2nd airport in NCR will be no cakewalk

by / Friday, 09 October 2015 / Published in News & Updates

The civil aviation ministry’s plan to build a second airport in the national capital region (NCR) faces multiple hurdles before it finally takes off.

Besides amending a rule that bars construction of a second airport within an aerial distance of 150 km, the government may find it hard to convince banks and private investors to put in money in a project that has traffic and revenue risks.

Aviation industry analysts say the cost of acquiring additional land for the project will be very high, which will push up the investment recovery period. The government could face opposition from political parties over revenue loss of the state-run Airports Authority of India (AAI), which gets 46 per cent revenue share from the operators of Delhi’s IGI airport.

“If the government action leads to loss in revenue for the existing operator, it will have huge fallout on future projects and private investments. All initiatives to attract investment in PPP projects will suffer,” said Mark Martin, CEO and founder of aviation advisory firm Martin Consulting.

The government had in 2006 leased out the Delhi airport to the GMR Group-led Delhi International Airport (DIAL). AAI and German airport major Fraport hold 26 per cent and 10 per cent stake in the joint venture, respectively. After buying put the 10 per cent equity stake of another foreign partner Malaysia Airports Holdings Berhad (MAHB), GMR Group now holds 64 per cent in DIAL.

In order to ensure viability of the Rs 12,857 crore Delhi airport, the state support agreement (SSA) signed between DIAL and the government provides for right of first refusal (ROFR) to the former in case a second airport is built within an aerial distance of 150 km.

According to the SSA, the private operator of the existing airport will have the right of first refusal (RoFR) in the airport project coming in its vicinity.

In the event of being unsuccessful in putting the winning bid, the operator would be allowed to match the highest bid, if it is within 10 per cent of most competitive bid.

“In case of breach of contract, the existing player can demand compensation from the government,” said RN Gupta, managing partner of law firm SNG & Partners.

Gupta said the government must hear all the stakeholders in the existing project in case it planned to build a second airport, failing which investor sentiment could be hit.

An industry source said DIAL lead partner GMR Group had been claiming that its airport infrastructure had a capacity to handle 62.5 million passengers against the actual demand for 40 million. It can take up its total capacity to 100 million by constructing another runway and terminal.

“DIAL does not want a second airport nearby at this point of time. Their argument is that the existing airport can be expanded at a much cheaper cost and two airports in close proximity could make both the facilities unviable,” he said.

Mahesh Singhi, managing director of investment-banking firm Singh Advisers, however, said contrary to market perception GMR may go and take up the second airport project.

“As part of the contract, GMR would be compensated for the loss of revenue. So why should they be worried,” Singhi asked.

While the airport project itself is not very certain yet, real estate players are wasting no time to sell the idea of a second airport. Many builders in and around the site of the proposed second airport have started sending out messages to prospective property buyers to grab the opportunity and invest at the earliest.

“Coming soon international airport on Yamuna Expressway. Real estate will boom there, so buy now before price revision,” read one such SMS.

The second airport in the Greater Noida area of NCR was first proposed way back in 2001, but it is yet to see the light of the day. The previous Mayawati government in Uttar Pradesh had acquired over 2,000 acres for the project, but it has remained trapped in political quagmire.

The Union minister of state for civil aviation, Mahesh Sharma, has renewed the push and claimed last week that his ministry had given in-principle approval to the project and the proposal will soon be taken to the cabinet.

Sharma is the sitting MP from Gautam Budh Nagar constituency, where the second airport is proposed to be built.

See Article: http://www.mydigitalfc.com/news/2nd-airport-ncr-will-be-no-cakewalk-796