAI being used merely as a glorified construction company, meant to only construct airports?

Reuters

Reuters


Ironically, just yesterday the Ministry of Civil Aviation also began examining a proposal where AAI will not be able to charge landing, parking or navigation charges at smaller airports to boost connectivity. So basically, AAI is merely doing philanthropy! There is a view that instead of running large metro airports, AAI should concentrate on smaller ones where private interest is negligible.

Let us look at the first aspect, which is the capability of AAI to manage day to day operations at large metro airports. A source in the airport authority points out that being a Government body, it often gets stuck in myriad procedures and bureaucracy and decisions get delayed. "We are not good at things like commercial development which means selling space to commercial establishments to generate revenue. This is something the private operator can do much faster."

But AAI's airport management is anyway under a cloud. How can it explain away teething problems at AAI managed airports, when new terminals at both Chennai and Kolkata have recently been operationalised and are giving flyers a headache? At Kolkata, an airport where a lot of glass has been used to please the eye, glass panels have begun cracking regularly. AAI sources say these cracks would happen anyway and only 25-30 glass panes have cracked out of 40,000 panes used. They also say these cracks pose no threat to flyers but despite these claims AAI is still in the dark about the exact cause of such frequent cracks. Now, an independent consultant from Australia has been appointed to determine whether something can be done to stop the cracking even as each cracked glass is being replaced.

The new terminal at Kolkata was inaugurated in January this year and cost over Rs 2000 crore to build. Besides cracking glasses, the new terminal building also faces other teething problems such as mounds of garbage lying around because of a shortage of cleaning staff; flyers who change over from an international to a domestic flight or vice-versa also face an ordeal because of the distance between the two terminals.

Similar tales of woes are apparent at Chennai, where again building glass keeps cracking. To make matters worse, a ceiling at the new terminal fell off last week due to rains and heavy winds and made ground floor inaccessible for a day. The Hindu newspaper quoted an airport official saying 75 sq. metres of the false ceiling in the security hold area at the ground floor fell down at night. After a five-year wait, the new domestic terminal at the Chennai airport opened its doors to passengers in mid-April in phases. The delay in project completion had resulted in a Rs 200 crore cost overrun, taking the total cost to Rs 2,015 crore against an estimated Rs 1,800 crore.

So AAI's airport management skills are not really world class.


Let's now come to the Government's fondness for PPP model for airports. Two shining examples of airport PPP - Delhi and Mumbai airports, have had more than their share of controversies with this model spanning revenue share agreement with AAI, commercialisation of land, exorbitant user charges for flyers as well as airlines.

The experience with Delhi and Mumbai International Airports should help the Ministry not repeat mistakes made in these two PPP models. Says Amber Dubey, Partner at KPMG "The PPP model for Chennai and Kolkata should incorporate the learnings of the other metro airports. Primary among those are: freeze the tariff policy in great detail well before the bids are called; provide reasonable returns to the operators but keep user charges to the minimum; keep tight control over project cost in future expansions; ensure maximum number of AAI employees are absorbed and not reverted back to AAI. Care should also be taken that a part of the earnings from commercial development of real estate are ploughed back to passengers and not just to AAI. Finally, termination clauses and step-in rights should be well drafted so that in the event of termination, the airports and passengers are not adversely affected."

A long list of things to remember before two more lucrative airports are handed over to private developers. Neither flyers nor airlines are happy with charges which Delhi and Mumbai now levy on them. Partly, the cost escalation in each project and delays in completion are to blame for high airport charges for passengers.

AAI sources say just like in the case of Delhi and Mumbai airports, it wants to follow the revenue share model for PPP in Kolkata and Chennai. They said it will take another six months for bidding to start.

Well, six months is long enough to learn from past mistakes and draft a clear and precise agreement where user charges, project cost, termination clauses etc are clearly defined.


Published Date: May 23, 2013 05:54 pm | Updated Date: Dec 20, 2014 09:03 pm



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