As a result, CAPA India has released a new presentation outlining its proposal for a restructuring of the AAI's governance and operational framework, under an independent new agency, the Airports Commission of India, responsible for developing a strategic vision, national master planning and productivity.
Key points of the presentation:
- The high growth rate is compressing planning and project execution cycles. And in the case of airport infrastructure - which is subject to long gestation periods - the development of capacity is lagging behind demand. There is a risk that the development of airport assets could remain in perpetual 'catch-up mode' in the absence of a strategic re-set of how the sector prepares for a future which will be unrecognisable in size and scope from today;
- The absence of a holistic, long term national masterplan for airport infrastructure has resulted in a situation where most of the airports in the country have reached, or are fast approaching, their official capacity. At a systemwide level, utilisation of airport infrastructure stood at 97.4% in FY2018. Even allowing for the fact that airports can be stretched to handle traffic that is above their notional capacity, the sheer pace of growth means that even this flexibility cannot be relied upon for more than 2-3 years. According to CAPA India forecasts (shared in slide 16), airport capacity will need to be augmented by 6.4x over the next 15 years to support the projected growth in passenger traffic;
- With most of the 40 largest airports in the country expected to saturate over the next few years, the narrative increasingly turning to the need to build new runways, terminals and scores of greenfield airports. The capital expenditure associated with such infrastructure development is tremendous. CAPA India estimates that to generate the required capacity will required USD36-45 billion of investment by 2030. This is a colossal undertaking, of a size and scale attempted perhaps by only one other country;
- CAPA India is encouraged by the fact that the government is committed to addressing this issue, in order to facilitate the continued growth of the aviation sector and the economic benefits which it delivers. However, the structural capacity of most of the existing airports is far higher than the current official capacity. This incremental capacity exists because assets are being used sub-optimally. By sweating infrastructure to a level that approaches global norms, significant capacity could be unlocked. This approach would be far quicker and more cost-effective than constructing new airports, and would provide some breathing space for the government to be able to develop a well-structured long term masterplan;
- There is currently no entity in India with point-guard responsibility for strategic planning for the Indian airport system. At present, the Airports Authority of India (AAI) is over-burdened with multiple responsibilities for operations at 125 airports, construction and rehabilitation, airspace management, regional connectivity, cargo handling and various other activities;
- The AAI has performed admirably within the constraints in which it operates. But with its resources spread thin, and a shortage of capital, skills and bandwidth, the authority will struggle to deliver the airport and airspace system required to support one of the world's largest and fastest growing aviation markets. The current structure of the AAI was designed for a sector that was a fraction of even its current size, let alone one that may be more than 10x larger within the next 20 years;
- CAPA India therefore proposes a new framework for the 'AAI of the future'. Our model envisages the establishment of an independent Airports Commission of India, which will be responsible for preparing a strategic vision for the airport system, supported by a national masterplan;
- The Airports Commission of India will need to develop an eco-system of talent and expertise by employing experts and securing the assistance of best-in-class technical partners where necessary. The Commission will assess the efficiency of airport assets and evaluate how to maximise productivity and capacity. Comparing capacity with traffic forecasts will enable the commission to determine where and when new infrastructure will be required, and to take steps to ensure that this is developed before constraints arise;
- In order to develop value, the AAI needs to be restructured to meet the needs of a dynamic sector. Relieved of strategic and planning responsibilities, the AAI will be entrusted with the appropriate structure, governance and operational framework to be able to focus on execution of eight key areas, namely:
- Airport management;
- Airport maintenance;
- Design and planning;
- Engineering and construction;
- Air navigation,
- Education and training;
- Airport IT;
- and Real Estate Development.
- The 'AAI of the future' will be a holding company majority owned by the Government of India, with shares in eight strategic business units as above. Each subsidiary will be run by its own management team which, in most cases, will be spearheaded by a CEO, and may induct specialist strategic partners;
- The evolution of AAI into an entity which is more aligned to the future is crucial for the sustained and viable growth of the aviation sector, and by consequence of the overall national economy.
To learn more and download the full presentation visit, CAPA India Insights.