Healthy real estate monetisation, ops efficiencies to drive

The new concession structure adopted by the government in privatising six AAI-run airports provides more opportunity for the concessionaire to develop and retain the upside from unregulated non-aeronautical revenues and real estate monetisation, the rating agency said. On the contrary, the regulated nature of the aeronautical revenue limits the growth of the same to the extent of passenger growth, Icra said on Tuesday.

Last year, the Modi government despite stiff opposition from the Airports Authority of India (AAI) staff unions and reportedly ignoring the guidelines of both finance ministry and Niti Aayog decided to privatise six AAI-run airports the public-private partnership (PPP) model. In February, Gujarat-based conglomerate Adani Enterprises Ltd (AEL) won the rights to run six airports -- Lucknow, Ahmedabad, Jaipur, Mangaluru, Thiruvananthapuram and Guwahati--after competitive bidding.

The government's recent initiative of privatising the six airports under a new criterion of revenue share, of that as a fixed concession fee per passenger saw strong interest from private players, Icra said. "As witnessed internationally and in India during the last decade, non-aeronautical revenues have become a key contributor, in some cases a majority contributor, to an airports revenues. Going forward non-aeronautical revenues are expected to play an important role in generating healthy returns for the concessionaire," it said.

According to Icra, the growth in non-aeronautical revenues at an airport derive from the willingness of the users to spend which, in turn, is a function of the quality of infrastructure and the extent of facilities offered. In addition, the concessionaire would need to focus on achieving healthy real estate monetisation and optimising its costs to drive revenue growth and profitability, it said.

"The regulated nature of aeronautical revenues, with the resultant limited upside makes concessionaire focus more on achieving better growth in non-aeronautical revenue generation as it gets to retain the upside (entirely in the new proposed structure under NABH Nirman and partially under the existing tariff fixation structure)," said Sachin Sachdeva, vice president for Corporate ratings, Icra. In addition, privatised airports can improve returns through cost optimisation especially employee costs as has been witnessed in case of earlier privatised airports, he added.

Noting that the recently privatised six airports have been witnessing healthy traffic growth in line with all India trend, Icra said non-aeronautical revenues, healthy real estate monetisation and operational efficiencies are expected to drive airport developers returns. According to Icra, the total traffic at these six airports stood at 34.6 million in the previous fiscal, a 15 per cent growth over the year-ago period.

Besides, since these airports cater to cities of economic, social and cultural importance, it makes them amenable to strong growth in non-aeronautical revenues, it said. These six privatised airports are also witnessing capacity constraints with stronger passenger traffic growth and there is a need for immediate capex to be undertaken," said Anupama Arora, vice president for corporate ratings, Icra.

Further, infrastructure revamp is required to realise the potential of non-aeronautical revenues and real estate monetisation, she said. There is a need to access a variety of sources to fund the capex and one such source could be security deposits from non-aeronautical concessionaires and real estate developers, as has been witnessed in case of earlier privatised airports, she said, adding as per our estimates, as much as 10-15 per cent of funding requirements for capex can be met from such deposits..