July 18, 2008

Aviation Slowdown to Squeeze Airports Authority’s Revenues

By Saurabh Sinha

NEW DELHI: Closure of its airports in Hyderabad and Bangalore, coupled with slowdown in the aviation sector, has made the Airports Authority of India (AAI) jittery over revenue collection in financial 2008-09. In 2007-08, it collected Rs 4,000 crore and now the authority feels that even meeting this figure would be good enough in this turbulent year, when record oil prices have put a question mark on airlines' survival and pulled down growth rate of domestic passenger traffic.

Airport developers' revenues come from two main areas - aircraft movement and passenger fees - both of which have drastically fallen and are likely to impact their bottomlines. Private developers like GMR and GVK are also impacted by this slowdown. While they were entitled to raise airport charges by 10% this year, the aviation ministry has not allowed that so far because of airlines' poor health.

What makes AAI's case worse is that Hyderabad and Bangalore have got private airports, so stopping the revenue stream from these two. It's a double whammy for the government agency since projects worth Rs 3,400 crore have to be implemented this fiscal as part of the Rs 12,500 crore to be spent on building infrastructure during the 11th Five Year Plan.

Airlines are in a bad shape financially and delayed payments from some players have become a common practice today, which is bothering all airport developers. "We have to constantly chase airlines for payment. If someone closes down then our dues would be as good as gone," said an official. The AAI recently sent a letter to a leading airline, threatening to liquidate its security deposit if it fails to clear its long outstanding dues.

Unlike private developers, the government has not allowed AAI to charge user development fees (UDF) from passengers to part fund new infrastructure projects. The cloud over earnings has already forced Airports Authority of India to scale down some projects, especially those planned in smaller cities. For instance, Vijaywada is getting a longer runway that can allow an Airbus to operate from there but the new terminal building has been put on hold. A temporary structure could be made instead of the proposed terminal.

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