Airports for sale

Print edition : October 24, 2003

The Union government's decision to privatise the profit-making Mumbai and Delhi airports will only serve the interests of private players. Apart from affecting national security, it would undermine the viability of the AAI.

ALTHOUGH the Supreme Court has arrested the disinvestment process in mid-flight, the Union government appears to be speeding on the runway towards handing over its controlling stake in Indian airports to private interests. And, in keeping with the trend, the government's recent decision to divest control of the Airports Authority of India's (AAI) two main airports, in Delhi and Mumbai, has attracted controversy.

At the Mumbai International Airport.-KAMAL NARANG

Just days before the Supreme Court halted the government's move to hand over control of the two oil majors, Bharat Petroleum Corporation Ltd. (BPCL) and Hindustan Petroleum Corporation Ltd. (HPCL), the government announced its intention to privatise the two airports. The Union Cabinet decided on September 11 that the AAI would enter into joint ventures with private companies and investors and that it would allow these players to own 74 per cent of the stake in the joint ventures, thereby reducing the AAI to a minority stakeholder in the new venture. The truncated AAI, it was decided, would let out vast stretches of its land on long-term lease to its new-found partners.

Bearing in mind the need for a crisis management team to deal with the contentious issues that have now become a regular feature of the disinvestment process, the government constituted an Empowered Committee comprising the Union Ministers for Civil Aviation, Commerce, Finance and Disinvestment. This committee is to examine the "overall parameters" of the privatisation and modernisation process of airports in India.

Faced with the spectre of job losses, the employees of the AAI hit back immediately. The Airports Authority Employees Union (AAEU), representing the vast majority of the 15,000 workers of the AAI, threatened a week-long relay hunger strike from September 18 and threatened to go on mass casual leave on September 26. The government, already forced on the back foot on the disinvestment front, was forced to negotiate with the union. According to a source in the AAEU, Union Minister for Civil Aviation Rajiv Pratap Rudy assured the union that the government would only "restructure", not "privatise", the two airports. It is significant that about 70 per cent of the net profit registered by the AAI during 2002-03 was generated by these two airports.

Those supporting the handover argue that privately owned airports will be more efficient and comparable to the best in the world. Passengers will be able to get in and out of the airport faster. In short, proponents of airport privatisation argue that airports will be more passenger-friendly.

Those against privatised airports argue that the issues are far more complex, and controversial too. Although they admit that the situation in airports needs to get a lot better, they say the answer does not lie in privatisation. They argue that the move to hand over the control of the country's two main airports would have serious consequences, particularly for national security.

There are other objections as well. Critics of the government's move to privatise its best and most profitable companies have repeatedly aired some of these. One of their fundamental objections to the disinvestment process has been that high-value public assets are in danger of being sold to private operators. In the case of the AAI privatisation, too, this has figured prominently. The management of airports is marked by certain elements that economists term as a natural monopoly. This aspect of the business is what has fuelled opposition to the government's decision to privatise the AAI. In particular, there are fears that the government's monopoly over publicly owned assets running into thousands of crores of rupees is in danger of being handed over to private parties for a song.

TILL 1972, the Union government managed the airports in the country. The International Airports Authority of India (IAAI) was formed that year to manage the four main international airports - in Delhi, Mumbai, Kolkata and Chennai. In 1986 the National Airports Authority (NAA) was created to manage the domestic airports. In 1995, the IAAI and the NAA were merged to form the AAI.

The AAI now manages 124 airports in the country. Among them are 11 international airports, 85 domestic airports and passenger terminals in 28 military airports. It employs about 22,000 employees - 7,000 executives and 15,000 unionised staff. In 2002-03, the AAI made a net profit of Rs.488 crores. The AAI handles an annual traffic of a little under one crore passengers, 40 per cent of which is carried by the national carriers, Indian Airlines and Air-India. It is significant that 70 per cent of this came from the two airports that are now under the government's hammer, Mumbai and Delhi. Informed sources in the AAI said that if profits from the Chennai airport are also included, the three airports contributed to over 80 per cent of the AAI's net profits last year. Only nine airports generate any profits for the AAI. More than 70 airports that are operational make losses. And there are more than 40 airports that are not even operational, so there is no question of the AAI making any money from maintaining and running these airports.

These figures clearly show that air traffic in the country is heavily skewed, reflecting the reality of a vast but underdeveloped country. The AAEU has argued that by forcing the AAI to enter into partnership with private companies to run the country's two main airports, the AAI is being pushed on the path to sickness. The heavily skewed distribution of air traffic implies that most airports in the AAI's network earn low revenues. The AAEU has argued that the profits from a handful of airports have cross-subsidised operations in the airports that earn virtually no revenue. The union has also said that the network of airports has to be regarded as a basic national infrastructure, without regarding each one of them as individual "profit centres". Thus, the AAI's loss of control over Delhi and Mumbai airports will result in two obvious consequences. One, the new private operators of the two main airports will be able to "skim the cream". Two, the AAI's loss of control over these two airports will mean that its operation of the rest of the airport network will become non-remunerative. AAEU sources say that the privatisation exercise is meant to further private profit while undermining the very viability of the AAI.

Soon after the Bharatiya Janata Party-led government took office in 1998, it announced its intention to move the AAI on the road to privatisation. In January 1999, Ananth Kumar, then Union Minister for Civil Aviation, announced the government decision to "corporatise" airports in the four metros and in Bangalore. The government also announced that four or five new international airports would be established, each at a cost of about Rs.3,000 crores. While reiterating that air traffic control would remain with the AAI, the new policy statement also announced that the first airport would be privatised within a year. It hired the multinational consultancy, KPMG, to advise it on the financial modalities of disinvesting its hold on the AAI.

In order to overcome the legal impediments in the way of selling its stake in the AAI, the government also moved the Airports Authority of India (Amendment) Bill in 2000. The Lok Sabha passed the Bill on May 9 this year, the last day of the Budget session. The Rajya Sabha passed it later, in July.

The AAEU has pointed out that several objections were raised about the Act by the Standing Committee of Parliament attached to the Ministry of Civil Aviation. In particular, these objections centred around the issue of protecting the interests of the employees of the AAI. The amended legislation now enables the government to offer airports on long-term lease to private operators. It has provisions to recognise the concept of a "private airport" and offer protection to private operators. The legislation also enables the AAI to participate in joint ventures to manage existing infrastructure that has been built with substantial investments over the years. In particular, the legislation has been modified to enable the AAI to lease out its facilities to private operators. In order to protect the interests of the private operators the legislation enables the operators to levy fees and other charges on passengers to fund their modernisation and expansion projects.

Although the government had announced in 1999 that it would establish a regulatory body to oversee the civil aviation industry that has not happened yet. Critics have alleged that the government's failure to establish regulatory systems before the entry of private operators indicate that the same problems that have arisen in the power and telecom sectors may also be in store for the airport sector as well. They argue that the delay is deliberate and is meant to enable the private players to set the rules first that will govern their business; the regulator will have no choice but to accept these as a given if and when it is constituted. An officer in the AAI told Frontline that the absence of a regulatory framework would enable "profit-gouging, and another Enron in the making".

The government has now announced that the AAI will enter into joint ventures with private players after the government dilutes its stake in the AAI to 26 per cent. The government, in defence of its move, has claimed that privatisation will make these airports world class. However, the AAEU has challenged the logic that privatisation and the building of world-class facilities are linked in any manner. In a memorandum submitted to Rudy recently, the AAEU asked: "Do you propose only profit-making airports? Who is going to control the loss-making airports?" The president of the AAEU, S.R. Santhanam, told Frontline that the government had treated the AAI shabbily. "After all," he said, "the AAI has built world-class airports in other parts of the world, notably in West Asia, securing the contracts for them against stiff international competition." He also pointed out that the Chennai airport had recently won an international award. He said that greater efficiency could be brought about by giving the AAI more autonomy.

Speaking to Frontline the all-India general secretary of the AAEU, M.K. Ghoshal, said that the proponents of privatisation are misleading people by claiming that operations would be more efficient. Referring to their claim that passengers at the Singapore airport take just a few minutes to emerge out of the terminal, compared to hours at Indian airports, Ghoshal said that the comparison was misleading. First, he argues, the security-related issues are totally different in the two countries. Singapore, he points out, does not have a problem that India has in dealing with terrorism. Moreover, the argument is "totally flawed" because passengers are not delayed because of the AAI. He points out that the two main reasons for delays are baggage handling and checks by Customs personnel. He points out that AAI staff do not handle these operations.

The Centre of Indian Trade Unions (CITU) has denounced the decision to privatise the two main airports. In a statement issued in New Delhi on September 12, the CITU secretariat raised apprehensions about security-related issues, and termed the decision "anti-national". It pointed out that airports were an important part of the national infrastructure and that they could not be handed over to private interests without jeopardising national security. It accused the National Democratic Alliance (NDA) government of "deliberately ignoring" national security issues while "favouring chosen friends in the private sector". It pointed out that the government's attempt to assuage hostile public reaction to the move by claiming that the government, through the AAI, would retain charge of air traffic control and security did not make sense.

Ghoshal regrets that public institutions such as the AAI, built at enormous cost, are "nobody's child". Politicians, he said, chose to use the AAI to meet their own ends. He pointed out that the recently built airport at Gaya, Bihar, handles an average daily traffic of two passengers. This airport, he said, was built at a cost of Rs.120 crores.

The government claims that lack of funds is the main reason for forcing the AAI on the road to privatisation. It is ironic that even while it is planning to sell its stake in the AAI, it has offered heavy concessions and incentives to private investors. In particular, the consortium has been able to get favourable terms from the Union Ministry of Finance for the concession fee that it has to pay the Union government over a 30-year period. In particular, it would imply that the consortium would save substantial amounts in interest payments, apart from being able to pass on the costs to airport users. The liberal terms offered by the Ministry of Civil Aviation to a consortium led by the multinational company Siemens to build a new international airport near Bangalore offers a stunning contrast to the way it handles the AAI, which it owns.

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