India to privatise six major airports by March

The hubs are in major cities and have seen double-digit growth in the past five years.

The Indian government is aiming to privatise six airports across the country before the end of February and is planning to issue a request for proposals this December, sources familiar with the matter have told Infrastructure Investor.

Delhi approved the privatisation of the airports of Ahmedabad, Jaipur, Lucknow, Guwahati, Thiruvananthapuram (Trivandrum) and Mangaluru in November, saying the PPP model in infrastructure brings “professionalism”, and harnesses “the needed investment in the public sector”.

The government did not provide any official timeframe for the process, but one analyst confirmed that requests for proposals are expected to be issued this month.

“[International investors] need to start doing their homework now rather than later, because the timeline for bidding is going to be fairly limited,” said Manish Sharma, a partner at PwC focused on the Indian infrastructure sector.

A source close to the government also offered a similar timeframe, saying the process could begin “the second or third week of December”.

A spokesman for the Key Infrastructure Development division of the Airport Authority of India declined to comment.

Analysts expect the monetisation of the facilities will attract interest from domestic and international investors.

The six airports have all experienced a “steep upward trajectory” with double-digit growth rates in the last five years and are located in state capitals or serve densely-populated cities, said Jagannarayan Padmanabhan, director at CRISIL Infrastructure Advisory.

“All these factors churned together will make an attractive proposition for each of these airports,” said Padmanabhan.

The aviation industry in India grew from 79 million to 158 million passengers between 2010 and 2017, and is set to become the third largest air passenger market in the world by 2026, according to the International Air Transport Association.

Due to this growth, airport operators will have to invest in increasing capacity of the facilities.

“There is an important need for capital expansion in order to cater for the increasing demand,” said Spencer Ng, vice-president and senior analyst, project and infrastructure finance at Moody’s.

Previous attempts to privatise Ahmedabad and Jaipur airports failed to attract investors due to, among other reasons, “not having hold on the capital expenditure for the future”, said Padmanabhan.

“This means investors may be open to modernisation plan[s] and upgrading of facilities […] Both Delhi and Mumbai [airports] received tremendous interest from [the] international investor community despite [the] high capital expenditure involved in both.”

India has so far privatised five airports, including those of Delhi and Mumbai, with operating margins showing “robust growth” of 53.2 percent in fiscal year 2017, said Padmanabhan.

Despite this, challenges facing operators remain, including fixed tariffs and a lengthy dispute resolution process.

In January, a tribunal rejected an appeal from Delhi Airport regarding the increase of user fees at its facilities, a dispute that started six years ago.

“Airports were awarded at the same time that the regulatory regime of the sector was evolving, and it was a bit of a challenge navigating those choppy waters,” Sharma said.

“But I believe that the future set of projects will learn from what has happened in the past, and the outlook for the sector is very good.”