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NITI Aayog
New Approaches to PPP focusing on the
Airport Sector

Picture credit: Construction Review Online

Final Report
May 2019

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Acknowledgement


The study was sponsored with the financial support of Niti Aayog, Government of India and
conducted by CRISIL Infrastructure Advisory, Gurgaon.

DISCLAIMER:
“CRISIL Infrastructure Advisory, Gurgaon has received the grant under the Research Scheme of
NITI Aayog, 2015 to produce this document. However, NITI Aayog shall not be held responsible for
findings or opinions expressed in the document prepared. This responsibility rests with CRISIL
Infrastructure Advisory, Gurgaon.



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Contents
1. Executive Summary ........................................................................................................................................... 7
1.1 Engagement objective ................................................................................................................................ 7
1.2 Execution approach .................................................................................................................................... 7
1.3 Summary of recommendations .................................................................................................................. 8
2. Introduction ...................................................................................................................................................... 11
2.1 About the project ...................................................................................................................................... 11
2.2 Objectives of the study ............................................................................................................................. 11
2.3 Structure of the report .............................................................................................................................. 12
3. Overview of airports sector in India ............................................................................................................... 13
4. PPP trend in the airport sector ....................................................................................................................... 16
4.1 Background .............................................................................................................................................. 16
4.2 Overview of PPP in airports in India ......................................................................................................... 18
4.3 Evolution of PPP structure in airports sector ............................................................................................ 18
4.4 Key considerations in airport PPPs .......................................................................................................... 21
4.5 Key challenges in PPP airports sector ..................................................................................................... 23
4.6 Importance of selecting the right PPP model ........................................................................................... 25
5. PPP framework in Greenfield airport ............................................................................................................. 26
5.1 Suitable PPP framework .......................................................................................................................... 32
5.2 Recommendations on concession structure ............................................................................................ 36
6. PPP framework in Brownfield airports .......................................................................................................... 48
6.1 Suitable PPP framework .......................................................................................................................... 53
6.2. Recommendations on concession structure ............................................................................................ 58
7. Asset recycling framework to monetize airports .......................................................................................... 65
7.1 Background .............................................................................................................................................. 65
7.2 Asset recycling in India ............................................................................................................................. 67
7.3 Asset recycling in airport sector ............................................................................................................... 69
7.4 Conclusion ................................................................................................................................................ 75
8. Summary of key findings ................................................................................................................................ 76
9. Appendix ........................................................................................................................................................... 77
9.1 List of Stakeholder Consultations ............................................................................................................. 77
9.2 List of upcoming greenfield and brownfield airports ................................................................................. 78
9.3 Deviations from MCA drafted by erstwhile Planning Commission – greenfield airports .......................... 79
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9.4 Deviations of DCA for six airports from MCA drafted by erstwhile Planning Commission – brownfield airports
.................................................................................................................................................................. 87
9.5 Deviations from MCA drafted by erstwhile Planning Commission – Airport Terminal ............................. 94
9.6 Revenue Streams ..................................................................................................................................... 96
9.7 Regulatory framework .............................................................................................................................. 96

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List of Tables
Table 1: Passenger traffic in private airports .............................................................................................................. 14
Table 2: Shareholding pattern for Greenfield airports ................................................................................................ 20
Table 3: Quoted fee per passenger by winning bidder .............................................................................................. 20
Table 4: Comparative matrix of tariff structure and bid parameter ............................................................................. 32
Table 5: Comparative analysis of revenue share & per passenger fee as bidding parameter .................................. 33
Table 6: Issues & recommendations of tariff guidelines............................................................................................. 47
Table 7: A few examples of government-ownership with private sector participation ............................................... 48
Table 8: Quoted fee per passenger by winning bidder .............................................................................................. 52
Table 9: Critical factors to be considered for implementing asset recycling .............................................................. 75


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List of Figures
Figure 1: Trend in overall revenue of AAI and revenue from airport leasing ............................................................. 13
Figure 2: Region wise size of investments (in USD billions) in the airport sector involving private participation (between
1990 and 2017), and region-wise split of investment size by project/contract type ................................................... 16
Figure 3: Growth in share of passenger traffic at airports with private participation from 2016 to 2017 and region-wise
share of passenger traffic handled by airports with private sector participation in 2017 ........................................... 16
Figure 4: Region-wise share of airport privatisation exercises with the participation of international bidders ........... 17
Figure 5: Private sector investment in India's aviation sector .................................................................................... 18
Figure 6: Evolution of PPP structures ........................................................................................................................ 19
Figure 7: Declining bidders for PPP airports .............................................................................................................. 23
Figure 8: Structure of the Model Concession Agreement .......................................................................................... 36
Figure 9: Asset recycling process .............................................................................................................................. 65
Figure 10: Mechanism of TOT Model ......................................................................................................................... 68
Figure 11: TOT model and its benefits ....................................................................................................................... 68
Figure 12: Traffic at Galeão International Airport (2007 – 2017) in million ................................................................ 70
Figure 13: Total passenger traffic of international and domestic airport (in million) in FY 2018 ................................ 71
Figure 14: Key agencies that regulate aviation sector ............................................................................................... 96

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1. Executive Summary
1.1 Engagement objective
The aviation sector in India has witnessed peaks and troughs in terms of private sector participation. This can, to a
large extent, be attributed to various types of public private partnership (PPP) frameworks that are applied in the sector.
For instance, in brownfield projects, Delhi and Mumbai airport are relatively successful PPP airports. However, Jaipur
and Ahmedabad airports were facing challenges in attracting private participation and bidding out the projects due to
the concession structure. This was largely resolved through the recent privatization process for six airports that
includes Jaipur & Ahmedabad airports in addition to Lucknow, Guwahati, Mangalore & Thiruvananthapuram airports.
Airport PPP frameworks have evolved significantly since signing of the first concession agreement for Kochi airport
that involved multiple private players. A number of foreign private players had initially shown interest in investing in the
sector. However, there has been a perceptible decline in the interest of foreign players of late as seen in bidding for
Navi Mumbai airport where only one foreign bidder applied. While a few domestic players are keen on bidding for
various aviation projects, the investment demand of the sector is so large that a growing need for attracting wider pool
of private sector investment is felt. Currently, the private sector is facing multiple challenges with the existing
concession agreements such as long equity lock in period, ambiguity in existing tariff structure, non-defined expansion
triggers etc. Therefore, suitable amendments in the existing PPP framework are of vital importance to achieving the
objective of attracting private sector investment.
With regard to the above issue, NITI Aayog intends to carry out a study for amending PPP framework adopted by the
erstwhile Planning Commission for Greenfield and brownfield airport. The client plans to suitably amend the document
in line with the recent developments in the sector, which benefits both the private players and the concessioning
authority. For this purpose, CRISIL Risk and Infrastructure Solutions Limited (CRIS) was mandated by NITI Aayog to
carry out the said study and suggest recommendations/ changes in the existing PPP document. As part of the
engagement, CRIS has carried out the study with an extensive stakeholder consultation and secondary research for
arriving at the key recommendations.
1.2 Execution approach
The methodology adopted for designing the recommendations involved extensive stakeholder interactions which
provided basis for suggested interventions. Since the purpose of the engagement was to provide a holistic view on the
PPP framework the inputs from each category of stakeholders were thoroughly studied, analysed and corroborated
with existing framework. The various category of stakeholders included the following (details provided in annexure):
• Government
• to critically evaluate clauses of the Model Concession Agreement which can be modified and
understand the level of risk sharing possible for future projects
• Existing Operators
• to understand the key operational issues and suggest mitigation measures
• Potential Investors
• to assess key pain points of potential investors and adopt corrective measures to encourage increased
private sector participation in future
Based on the feedback and insights received from the stakeholders, we have identified key parameters that are
required to be studied in the existing signed concession agreements. We have conducted comparative analysis for
both greenfield and brownfield airport concession agreements. In consultation with NITI Aayog, we have kept the
Model Concession Agreement (MCA) drafted by the erstwhile Planning Commission as the base and critically
examined deviations from the MCA in Draft Concession Agreements (DCA). In addition, we have studied PPP
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frameworks adopted in aviation sector of countries such as Turkey, Australia and United Kingdom. We have derived
key learnings from these frameworks and incorporated them as applicable in India’s aviation scenario.
1.3 Summary of recommendations
We have divided our recommendation into greenfield and brownfield projects. We have recommended amends in the
MCA and required structural changes in the regulatory framework for the airports. In addition, we have provided a
study on asset monetization models (bundling of airports) and recommended changes in concession agreement for
Jaipur and Ahmedabad airport. We have recommended clause wise amends/ additions in the MCA for both greenfield
and brownfield airport.
Our analysis suggests that the following broad changes are needed in the MCAs to vitalize PPP in the aviation sector:
Provision name Recommendation
Concession period Greenfield – 40+20 years based on Authority’s approval
Brownfield – 50 years with no extension in period
Right-of-way - land acquisition
clearance and approvals
Greenfield - 90% of the land transferred on the effective date should include
100% of the land pertaining to airport operations
Brownfield - 100% of the land transferred on the transfer date
Expansion of the airport Expansion triggers for capital expenditure linked to annual passenger
capacity and average peak hour capacity to form part of the MCA for
phased expansion
Bid parameter/ Concession fee Greenfield - An inflation linked parameter - ‘INR per passenger’ may be
suitably adopted to minimize revenue leakage.
Brownfield – Fee for each domestic and international passenger to be
shared with Authority
Termination payment linked to
actual project cost
Greenfield - The termination payment to be linked to a value which is
some percentage (as determined by the authority) higher than the
defined total project cost.
Brownfield – The termination payment definition to be linked to invested
value in aeronautical and non –aeronautical assets as determined by the
regulator
User fee - ambiguity in tariff
structure
Providing clear definition as well as method for calculating each
parameter, with each sub-parameter defined as per the airport category,
will eliminate interpretation issues for both the concessionaire and regulator.
This will help reduce the disputes.
Concession Fees – moratorium
period
Providing concession fees moratorium up to sufficient number of years
subject to an upper ceiling of 15 years will help the concessionaire to bear
the initial debt burden.
Definition of change in ownership/
Equity lock-in period
Equity lock-in period will be extended to five years to ascertain the
operational compliance of the concessionaire in the MCA.
Concession period linked to target
traffic
Modification in concession period with respect to difference in target
traffic and actual traffic as on target year determined by the Authority.
Apart from the changes in the MCAs, other recommendations include strengthening the regulatory scenario which are
illustrated below:
Adoption of two stage bidding process for both greenfield and brownfield PPP projects
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All the PPP airports developed in the past have been awarded through a two stage bidding process which has proved
to be the most efficient and effective method for award of PPP projects. However it is important to define and adhere
to the timelines of bidding process set out for the specific project to gain maximum benefit out of this type of bidding.
Prolonged Litigation Process
The litigation process before the Tribunal to be resolved within 90 days of appeal, which will speed up the resolution
process
The panel to have representation from an independent aviation expert for effective dispute resolution
The report examines various models of tariff determination that may be adopted for future PPP airports which are
under consideration. Comparative analysis of following types of models have been considered:
1. Cost plus model with highest gross revenue share and tariff regulated by AERA
Based on stakeholder interactions, apart from strengthening the existing tariff filing guidelines and effective and timely
dispute resolution, this model is widely accepted. However our analysis suggests that a bid-parameter which can
virtually have a zero-risk of revenue leakage to the Concessionaire can be a better alternative.
2. Pre-fixed revenue share (8 -12%) with the lowest tariff as bid parameter
Although the lowest tariff will be beneficial for end users, aggressive bidding may lead to stalling of projects during the
execution phase
3. Pre-determined tariff with highest premium (up to 50%) and review by AERA every five years as suggested
in the MCA
This model will help avoiding gold plating by private players. But aggressive bidding may again lead to stalling of
projects during the execution phase. This may be partly addressed by procuring an additional security deposit for five
years to ensure operational compliance.
4. Max yield per passenger pre-determined by the Authority, termed as Maximum Blended Aeronautical
Yield(MBAY) and fixed fees per passenger as bidding parameter
Similar to the pre-determined tariff regime, fixed yield may be considered for both greenfield airports as the yield will
be based on assets to be built/existing assets and future expansion plans.
We have made the following recommendations:
1. Bidding Parameter: Concession fee per passenger in terms of an inflation linked INR per passenger
2. Tariff Structure: A pre-determined, inflation-linked/adjusted and MBAY-derived tariff structure with a detailed
schedule of user fees appended to the concession agreement right at the outset which would be subjected to
periodic review by AERA/designated competent authority.
For brownfield airports, the recommendation has been proposed in line with the latest DCA implemented by AAI for
six airports. The regulatory framework followed in the DCA is Cost Plus model with highest per passenger fee and tariff
regulated by AERA.
We have made the following recommendations:
1. Bidding Parameter: Concession fee per passenger in terms of an inflation linked INR per passenger
2. Tariff Structure: As followed by AERA as per AERA act 2008 and the addendums issued for the act.
In addition to the above, bidding out airports on O&M contract may be a viable option provided issues related to scope
of work, equity lock in period, bidding parameter, concession period are suitably modified to suit the appetite of private
investors.
Recommendations pertaining to asset monetization have also been incorporated as part of the report. Since there is
a significant requirement for investment in the airport sector (USD 45-50 billion), it is government’s prerogative to
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efficiently utilise its resources to create a conducive environment for private investment. The various models through
which this can be achieved in the airport sector have been analysed and it has been observed that bundling of airports
is not suggested at this stage as high potential airports will attract private parties on standalone basis provided the
deal value is attractive.
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2. Introduction
2.1 About the project
With the Indian government’s thrust on public private partnerships (PPPs) in the infrastructure sector, multiple models
have been formulated to channel private sector investments into various projects. These models, with suitable legal
and regulatory frameworks in place, have been used in actual infrastructure projects across sectors, albeit with varying
degrees of success. Given that infrastructure projects are inherently capital-intensive and susceptible to cost overruns,
the positioning of private sector players as stakeholders through PPPs has incentivised robust project management
practices. Learnings from operational PPP models led to the development of newer models, which addressed
challenges and evolved with time.
While the past PPP initiatives in the airports sector have been successful in attracting private investments, there were
a number of challenges both the government regulators and private investors faced. Given the pace of traffic growth
across several airports in India, capacity augmentation of existing airports and the development of newer airports have
become increasingly important. The National Civil Aviation Policy of 2016 estimates domestic passenger traffic to be
500 million by 2027. Against this backdrop, it is essential that a rigorous PPP framework for the airport sector be put
in place to enable the development of required infrastructure.
With this objective, NITI Aayog intends to carry out a study on PPP frameworks in the airports sector. The study will
be carried out both for brownfield and greenfield airports. A thorough understanding of the existing model concession
agreements (MCAs) is a key starting point for this study. The guiding objective of the study is to identify areas of
improvement in the existing MCAs in the light of recent developments in the sector, adapt best practices from around
the globe and find out alternative models of financing.
2.2 Objectives of the study
The study should focus on:
Understanding the key attributes and issues in the Operations and Maintenance(O&M) model adopted by the
Ministry of Civil Aviation (MoCA) for Jaipur and Ahmedabad airports
Exploring the possibility of alignment of the existing Operations and Maintenance (O&M) model with the TOT/asset
recycling model with provision for capacity augmentation
Analysis of the differences in structuring of PPP projects as adopted by the Ministry of Civil Aviation (MoCA) in the
airports vis-à-vis the Model Concession Agreements (MCAs) prepared earlier by the Planning Commission
Exploring the best option suited to greenfield airports- comparative analysis
Making recommendations on suitable amendments to the existing Model Concession Agreements
To undertake this study, NITI Aayog has appointed CRISIL Risk and Infrastructure Solutions Ltd (CRIS), which is a
100% subsidiary of CRISIL Ltd, an S&P Global company.

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2.3 Structure of the report
The overall report is segregated into six sections as described below:
Section 1 Executive summary Summary of key findings from the study conducted
Section 2 Introduction Narrative about the project, the overarching objectives and the
approach and methodology adopted to conduct the study
Section 3 Overview of the airports sector in India Study of the airports sector landscape in India
Section 4 PPP trend in the airport sector Study of PPP models adopted in the airport sector globally and in
India including evolution of PPP models, key considerations and
challenges in PPP and importance of selecting the right PPP model
Section 5 PPP framework in Greenfield airport Study of PPP model in Greenfield development, deep dive analysis
of the MCAs with comparative analysis and subsequent issues
faced by the authority and private operator. Recommend suitable
amendments in the existing MCAs published by the erstwhile
Planning Commission and existing Draft Concessions Agreements
of PPP airports.
Section 6 PPP framework in brownfield airport Study of PPP model in brownfield privatization, explore suitable
framework. Recommend suitable amendments in the existing MCAs
published by the erstwhile Planning Commission and existing Draft
Concessions Agreements of PPP airports.
Section 7 Asset recycling framework to monetize
airports
Study of asset recycling framework, current landscape in India and
applicability of the framework in airport sector





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3. Overview of airports sector in India
The rapid rise in India’s aviation sector has increased the requirement for new airports. In the last 2-3 years, India has
become the fastest growing aviation market, clocking a Compound Annual Growth Rate (CAGR) of 20%. In terms of
size, the country is ranked ninth, with the market valued at USD 16 billion in fiscal 2018. A large part of the rise was
due to increase in domestic passenger traffic, owing to the low cost of airline tickets and expanding incomes, thereby
making flying more accessible. In fact, during the year
1
, domestic passenger traffic increased ~18.3% year -on-year to
243.28 million. By 2020, the government envisages India’s aviation sector to become the third largest. The government
is also targeting 1 billion trips per year by leveraging the development potential in tier 2 and 3 cities.
Development of airports is another key reason for the increase in domestic passenger traffic. There is considerable
activity around airport development owing to a liberalised foreign direct investment (FDI) policy, increasing adoption of
information technology, and focus on improving regional connectivity.
Currently, India has 464 airports and airstrips. Out of this, 125 are managed by Airports Authority of India (AAI) and
the rest by state governments, government subsidiaries and private players. AAI was established in 1994 under the
Airports Authority Act and is primarily responsible for financing, developing, operating and maintaining all government
airports. It currently manages 90 operational airports, nine non-operational airports and 26 civil enclaves. AAI airports
primarily cater to freight traffic, out of which 64% is international freight. This is followed by passenger traffic, which is
dominated by domestic passengers via 66 domestic airports and 17 international airports. AAI is planning to invest
USD 2.32 billion in fiscal 2019 to expand existing terminals and construct 15 new terminals.
2

From fiscal 2007 to 2017, AAI’s revenue grew at 13% CAGR, with revenue from airport leasing rising at 22% CAGR,
thereby doubling its share in the revenue pie to 31% from 14%. This was driven largely by revenue from Delhi and
Mumbai airports, which are now run as joint ventures between AAI and private players following privatisation of the
two in 2006.
Figure 1: Trend in overall revenue of AAI and revenue from airport leasing

Source: Annual Reports-Airports Authority of India, CRIS Analysis

The private sector operates five airports - Delhi, Bengaluru, Hyderabad, Kochi and Mumbai - catering to more than
50% of the country’s passenger air traffic. Delhi and Mumbai were the first brownfield airports that were given on PPP.
Kochi airport was the first PPP greenfield airport, followed by Hyderabad and Bengaluru.

1 IBEF report on aviation sector, 2018; passenger traffic incudes departing and arriving passengers
2 IBEF report on aviation sector, 2018
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These airports have witnessed increase in passenger traffic, primarily because of better level of service, adoption of
technology (electronic boarding pass, check-in kiosks, etc.) and provision for traveler comfort. However, these airports
are reaching saturation levels. Delhi airport is 70% utilised and Mumbai airport is 80%. These airports are likely to
saturate their passenger capacity by 2022.
Table 1: Passenger traffic in private airports
Name of airport
Passenger traffic volume (in millions)
2016
Percentage
share in total
passenger
traffic
2017
Percentage
share in total
passenger
traffic
2018
Percentage
share in total
passenger
traffic
Delhi 48 21.5% 57.7 21.9% 65.69 21.3%
Mumbai 41.7 18.7% 45.2 17.1% 48.5 15.7%
Hyderabad 12.4 5.6% 15.24 5.8% 18.16 5.9%
Bengaluru 19 8.5% 22 8.3% 26.91 8.7%
Kochi 7.7 3.5% 8.7 3.3% 10 3.2%
Total 128.8 57.8% 148.84 56.4% 169.26 55.0%
Source: AAI
With airports, private and public, reaching saturation levels there is an urgent need for capacity augmentation at the
existing airports or development of new airports near existing airports. These investments are partly expected to
increase via the Public Private Partnership route. While the private sector has shown considerable interest in the airport
sector, the level of interest has been decreasing owing to lack of safeguards in the present concession agreements.
As the airport sector is a high-risk asset, with very high capital cost, investors and operators require a level of comfort
in terms of adequate risk allocation.
The government is providing policy level support and incentives to attract private players. As per the National Civil
Aviation Policy 2016, the incentives offered are:
100% FDI under the automatic route for greenfield and brownfield airports
49% FDI in scheduled airlines and regional air transport services through the automatic route, and beyond 49%
with government approval. For non-resident Indians (NRIs), 100% FDI is permitted under the automatic route
100% FDI via the automatic route for non-scheduled air transport services, helicopter services/sea plane services
requiring Directorate General of Civil Aviation (DGCA) approval, manufacture, repair and overhaul (MRO), flying
training and technical training institutions, and ground handling services, subject to security clearance and sectoral
regulations
Exemption from service tax with respect of the amount of viability gap funding (VGF) payable to the airline operator
for providing the services of transport of passengers by air and Indian aircraft MRO service providers are exempted
from customs and countervailing duties terminating in a Regional Connectivity Scheme (RCS) airport, for one year
from date of commencement of operations of the RCS airport
Exemption of customs and excise duty for tools and tool-kits used in MRO works
Removal of restriction of one year for utilisation of duty free parts
Revision of notification on Standard Exchange Scheme to allow import of unserviceable parts by MROs for
providing exchange / advance exchange
Foreign aircraft brought to India for MRO work allowed to stay up to six months or as extended by the DGCA. The
aircraft can carry passengers at the beginning and end of the stay period in India
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Airport royalty and additional charges not to be levied on MRO service providers for five years from date of approval
In addition to the incentives, the government is encouraging ease of doing business for foreign pilots, companies,
MRO/original equipment manufacturers, experts, etc.
With increasing passenger traffic, the government realises the need to develop airports and increase capacity at
existing airports. The introduction of Nabh (NextGen airports for Bharat) Nirman initiative aims for a five-fold increase
in passenger traffic to a billion trips per year. Key aspects of Nabh Nirman include fair and equitable land acquisition,
long term master plan for airport and regional development, and balanced economics for all stakeholders. In addition,
the potential of airport development in tier 2 and 3 cities is being targeted by the Ude Desh Ka Aam Nagrik or UDAN
scheme that promotes regional connectivity. The industry is, therefore, targeted to become the third-largest aviation
market by 2020, and the largest by 2030.
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4. PPP trend in the airport sector
4.1 Background
Globally airports have transformed from government-controlled public infrastructure facilities to competitive service
providers over the past few decades. This was largely driven by increasing privatisation, which brought in several
benefits such as improved efficiency, greater levels of customer satisfaction, access to private capital, spreading of
ownership, rapid build-out of augmentation infrastructure, greater transparency in operations and more skilled
workforces. Running airports as self-contained businesses has demonstrated significant improvement in their
profitability.
Figure 2: Region wise size of investments (in USD billions) in the airport sector involving private participation
(between 1990 and 2017), and region-wise split of investment size by project/contract type

Source: Private Participation in Infrastructure Database, World Bank, CRIS Analysis
Historically, Europe, Central Asia, Latin America and the Caribbean regions have received large private sector
investments in the airport sector. In Europe and Central Asia, a majority of such investments were in greenfield projects.
However, in Latin America, the Caribbean, South Asia, the Middle East and North Africa, the major share of
investments were in brownfield projects. Divestiture in the sector was prominent in the East Asia and Pacific regions.
Europe has been the frontrunner in terms of privatisation, with 75% of the traffic in 2017 handled by airports with private
sector investments.
Figure 3: Growth in share of passenger traffic at airports with private participation from 2016 to 2017 and
region-wise share of passenger traffic handled by airports with private sector participation in 2017

Source: ACI Inventory of Privatized Airports (2018), Policy Brief - Creating fertile grounds for private investment in airports, Airports
Council International, 2018.
One way to gauge the private sector interest in airport privatisation of a region is to look at the presence of international
players in the pool of bidders for a particular project. The greater the number of international bidders in successive
17
privatisation initiatives the stronger the credentials of that region’s airport sector. It has been observed that there is
greater international interest in airports in regions such as the Middle East and Africa, despite airports with private
participation there having lesser passenger traffic share. Meanwhile, the Asia Pacific region has witnessed far lesser
international bids. The share of airport privatisation projects with participation of international bidders stands at nearly
26%.
3

Figure 4: Region-wise share of airport privatisation exercises with the participation of international bidders

Source: ACI Inventory of Privatized Airports (2018) - Evaluated for a sample size of 255 airports, Policy Brief - Creating fertile
grounds for private investment in airports, Airports Council International, 2018.
Globally, private players from Turkey have been part of the largest investments in the sector. Fraport AG of Germany,
GMR Group of India, and Changi Airports International of Singapore are some of the prominent companies that made
significant investments in the sector.

3
Reference: Policy Brief - Creating fertile grounds for private investment in airports, Airports Council International, 2018.
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4.2 Overview of PPP in airports in India
PPP stems from a demand for quality infrastructure, robust investment, proficient project management and
technological advancement. PPP bridges the gap in infrastructure investment. It not only brings in additional capital,
but also enables both players to bring their experiences and strengths, resulting in efficient development of
infrastructure assets and improve the quality of service.
After liberalisation of the sector in 2013, there has been an increase in private sector investment. By 2027, the sector
is expected to receive private investments totaling USD 25 billion. Key private players include GMR Group, GVK,
Larsen & Toubro, Siemens, Unique and Maytas Infra.
Figure 5: Private sector investment in India's aviation sector

There is a huge investment gap in the sector. Through incentives and schemes, the government intends to attract
considerable investments. In addition, there has been a significant increase in FDI inflows. During 2014 to 2016, USD
435.81 million inflows were reported vis-à-vis USD 61.84 million during 2012 to 2014. Apart from foreign players,
domestic players have shown significant interest in entering the space.
4.3 Evolution of PPP structure in airports sector
As is the case with other infrastructure sectors, the airport sector has seen changes in the PPP structure. This evolution
took place by imbibing past learnings from the concession agreements and mitigating challenges faced during
implementation. The aim is primarily to formulate a robust concession agreement with required safeguards built in.
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Figure 6: Evolution of PPP structures

Source: CRIS Analysis
Greenfield airports
The PPP mode for greenfield airports has undergone a structural change between signing of the Kochi airport in 1994
and signing of the Navi Mumbai airport in 2017.
Kochi was the first greenfield airport in the country involving private participation. It set an example for suitable
application of PPP in India’s airport sector. The airport is managed by Cochin International Airports Ltd, which was
incorporated in 1994 with the Government of Kerala, financial institutions, airport service providers and foreign
countries as shareholders.
Financing of airport largely involved government funding, interest free loans and donations from NRIs, airport users,
foreign countries, etc. Currently, the Kerala government and the central government hold 13% each, with the rest held
by the public. As multiple entities are involved, the airport follows a dividend-sharing model.
Bengaluru and Hyderabad airports were awarded to private entities on PPP basis in 2004. The key objective of this
move was to develop world class airports. The scope of work primarily included construction and design of greenfield
airports, operation and maintenance of the airports during the concession period, and expanding the airports when
required. There was a need to revamp the airports as operations were lacking. Both airports started commercial
operations in 2008. The concession period is for 30 years, with 30 years of extension if requested by the
concessionaire. The concession fee is fixed at 4% of gross revenue, which is to be shared with AAI.
Mopa airport is the first PPP concession agreement, signed after the issuance of MCA by erstwhile planning
commission in November 2016. The concession period is for 40 years, with 20 years extension if requested by the
concessionaire. The concession fee is Re 1 per annum with an annual premium chargeable at 36.99% of gross revenue
which is paid by the concessionaire to AAI starting from the sixth year of commencement of development.
Navi Mumbai airport is the most recent PPP concession agreement signed on January 2018. The initial concession
period is for 30 years and is extendable by 10 years. The airport is expected to cater to the growing passenger traffic
at Mumbai airport. There is a pre-determined concession fee starting from 5 crores from 1
st
year and increasing to
1,940 crores by the 40
th
year. In addition, the concessionaire will be sharing 12.6% of gross revenue with AAI.
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Table 2: Shareholding pattern for Greenfield airports
Name of airport
Shareholding pattern
Shareholder Percentage of share
Bengaluru airport

Fairfax capital 54%
Siemens Project Ventures GmbH 20%
Karnataka State Industrial and Infrastructure Development
Corporation Ltd
13%
AAI 13%
Hyderabad airport GMR Group 63%
Government of Andhra Pradesh 13%
AAI 13%
Malaysia Airports Holdings Berhad 11%
Mopa airport GMR group 100%
Navi Mumbai airport GVK Industries, Airports Company South Africa & Bidvest 74%
City and Industrial Development Corporation of Maharashtra Ltd. 26%
Source: IBEF report on Aviation sector, 2018; economictimes.indiatimes,com; GMR website
In November 2018, Andhra Pradesh Airports Development Corporation Limited (APADCL) issued an RFP for the new
airport at Bhogapuram. The scope of work involves design, build, finance, construction, development, up-gradation,
modernisation, operation and maintenance of the airport. The concession period is for 40 years, extendable by 20
years. The bid parameter was on per passenger fee basis. GMR emerged as the winner by quoting Rs 303 per
domestic passenger as a share of revenue. Signing of concession agreement is currently in process.
Brownfield airport
An operation, management and development agreement (OMDA) was signed for the modernisation and operation of
Indira Gandhi International Airport (Delhi International Airport Ltd) in Delhi and Chhatrapati Shivaji International Airport
(Mumbai International Airport Pvt Ltd) in Mumbai. The OMDA laid out contractual terms of the PPP structure. The
concession period is for 30 years, with 30 years of extension if requested by the concessionaires. The concessionaires
have to pay upfront fee of Rs 150 crore to AAI. For DIAL, as an annual premium, the concessionaire has to pay 45.99%
of projected revenue of that year to AAI. For MIAL, as an annual premium, the concessionaire has to pay 38.7% of
projected revenue of that year to AAI.
Recently, six airports – Ahmedabad, Jaipur, Lucknow, Guwahati, Mangalore and Thiruvananthapuram – were bid out
by AAI. The concession period for these airports is 50 years with no extension of concession period. This privatization
process is a pioneering step in the PPP landscape of airport sector since the bid parameter has shifted from a traditional
revenue share arrangement to a fee that the concessionaire pays to AAI for each domestic and international
passenger. Adani has emerged as the winner for all six airports. The airports have been awarded to the successful
bidder and signing of concession agreements is in process. The winning quotes for the same is mentioned below:
Table 3: Quoted fee per passenger by winning bidder
Name of airport Quoted per domestic passenger
fee (in Rs.)
Sardar Vallabhbhai Patel International Airport, Ahmedabad 177
Jaipur International Airport, Jaipur 174
21
Chaudhary Charan Singh International Airport, Lucknow 171
Lokpriya Gopinath Bordoloi International Airport, Guwahati 160
Trivandrum International Airport, Thiruvananthapuram 168
Mangalore International Airport, Mangalore 115

MCAs by erstwhile Planning Commission
MCAs were published by the erstwhile Planning Commission during the Twelfth Five-Year Plan as part of recognising
the need for investment in the infrastructure sector. The MCAs played a key role in restructuring the concession
agreements for greenfield and brownfield airports.
In the MCA for greenfield airports, the following scope of work was defined:
Construction and operation of the airport and commercial exploitation of specified areas
City-side development in the form of hotels, convention centers and airport-related businesses
The concessionaire will be responsible for all future expansion of the terminal building
The master plan of the terminal is to be included as part of the concession agreement, and should specify the land
use and other restrictions on development of the terminal
In the MCA for brownfield airports, the following scope of work was defined:
Operation and management of the terminal building, cargo complex and car parking, including the commercial
exploitation of specified areas
City-side development in the form of hotels, convention centres and airport-related businesses
The concessionaire is expected to meet the expenditure relating to operation, management and development of
the terminal building from revenue that it generates from user fees, commercial activities and city-side development
The MCA enlists key performance indicators relating to aeronautical assets, terminal building, cargo terminal, etc. It
mentions penalties for failure to achieve levels of performance as well, especially in terms of user services. It also
includes a passenger charter that the concessionaire should publish and implement for the benefit of users of the
airport terminal, increasing the accountability of the concessionaire.
4.4 Key considerations in airport PPPs
Traffic drivers
4

Some of the major traffic drivers that can influence the PPP design are:
1. Competition between airlines
The growth of low cost carriers (LCCs) can increase affordability and provide more route options, thereby
facilitating passenger and freight traffic growth. LCCs are driven by the need to push down costs in order to be
able to charge lower fares. Hence, when it comes to selecting a hub, LCCs need to identify airports where they
can expect an optimal annual increase in passenger traffic as well as stable airport costs
5
. Thus, it is in the airport’s
best interests to keep charges at levels that are conducive to LCCs, and, in turn, improve their traffic level.

4
Reference: Airport PPPs: Benefits, Drivers and Success Factors, January 2015 - World Bank
5
Reference: Mandić, A., Teklić, M., Petrić, L. (2017), The effects of the low cost carriers’ presence on airport performance: evidence from Croatia,
Tourism and Hospitality Management, Vol. 23, No. 1, pp. 17-34, https://doi.org/10.20867/thm.23.1.4
22
2. Maturity of region’s aviation space
As the aviation market approaches saturation, traffic levels can plateau. An airport operating at excess capacity
can either augment capacity or build a new airport in proximity. Thus, meeting passenger and airline demand is a
key rationale for a greenfield airport. In such cases, traffic levels can be expected to pick up rapidly, as the new
airport can meet the earlier unmet demand for airport capacity.
3. Status as hubs
Small countries such as Singapore and the UAE have sustained high traffic levels because of their positioning as
aviation hubs. Thus, an airport that can become a junction for aviation routes and facilitate the transfer of
passengers across routes can see high traffic volume. In this way, an airport can generate higher revenue from in-
transit passenger spending.
4. Demographic changes and population mix
Rising population can lead to higher number of air travelers. Regions that have high migrant population also exhibit
strong air traffic growth. Economic development (as reflected in rising disposable incomes) can also boost air
traffic.
5. Nature of geography
The need for air transportation is higher in island nations, or regions located at considerable distances from big
cities, or main commercial centres, or locations that are less readily accessible through other means of
transportation. Such areas can witness growth in air traffic volume with better connectivity.

Concession structure
6

It is imperative to assess the typical challenges faced in structuring an airport PPP. Factors impacting the structure of
a concession are:
1. Regulatory framework for tariff setting
It is imperative to formulate an optimum tariff structure, given that sustained revenue from operations hold the key
to recovery of investments. Deciding between a flexible tariff structure (that can be reset owing to inadequate traffic
levels or inflation), or a pre-determined tariff structure (fixed on maximum yield per passenger or fixed fee) is key
to the feasibility of the airport project. The methodology and the basis of tariff calculation need to be clearly stated
as these are areas of concern for investors and developers in the airport sector.
2. Traffic risk
The main rationale behind any investment decision in an airport project is the expectation that over time traffic at
the airport will reach levels that will ensure that there is assured and adequate revenue. However, in the event this
does not materialise, then operating the airport could become unviable. Protection against traffic risk is important
for investors as there are multiple reasons for a sudden decrease in traffic, such as political, strikes, bad publicity
of the city, etc.
3. Inflation
It is necessary for the earnings of an airport operator to be commensurate with costs. However, inflation can
significantly impact earnings in case it is not effectively captured in the tariff structure. Therefore, it is important
that at the concession structuring stage there is adequate clarity on the methodology of indexation as well as the
frequency of revision by the regulator.

6
Reference: Airport PPPs: Benefits, Drivers and Success Factors, January 2015 - World Bank
23
4. Protection against foreign exchange risk
Protection against foreign exchange volatility is important to attract bids from international construction companies.
Relevant safeguards need to be built into the concession agreement to cover this risk, thereby ensuring increased
participation.
5. Arbitration
An efficient arbitration set up and process has been key desirables in past airport concessions. In some instances,
the absence of airport sector experts in the arbitrating panels was considered to impair the fairness of the
arbitration process. In addition, institutionalising the arbitrator is favourable to the concessionaire, as an
independent agency is bound to be unbiased.
6. Termination
The most important aspect in termination of payments is the basis for calculation of the termination amount, which
is often taken to be a cost that is calculated at the project’s design stage. The key pre-requisite to ensuring a fair
termination transaction is having a fair assessment of the actual project cost associated with the airport project. In
the course of development of the project there could be cost increases because of escalation in prices of materials
or even inflation.
4.5 Key challenges in PPP airports sector
As India is heading towards becoming the 3
rd
largest aviation market overall surpassing UK by 2025-26
7
, it is imperative
to create enabling infrastructure to sustain the market boom. As illustrated in the previous section, India needs to invest
at least 50 billion USD in next decade for capacity additions and investment pipeline. If the growth rate continues at
this pace, most Indian airports may reach saturation between 2025 to 2030. The government alone with its limited
resources may not be able to pump in such high investments which entails PPP as the preferred mode for development.
In such a scenario, it is imperative to attract foreign investments which will aid in sustaining the growth in the sector.
However, there has been a declining interest of foreign players to invest in Indian airports and it poses a serious
concern for future development.
Figure 7: Declining bidders for PPP airports


There are manifold issues stated by the investor community which need to be tackled at the earliest in order to open
avenues for attracting foreign investment in the sector. Additionally, the domestic developer community has also cited

7
Source:IATA
Pre -AERA Post -AERA
24
problem areas. Identifying these problem areas are imperative to identify the gaps in the existing PPP framework and
to recommend possible amendments to the concession agreements. The key challenges faced by the private sector
based on stakeholder interactions are illustrated below:
1. Land acquisition and clearance approvals
For the greenfield airports, land is provided by the state governments, Most of the airports are in congested parts of
the city where there is limited scope for growth. In such a scenario, it gets difficult to acquire land in fully constructed
areas around airports is difficult. Value capture financing mechanisms such as land pooling system have also faced
impediments. Therefore, this process takes a lot of time, leading to time and cost overruns. For instance, delay in land
acquisition for Navi Mumbai airport has delayed the project timelines:

2. Tariff uncertainty
The tariff structure currently followed by AERA for major airports has components that are ambiguous in nature. This
leads to uncertainty in terms of cash flow expectations for the developer. Due to this regulatory regime, the developers/
operators are uncertain about the treatment of their revenue throughout the concession period. Therefore, revenue
leakage risk is higher in the current regime. A few issues are illustrated below:
Cost of Equity of 16% is generally accepted by AERA. However, it is in the process of determining the COE
value for various airports and this value may be upgraded;
Cost of debt is dependent on prevalent market rate and is based on period of filing;
As per the recent order of Telecom Disputes Settlement and Appellate Tribunal for Delhi airport, a return is
expected on Returnable Security Deposit for city side, however, whether it should be treated as debt or
equity is still unclear. This may have impact on D/E ratio which will affect the value of Cost of Equity;
Case Study: Navi Mumbai International Airport: Project Timeline - Delay in Project Execution
The classic example is development of Navi Mumbai Airport which has been delayed due to several regulatory and
non-regulatory issues for past two decades as shown below:

25
The deficit between expected yield and actual yield is used for tariff revision and charging of UDF. The first
few years of operation based on ad-hoc tariff for new projects may create a revenue shortfall which will then
make case for charging of UDF in the first control period;
Since the cost involved in a greenfield airport is much higher, there should be a separate methodology for
greenfield and brownfield airport;
Dispute over clauses mentioned in CA taking precedence over AERA tariff guidelines. For example: in
Bangalore airport, the CA considered ground handling, fuel charges & cargo handling charge as non-
aeronautical revenue. However, the guidelines were issued post signing of CA and considers these
elements in aeronautical revenue. This is a cause for dispute till now.

3. Regulatory uncertainty
The Regulatory uncertainty is one of the major factors inhibiting private investments especially the foreign investors.
Right from prolonged tariff setting exercise to delayed dispute resolution, the investors are wary of assuming the risk
related to regulatory issues.

4. Long bidding process
The bid process undertaken right from calling for Expression of Interest to signing of concession agreements spans
over 3-4 years. Such prolonged bid process has negative impact on the project viability. Not only the cost escalates
but the macroeconomic factors may also change which may further alter the economics of the project. The interest of
the bidders further decline during prolonged bidding process.
(Key parameters are identified for the concession agreements and proposed recommendations are covered in the
subsequent section.)
5. Issues in current MCA in terms of concession period, equity lock in period, definition of actual project cost
etc. are some of the reasons cited as hindrance to future investments
4.6 Importance of selecting the right PPP model
Success of a PPP is mainly determined by the level of detailing in the process and its design. It must be ensured that
the deal structure leads to the outcomes envisaged, while keeping public interest in mind.
At the outset, engagement with the aviation industry and other stakeholders is critical to bring about a successful
delivery of this process. Bids must be assessed on balanced criteria, and the concession terms must be conducive to
bringing about improvement in efficiency, quality of service and levels of investment for the benefit of the airlines as
well as the travelers.
The rationale for a PPP is not just private funding, but also the specialist expertise that can be imbued in the running
of an airport with private participation.
In the long run, efficiency, sustained traffic levels and overall positive socio-economic impact that a privatised airport
can make are some of the key reasons for pursuing airport privatisation.
26
5. PPP framework in Greenfield airport
Brief Background
PPP or concession models are arrangements wherein a government authority grants rights to a private company to
operate an airport and control multiple airport activities (except reserved services such as air navigation services) for
a defined period of time, and bear the risk and reward potential that would be associated with the airport. This model
has steadily gained prominence in Greenfield airport projects.
These models are also suited to scenarios where an airport is already in operation, but has limited management or
operational capability and is expected to witness growth in demand and infrastructure requirements. In cases where
there are constraints in government funding and in seeking external avenues for financing, the PPP model is chosen
as a preferred mode for enabling the required infrastructure development (such as a new terminal in the airport or an
additional runway). The PPP and concession contracts can be broad in scope and encompass financing, development,
operations and maintenance services. The variation in such contracts applicable to Greenfield development of an
airport is outlined below:
1. Build Operate Transfer (BOT)
The concessionaire undertakes investments and operates the facility for a fixed period of time after which the
ownership reverts back to the public sector. In this type of arrangement, operating and investment risk can be
substantial for the concessionaire. The government retains the ultimate ownership and controls policy. Therefore,
it can allocate risks to suitable parties and leverage it to remove any incompetency. This is a common model
adopted in airport development in Turkey.
This model may require formation of a special purpose vehicle (SPV) for implementing and operating the project.
It may be formed as a joint venture company amongst multiple private sector parties and the public sector. For
equity participation of government, it may provide capital grants or other financial incentives to a BOT project.
2. Build Operate Own Transfer (BOOT)/ Design Build Finance Operate Transfer (DBFOT)
The private sector builds, owns and operates the airport, and sells the airport to the concessionaire. Another
variation of this model is DBFOT. The model aggregates design, finance, construction and operation of
infrastructure services into one contract. As the same entity builds and operates the services, and is only paid for
the successful supply of services at a pre-defined standard, it has limited opportunity for compromising quality or
quantity of services. It further reduces the risks of cost overruns during the design and construction phases or of
choosing an inefficient technology, since the operator’s future earnings depends on controlling costs. The public
sector’s main advantages lie in the relief of burdening costs of design and construction, the transfer of certain risks
to the private sector and the promise of better project design, construction and operation. A few examples of the
concession structure in airport sector are Bangalore airport and Hyderabad airport in India.
Typically, a PPP contract in the airport sector can last over 30 years and can be even longer when there is a higher
capital spend requirement. Longer contracts can match the long-term nature of capital investments, and incentivise
the efficient deployment of money, whole lifecycle costing and prudent asset management.


Istanbul New Airport (INA) is an under-construction greenfield international airport in Turkey slated to be opened in
October 2018.
Key features:
PPP model: Build-operate-transfer with 3.5 years of construction phase and 25 years’ operating phase.
Concession parties: Awarded in 2013 by the General Directorate of State Airports Authority of Turkey (DHMI)
to a consortium of five firms, namely Cengiz, Limak, Kolin, Kalyon, and Mapa, each having a 20% stake in the
Case Study: BOT model adopted for Istanbul New Airport, Turkey
27
joint venture. The joint venture is called Istanbul Grand Airport or IGA. Therefore, it is a dividend sharing model
among the JV members.
Concession fee: Concessionaire will pay €22.2 billion during the course of the 25-year operating phase as long-
term lease. The cost of the airport is €10.2 billion which is borne by the concessionaire.
Bidding parameter: The highest concession fee/ lease paid over the concession period.
Expansion triggers: The expansion will be undertaken when passenger demand increases design capacity of
the airport.
Phase I of the airport, slated for completion in October 2018, will have a capacity of 90 million passengers per
annum. It is expected to become the largest airport in the world with a target capacity of 150 million passengers per
annum by 2028.
8

Tariff determination: Aeronautical charges are fixed and published by DHMI every year, separately for DHMI
airports and PPP airports. However, both aeronautical and non-aeronautical charges are collected by the airport
operator.
Revenue windfall/ gain:
DHMI guarantees a certain
number of passengers,
ensuring a minimum level of
operating income to airport
operators. In case the traffic
is below pre-determined
volume, DHMI will make
payments to the operators.
However, in case the
passenger volume is larger
than guaranteed, DHMI
receives the excess
revenue.

Key learnings
For large investments, there should be more number of players as part of the JV in order to share construction
risk and operation risk
Tariff is pre-determined with schedule of fees published every year. This ensures avoidance of ambiguity while
calculating revenues from aeronautical services
Due to fixed fee, safeguards are built for revenue windfall/ gain which is linked to expected passenger volume.
Revenue risk does not fall on the concessionaire
Source: ICAO case study, IGA report on INA

PPP scenario in greenfield airports in India
The first greenfield airport to be built as a public-private partnership in India was Cochin International Airport in the
state of Kerala in 1999
9
. Since then two further airports were completed in 2008 namely the airports at Hyderabad in
Telangana and Bengaluru in Karnataka. In addition, two airports have been awarded on PPP namely the airports at
Mopa and Navi Mumbai. Another airport at Bhogapuram is in process of getting awarded. The PPP features of these
airports have been discussed below to glean lessons which could be applied while considering suitable frameworks
for future airport projects in the country.

8
Source: https://centreforaviation.com/data/profiles/newairports/istanbul-new-airport-istanbul-grand-airport, Accessed on July 17, 2018
9
Source: http://www.apaoindia.com/?page_id=158, Accessed on February 19, 2019
28
1. Rajiv Gandhi International Airport, Hyderabad
In 2008, Rajiv Gandhi International Airport (RGIA) became the second greenfield airport to be developed through a
Public-Private Partnership arrangement in India.
10
Located in Shamshabad roughly 24 kilometers to the south of the
city of Hyderabad, the airport is built to a capacity of 12 million passengers per annum and has a single terminal
building, a cargo terminal and two runways. The airport handled over 18 million passengers in FY’2018. In 2018
capacity expansion work was begun at the airport, to lift the airport’s passenger traffic capacity to 30 million passengers
per annum. Passenger traffic growth has been strong at the airport as demonstrated by the fact that this expansion
was started three years ahead of the planned phased expansion.
11

Some of the major features of this airport’s concession agreement have been presented below.
PPP model: Build, Own, Operate and Transfer (BOOT) basis.
12
The Ministry of Civil Aviation signed the
concession agreement with a consortium headed by GMR Infrastructure Limited in December 2004. Designing,
financing, construction, operation, maintenance and management of the airport was mandated to GMR Hyderabad
International Airport Limited (GHIAL), the Special Purpose Vehicle or SPV for the project.
Ownership structure: As per the Shareholders’ agreement as of the date of the concession agreement, the state
promoters, Airports Authority of India and the Government of Andhra Pradesh held 26% of the issued and paid-up
share capital of the SPV whereas the consortium led by GMR held the remaining 74%.
13

Concession period: 30 years (with an additional extendable period of 30 years)
Concession fee: 4% of the gross revenue is paid annually by the concessionaire
Expansion covenants: A master plan for the development of the airport was prepared prior to the signing of the
concession agreement. The agreement set the ultimate passenger handling capacity of the airport at 40 million
passengers per annum. However the concession agreement mandates the concessionaire to review the master
plan at an interval of 5 years. Further development of the airport has also been set under the purview of the
concessionaire.
Tariff determination: Tariff determination for aeronautical services provided by the airport was done following the
single-till model after the release of Tariff Determination Guidelines by the Airports Economic Regulatory Authority
of India in 2011. Under this model, all non-aeronautical revenues are deducted in the calculation of the aggregate
revenue requirement for the airport.
However at the time of signing of the concession agreement, the charges for aeronautical services were set to Airports
Authority of India rates effective from 2001.





10
Source: https://www.indiatoday.in/latest-headlines/story/countrys-first-greenfield-airport-in-hyderabad-inaugurated-23648-2008-03-14, Accessed
on February 18, 2019
11
Source: https://www.thehindubusinessline.com/economy/logistics/gmr-begins-work-on-hyderabad-airport-expansion/article23336535.ece,
Accessed on February 18, 2019
12
Reference: https://www.adb.org/sites/default/files/project-document/80396/47083-002-sddr-02.pdf, Accessed on February 18, 2019
13
Reference: Concession Agreement dated December 20, 2004 between the Ministry of Civil Aviation and Hyderabad International Airport
Limited, Source: https://ppp.worldbank.org/public-private-
partnership/sites/ppp.worldbank.org/files/ppp_testdumb/documents/CA0HIAL0singned020122004.pdf, Accessed on February 18, 2019
Key learning: Land adjoining an airport should necessarily be considered as an important component of a
concessionaire’s future revenue. City-side/non-aeronautical revenue sources form a major source of total revenue
earned by a concessionaire.
29
2. Kempegowda International Airport, Bengaluru
In May 2008, Kempegowda International Airport became the third greenfield airport to be developed through a Public-
Private Partnership arrangement in India.
14
The airport currently has a single terminal with a capacity of 20 million
passengers per annum catering both to international and domestic passenger traffic.
15
Like Hyderabad airport, KIA
also has witnessed strong traffic growth. Passenger traffic at the airport in 2017-18 stood at 26.9 million.
16

Some of the major features of this airport’s concession agreement have been presented below.
PPP model: Build, Own, Operate and Transfer (BOOT) basis
Ownership structure: At the time of signing of the agreement, 74% of the concessionaire’s equity was held by a
consortium consisting of Siemens, Zurich Airport and Larsen and Toubro
17
whereas 26% was held by the Airports
Authority of India and the Government of Karnataka in equal share.
Concession period: 30 years (with an additional extendable period of 30 years)
Concession fee: 4% of the gross revenue is paid annually by the concessionaire
Tariff determination: Like Hyderabad airport, the concessionaire was mandated to charge AAI tariffs which were
effective from 2001. However, the airport moved under the regulatory purview of the Airports Economic Authority
of India subsequently
3. Mopa airport, Goa
In 2016, the concession agreement for the airport was signed. Nearly 1,500 acres of land was acquired to construct
the airport. Construction started in November 2016 and is expected to get completed by 2020. Currently, the design
works are in process of getting completed.
Some of the major features of this airport’s concession agreement have been presented below:
PPP model: Build, Own, Operate and Transfer (BOOT) basis
Ownership structure: GMR holds a 100% equity stake in the project
Concession period: 40 years (with an additional extendable period of 20 years)
Concession fee: 36.99% of the gross revenue is paid annually by the concessionaire, to the Government of India.
Expansion covenants: The airport will be expanded phase wise. Schedule of the concession agreement defines
the design capacity and expansion triggers. The same is outlined below:
Phasing
Traffic Design Capacity (Million Passengers Per
Annum)
Trigger for phasing
Phase I 4.4 -
Phase II 5.8 80% of Phase I capacity
Phase III 9.4 80% of Phase II capacity
Phase IV 13.1 80% of Phase III capacity

14
Source: https://www.indiatoday.in/latest-headlines/story/countrys-first-greenfield-airport-in-hyderabad-inaugurated-23648-2008-03-14, Accessed
on February 18, 2019
15
Source: https://www.business-standard.com/article/current-affairs/bangalore-airport-capacity-to-grow-3x-by-2028-expansion-to-cost-2-bn-
118050300356_1.html , Accessed on February 18, 2019
16
Source: https://timesofindia.indiatimes.com/city/bengaluru/kempegowda-international-airport-sees-32-8-jump-in-passenger-
traffic/articleshow/65295980.cms, Accessed on February 18, 2019
17
Source: https://www.airport-technology.com/projects/bangalore/, Accessed on February 18, 2019
Key learning: Traffic growth is pertinent to greenfield development to attract potential investors. Foreign capital
will be attracted to invest within a short span of time since the airport’s traffic growth was promising since its
inception.
30
Tariff determination: Tariff determination for aeronautical services provided by the airport was done following the
hybrid-till model as per the National Civil Aviation Policy 2016. Under this model, 30% of non-aeronautical revenues
is deducted in the calculation of the aggregate revenue requirement for the airport.

4. Navi Mumbai airport
The concession agreement for the airport has been recently signed in January 2018. The airport is currently under
design stage. The project cost of the airport is envisaged to be ~16,000 crores. Being Mumbai’s second airport, it is
expected to decongest the traffic at MIAL. The envisaged traffic is 10 million passengers per annum in the beginning
of operation period, increasing to 60 million passengers per annum by 2030.
PPP model: Build, Own, Operate and Transfer (BOOT) basis
Ownership structure: 74% of the concessionaire’s equity was held by a consortium consisting of GVK industries,
Airports Company South Africa & Bidvest and the rest is held by City and Industrial Development Corporation of
Maharashtra Ltd (CIDCO).
Concession period: 30 years (with an additional extendable period of 10 years)
Concession fee: 12.6% of the gross revenue is paid annually by the concessionaire
Expansion covenants: The airport will be expanded phase wise wherein the first phase shall have minimum 10
million passenger handling capacity and 260,000 tonnes cargo handling capacity. The concessionaire needs to
indicate the traffic linked expansion triggers in the master plan.
Tariff determination: Tariff determination for aeronautical services provided by the airport was done following the
hybrid-till model as per the National Civil Aviation Policy 2016. Under this model, 30% of non-aeronautical revenues
is deducted in the calculation of the aggregate revenue requirement for the airport.
Definition of gross revenue was further strengthened in the CA by addressing major points of dispute such as:
Insurance proceeds arising out of revenue loss or business interruption is included as part of administration and
general expenses;
Monies received on behalf of the Authority and credited by the concessionaire to the Authority are not to be
considered as expenses;
Any deposit amounts refunded to the relevant sub-licensee or any other person authorized by the Authority in a
particular Concession Year (provided these pertain to past deposits on which Premium has been paid to the
Authority) are not to be considered as expenses;
It is clarified that gross Revenue will be computed on an annual basis for an Accounting Year, in accordance with
the Indian Generally Accepted Accounting Principles, as applicable on March 31, 2016. Since the principles are
defined, it is a good reference point for unforeseeable revenue and expenses and eradicates possible legal
disputes;
Authority’s decision is final in case of ambiguity, discrepancy and dispute. This may be detrimental to the private
player, however, this clause in in favour of the Authority

5. Bhogapuram airport, Andhra Pradesh
Key learning: Phase wise expansion triggers shall be established during signing of concession agreement for
better project planning in terms of capital requirement, operational expenses and revenue streams during
concession period.
Key learning: Definition of Gross Revenue is robust leading to resolving ambiguity issues and subsequent revenue
leakage risk.
31
The concession agreement is in process of getting signed for the airport. The project was proposed in November 2018.
The concession structure of the airport has an important change wherein the bidding parameter changed from gross
revenue to per passenger fee.
PPP model: Build, Own, Operate and Transfer (BOOT) basis
Concession period: 40 years (with an additional extendable period of 20 years)
Concession fee: Fee paid for each domestic and international passenger – inflation linked fee
Expansion covenants: The airport will be expanded phase wise. Schedule of the concession agreement defines
the design capacity and expansion triggers. The same is outlined below:
Phasing
Traffic Design Capacity (Million Passengers Per
Annum)
Trigger for phasing
Phase I 6 -
Phase II 12 80% of Phase I capacity
Phase III 18 80% of Phase II capacity
Subsequent phases As per assessed capacity 80% of Phase III capacity
Tariff determination: Tariff determination for aeronautical services provided by the airport was done following the
hybrid-till model as per the National Civil Aviation Policy 2016. Under this model, 30% of non-aeronautical revenues
is deducted in the calculation of the aggregate revenue requirement for the airport.
The bid parameter was on per passenger fee basis. GMR emerged as the winner by quoting Rs 303 per domestic
passenger as a share of revenue. Signing of concession agreement is currently in process.
As observed in the five airports, the concession agreement may not be the same but the transaction structure is similar.
In the rest of the chapter we shall adopt the key learnings from these airports and propose a suitable framework with
respect to the transaction structure and regulatory framework.
Key learning: Fee per passenger makes the sharing mechanism with the authority convenient and easy to
determine.
32

5.1 Suitable PPP framework
Tariff structure and bidding parameter of the concession define transaction structure of the airport. The privatized
airports have been following cost plus model with highest gross revenue share. The regulatory body for the airports is
AERA that sets the tariffs for each airport and reviews it in every five years (called control periods). Although, the
bidding parameter of Bhogapuram airport is per passenger fee, it follows the same regulatory framework. However,
the framework is envisaged to witness changes in the near future.
The Parliament has passed a bill to amend the AERA Act, 2008 by adding a clause for allowing determination of tariffs
for greenfield airports prior to bidding. This model will help eliminate regulatory uncertainty with respect to the potential
revenue to be generated from an airport as tariffs will be fixed prior to bidding for the airport project. The land cost,
service standards, and airport design and, most importantly, planned investments will be taken into account for
deciding tariffs. The airport tariff will be indexed appropriately to factor in changes in inflation, foreign exchange rates,
and interest rates against future uncertainties. The Mactan Cebu International Airport in Phillipines operated by GMR
and Megawide Corporation has been developed on this philosophy.
The table below has a comparative analysis of different type of tariff determination models under consideration for
defining a suitable PPP framework:
Table 4: Comparative matrix of tariff structure and bid parameter
Type of model Bid parameter
Points for consideration
Recommendations
Government Private Player
Cost plus model
with tariff
regulated by
AERA
Highest gross
revenue share
Regulated by
AERA
Better returns to
the Authority
Regulatory
uncertainty
Operational and
investment
flexibility
Based on stakeholder
interactions, with
strengthening the existing
tariff filing guidelines and
effective and timely dispute
resolution, this model is and
will be widely accepted
Pre-fixed revenue
share (8 -12%)
Lowest tariff Cost-effective
Economically
beneficial for
government and
users

Lowest tariff will
lead to aggressive
bidding
Disputes may
arise during
expansion phase
Although the lowest tariff will
be beneficial for end users,
aggressive bidding may lead
to stalling of projects during
the execution phase
33
Type of model Bid parameter
Points for consideration
Recommendations
Government Private Player
Pre-determined
tariff with review
by AERA every
five years as
suggested in the
MCA
Highest
premium (up to
50%)
Cost-effective
Economically
beneficial for
government and
users
Focus to shift to
quality of
infrastructure and
service
Pre-determined
tariff only includes
aeronautical
charges
Lowest tariff will
lead to aggressive
bidding
Disputes may
arise during
expansion phase
Lower risk of
regulatory
uncertainty
This model will help avoiding
gold plating by private
players. But aggressive
bidding may again lead to
stalling of projects during the
execution phase. This may
be partly addressed by
procuring an additional
security deposit for five years
to ensure operational
compliance.

Max yield per
passenger pre-
determined (a
fixed MBAY or
Maximum
Blended
Aeronautical
Yield) by the
Authority
Fixed fees per
passenger
Similar to pre-
determined tariff
Economically
beneficial for
government and
users
Not attractive in
terms of expected
returns
The pre -
determined MBAY
will vary from
project to project
Disputes may
arise during
expansion phase
Lower risk of
regulatory
uncertainty
Similar to pre-determine tariff
regime and may be
considered for brownfield
airports as the yield will be
based on existing assets and
future expansion.
Source: CRIS analysis
Although, the market is in wide acceptance of the existing cost plus model, the impediments cited in the previous
section continue to thrive. There are several challenges with respect to accounting process and prolong disputes. In
this context, a bid parameter which has a near-zero risk of revenue leakage may be considered. A detailed analysis of
the bidding parameter is illustrated below:
33


Table 5: Comparative analysis of revenue share & per passenger fee as bidding parameter
Player/ Bidding parameter
Revenue share Per passenger fee
Advantage Disadvantage Advantage Disadvantage
Government –
Concessioning Authority
Established tariff structure -
well accepted in the market
Revised definition of gross
revenue clearly mentions
that in case of any
ambiguity or discrepancy,
decision of the, at its sole
discretion, is final. This
gives more power to the
authority to rightfully
determine the accounting
principles and its treatment.
It will also lessen the
number of disputes over
tariff determination.
For determination of
treatment of revenue
sources & expenses, it is
clarified that it will follow the
Indian Generally Accepted
Accounting Principles, as
applicable on March 31,
2016. It is easier to
determine the treatment of
an unforeseeable revenue
source or expense by
referring to this principle.
Unclear definition of gross
revenue and difficulty in
monitoring revenue sources
making revenue leakage
possible.


Easy to determine and
calculate future earnings
In medium to long term
period, potential of revenue
leakage will get minimized
as it is majorly linked to
traffic numbers.

Possible loss in earning
potential as the ‘per
passenger fee’ is
offered from the Non –
aeronautical revenue
since aeronautical
charges are regulated.
34
Player/ Bidding parameter
Revenue share Per passenger fee
Advantage Disadvantage Advantage Disadvantage
Private developer/
operator/ investor
As per revised definition of
gross revenue, insurance
proceeds arose out of
revenue loss or business
interruption is included as
part of administration and
general expenses.
As per revised definition of
gross revenue, monies
received on behalf of the
Authority and credited by
the concessionaire to the
Authority will not be
considered as expenses.
Ambiguous definition of
gross revenue leading to
uncertain treatment of
revenues
Long legal disputes over
revenue share
determination
Revised definition of gross
revenue clearly mentions
that the Authority is the final
decision maker in case
there is any ambiguity in
definition of gross revenue.
It dilutes the position of
concessionaire to
determine revenue share.
Per passenger fee is linked
to inflation which accounts
for increase in development
cost and other economic
risks.
Since the fee is linked to
traffic, any distortion in
traffic will be accounted.
Also, the Authority will also
lose out on earnings,
therefore it may take
necessary steps to combat
any fall in traffic.
It is easier to estimate
revenue to be shared by the
Authority with less
ambiguity on type of
revenue source to be
shared.
Aggressive bidding
with high ‘concession
fee’ quoted can lead to
disproportionately high
percentage of revenue
being given to
Authority, leading to
high level of financial
stress in the initial
years.
Adjustment in tariff on
account of falling traffic
will be possible once
every 5 years when
AERA revises the tariff
rate card. 5 years in
context of an
infrastructure project is
a long time.
Source: CRIS analysis
The per passenger fee concept is fairly new to India’s aviation sector. The phenomenon was introduced primarily to combat revenue leakage and minimize legal
disputes on determining revenue sources & expenses. The concept was briefly tested in Brazil, however, due to difference in economic, political and financial
stability of Brazil and India, it does not make for a suitable case. The concept is well accepted by the market, which is observed by the number of interested
bidders for Bhogapuram, Ahmedabad, Lucknow, Guwahati, Jaipur, Thiruvananthapuram and Mangalore airport.

35

Bidding Parameter
CRIS recommends the bidding parameter to be INR per passenger, which is a pre-determined inflation linked user
fee payable to the Concessioning Authority. However, fixed inflation-linked/adjusted MBAY with user charges adjusted
every five years by AERA/competent authority will also generate certain range-bound user fees. It is pertinent to note
that the concept of MBAY needs to be carefully examined in terms of specific aeronautical revenue streams to be
considered and related regulations to be modified so as to avoid any misinterpretation by the bidders and minimize
associated regulatory uncertainty
In the event however that bidders feel that the proposed Maximum Blended Aeronautical Yield would not be adequate
to cover their expenses and business risks, a ‘Negative Concession Fee’ is permitted to be quoted. However, a
detailed scrutiny on the appropriate pre-specified ceiling is required to not affect ‘affordability’. In this regard, instead
of only adopting a ‘Negative Concession Fee’, the Authority can consider combining the negative fee with a one-time
grant support. In this way, both the viability of the project can be enabled as well as users’ tariffs can be kept
reasonable. However, the maximum grant provided by the Concessioning Authority must also be capped.
Tariff structure
CRIS recommends using a pre-determined, inflation linked user fee as a suitable structure for tariffs. This is also
a well understood concept in the Indian infrastructure and PPP space specified by the erstwhile Planning Commission
MCA (as provided through Clause 32.1.1 and Schedule S in the Model Concession Agreement). However, fixed
inflation-linked/adjusted MBAY
18
with user charges adjusted every five years by AERA/competent authority will also
generate certain range-bound user fees.
Considering that the success of either the per-passenger basis bidding parameter or a pre-determined tariff structure
would hinge essentially on the accuracy of MBAY. It needs to be carefully examined in terms of the considered
aeronautical revenue streams and related regulations to avoid any misinterpretation and associated regulatory
uncertainty. In addition, MBAY definition should also include elements of non-aeronautical revenue so that tariff
determination / adjustment exercise takes into account non-aeronautical revenue. Currently only aeronautical revenue
seems to be included. The National Civil Aviation Policy of 2016 explicitly states that 30% of non-aeronautical revenue
will be used to cross subsidise aeronautical charges (NCAP 2016 12. (c)). Given that ‘affordability’ is the stated goal
of the proposed transaction structure in the NABH Nirman note, some part of non-aeronautical revenue should also
form part of MBAY.
In conclusion, we make the following recommendations: -
1. Bidding Parameter: Concession fee per passenger in terms of INR per passenger.
2. Tariff Structure: A pre-determined, inflation-linked/adjusted and MBAY-derived tariff structure with a detailed
schedule of user fees appended to the concession agreement right at the outset which would be subjected to
periodic review by AERA/designated competent authority.

18
Components of MBAY include:
a. Landing, housing and parking charges levied on all aircraft
b. Revenue of Concessionaire from cargo, ground handling agencies, aircraft fueling, inflight catering, aerobridge charges, Common User Terminal
Equipment, Common User Self-Service, Baggage Reconciliation System etc.
c. Passenger service fee- facilitation component (PSF-FC)
d. Normative interest on security deposit from aeronautical stakeholders
e. Revenue from any new aeronautical service offered with approval from the Regulator
36
5.2 Recommendations on concession structure
The development of airport infrastructure in India primarily rests on the alignment of policies and actions of the Centre
and the state. It is crucial for the Ministry, together with support from key decision-makers, to devise short- and long-
term plans to address issues under their respective remit.
The aviation sector encompasses gamut of stakeholders and understanding the perspective of each is the key to
arriving at legitimate modifications in the current regime. The approach towards designing key recommendations is
based on engaging in detail discussion with each category of stakeholders:

Interactions with these stakeholders (details of representatives met attached in Appendix) highlighted several issues
with regards to the PPP models adopted in the airport sector. These need to be considered and interventions made
by the Centre and the state.
To capture key aspects of the concession agreement, we have divided our recommendations as per the structure
followed by the MCA drafted by the erstwhile Planning Commission. The recommendations have been segregated into
five buckets, which have been evaluated against the components of the MCA, with the course of action suggested
based on secondary research, analysis and primary interactions.
Figure 8: Structure of the Model Concession Agreement

This section breaks down the components of MCA into sub-sections. These include deviations from the MCA published
by the erstwhile Planning Commission (stated as MCA in the subsequent chapters) in the concession agreements
(stated as CA in the subsequent chapters) of the most recent projects, i.e., Mopa, Navi Mumbai and Bhogapuram
airports.
Suitable amendments have been identified after analysing the impact of the same on multiple stakeholders, which can
be incorporated in the MCA.
Government
•to critically evaluate clauses of the Model Concession Agreement which
can be modfied and undestand the level of risk sharing possible for future
projects
Existing Operators•to understand the key operational issues and suggest mitigation measures
Potential Investors
•to assess key pain points of potential investors and adopt corrective
measures to encourage increased private sector participation in future
Financial
covenants
Concession Agreement
37
Scope of project
5.2.1.1 Concession period
Existing provision
The MCA follows a concession period of 40 years, which can be extended by 20 years. However, the condition of
extension is not specified.
Clause no. 3.1.1
Subject to and in accordance with the provisions of this Agreement, Applicable Laws and the Applicable Permits,
the Authority hereby grants to the Concessionaire the concession set forth herein including the exclusive right,
license and authority to construct, operate and maintain the Airport (the ‘’Concession’’) for a period of 40 (forty)
years commencing from the Appointed Date, and the Concessionaire hereby accepts the Concession and agrees
to implement the Project subject to and in accordance with the terms and condition set forth herein.
Provided that the Concessionaire shall, at any time no earlier than 5 (five) years, but no later than 3 (three) years
prior to completion of the aforesaid Concession Period of 40 (forty) years, upon issuing a notice to this effect to the
Authority, be entitled, be entitled to an extension of 20 years in the Concession Period under and in accordance with
the provisions of Clause 42.5
Recent example
The concession period for previously privatized airports
is captured in the table. As can be observed, there is no
consistency in terms of the concession period offered.
In the CA for Mopa airport, the concession period is 40
years. However, extension of the concession period is
subject to right of first refusal (ROFR). The authority can
rebid the airport, and the existing operator can match
the bid of the highest bidder if the operator’s bid falls
within the 5% margin of the highest bid.
In the CA for Navi Mumbai airport, the concession
period is 30 years, with extension of 10 years based on
the operator’s performance. For a further extension of
20 years, the operator has the ROFR. The authority
rebids the airport and the existing operator can match
the bid of the highest bidder if the operator’s bid falls
within the 10% margin of the highest bid.
In the CA for Bhogapuram airport, the concession period is 40 years, with extension of 20 years based on the
operator’s performance. For a further extension of 20 years, the operator has the ROFR. The authority rebids the
airport and the existing operator can match the bid of the highest bidder if the operator’s bid falls within the 10%
margin of the highest bid
Challenge
While price discovery of an airport concession extension through rebidding seems to be a fair in theory, however, there
are a number of issues with regards to ROFR. First, it leads to subdued interest as players may not be keen to bid for
a project where the existing operator can match the bid. This may translate into lack of bids and failure to carry out the
bid process. Second, carrying out bidding process for just 20 year concession extension can lead to sub-optimal price
discovery and also impede any new concessionaire’s ability to carry out significant expansion works
Recommendation
Sr No Airports Concession Period
1. Bangalore 30+30+30
2. Hyderabad 30+30+30
3. Delhi 30+30
4. Mumbai 30+30
5. Mopa 40+20 (through rebidding)
6. Navi Mumbai 30+10+20(through rebidding)
7. Bhogapuram 40+20 (through rebidding)
Decreasing trend

38
In order to curb distortion with regards to competition and the resources of the players involved in the bid process, the
concession period should normally be long enough to enable the Concessionaire to recover its investment with a
reasonable rate of return, especially with respect to real estate development component. This would enable the
Concessionaire to realise the full potential of the project and thus offer a competitive bid. Hence, it is better to follow
the structure suggested in the MCA, where extension is subject to the authority’s approval.
5.2.1.2 Conditions precedent to be fulfilled by the authority
Existing provision
The conditions precedent to be fulfilled by the authority in the MCA does not include the appointment of an independent
engineer
Clause no. 4.1.2
The Concessionaire may, upon providing the Performance Security to the Authority in accordance with Article 9, at
any time after 90 (ninety) days from the date of this Agreement or on an earlier day acceptable to the Authority,
Recent example
The Navi Mumbai CA has incorporated appointment of independent engineer as a condition precedent
‘4.1.2 (d) procured the appointment of Independent Engineer, in accordance with the provisions of Article 23 hereof’
Recommendation
The role of an independent engineer is important for monitoring the construction and ascertain the quality of the asset
keeping the timeliness of project execution in check. Therefore, it would be prudent that the independent engineer is
appointed by the authority before construction begins.
5.2.1.3 Obligations relating to refinancing
Existing provision
Obligations relating to refinancing refer to conditions / requirements of the concessionaire when it seeks to secure
refinancing for the project with consent from the authority in the MCA.
Clause no. 6.5
Upon request made by the Concessionaire to this effect, the Authority shall, in conformity with any regulations or
guidelines that may be notified by the Government of India or the Reserve Bank of India, as the case may be, permit
and enable the Concessionaire to secure refinancing………………………..

Recent Example
This clause is mentioned in the CAs of Mopa, Navi Mumbai and Bhogapuram airports.
Concession period should be 40 years with extension of 20 years based on the authority’s approval and
mutual consent
Appointment of independent engineer should be a part of the conditions precedent to be fulfilled by the
authority. In addition, ‘Duties & Functions’ of an Independent Engineer will need to clearly enunciated as
a separate article in the DCA (Please refer to Article 23 and Schedule N of Navi Mumbai International
Airport Concession Agreement)

39
Recommendation
Although the right of refinancing gives comfort to potential bidders, it is also important to protect the interests of the
authority. During financial closure, the financing documents need to be submitted by the concessionaire that form a
part of the CA. To avoid any ambiguity at the time of refinancing, the concession agreement should supersede other
financing documents and an undertaking / clause to this effect should be contained in all financing documents. Any
subsequent financing documents, due to refinancing obligations, should also explicitly contain clause that ‘in case of
any conflict between CA and financing document, clause of the CA will stand’. This will provide clarity to the bidders
while drafting their financing documents.

Development and operations
5.2.2.1 Right-of-way - land acquisition clearance and approvals
Existing Provision
As per the MCA, right-of-way is one of the condition precedent for the authority in the model, with 90% on prior or at
appointed date and the balance 10% within 90 days.
Clause no. 10.3.2
…………the Parties hereto agree that on or prior to the Appointed Date, the Authority shall have granted vacant
access and Right of Way such that the Appendix shall not include more than 10% (ten per cent) of the total area of
the Site required and necessary for the Airport, and in the event Financial Close is delayed solely on account of
delay in grant of such delays of such vacant access and Right of Way, the Authority shall be liable to payment of
Damages……………
Clause no. 10.3.4
The Authority shall make best efforts to procure and grant, no later than 90 (ninety) days from the Appointed Date,
the Right of Way to the Concessionaire in respect of all land included in the Appendix……
Recent Example
Same clause is adopted in the CAs of both Mopa, Navi Mumbai and Bhogapuram airports.
Challenge
Getting the necessary clearances and approvals is a pre-requisite for any project. However, it is understood that
majority of the airports developed through the privatisation route have faced time and cost overruns owing to delays in
obtaining statutory approvals from various government departments. Land acquisition is one of the main hurdles in
implementation of any project. There have been delays in getting the balance 10% of the land. In some cases, the
balance 10% consists of pockets that form part of the core airport operational area, hampering the progress of
construction of even basis aeronautical infrastructure.
Recommendation
After deliberations with multiple stakeholders, it was advised that the project be divided into areas critical for the
airport’s operations and real estate assets. The complete land earmarked for the airport’s operations should form part
of the initial 90% land transferred on the effective date.
Clause 6.5 should be suitably modified to state that the concession agreement will supersede the clauses
of refinancing documents in case of any conflict between CA and financing document
40

5.2.2.2 Expansion of the airport
Existing Provision
As per the provisions of the MCA, expansion of the airport is to be undertaken on a need basis. It is triggered when
aeronautical, non-aeronautical and terminal building fall short of the norms and standards specified by the ICAO
documents, applicable guidelines of the DGCA, etc. The concessionaire can then undertake expansion at his own
cost.
Clause no. 12.8
12.8.1 At any time during the Scheduled Completion Date, if the Aeronautical Assets, Terminal Building and Non-
Aeronautical Assets, as the case may be, fall short of the norms and standards specified by ICAO Documents and
Annexes, the applicable guidelines of DGCA, Good Industry Practice and the provisions of this Agreement, the
Concessionaire shall undertake capacity addition and expansion thereof, at its own cost and expense, to meet
shortfall.
Recent Example
The CA of Mopa, Navi Mumbai and Bhogapuram Airports clearly define the trigger points for phased expansion which
helps in minimizing the risk of uncertainty related to capital expenditure. Navi Mumbai Airport concession agreement
has defined expansion triggers in terms of 1) Actual peak hour passengers vis-à-vis design peak hour passengers and
2) Annual passenger traffic vis-à-vis throughput capacity
Challenge
Airport projects have a long concession period with high volatility related to traffic and capital expenditure. Hence,
investors need flexibility to be able to react to changes, capitalise on opportunities, and grow the business. It is also
pertinent to note that there is critical link between airport capacity, investment and charges. Therefore, any possibility
of expansion of an airport needs to be planned and linked to trigger points to envisage capital investments. Hence,
expansion triggers need to be clearly defined with no scope of ambiguity so that investors have a clear view to the time
period in which it will need to start on project expansion
Recommendation
It is critical for both parties to envisage the quantum of capital investment that will be required during the concession
period, which can then be linked to the capacity triggers (average peak hour capacity, passenger traffic, etc.) in the
concession agreement, upfront. . The investments made need to be recovered with an appropriate return. This will
provide transparency in investments to be made and also ensure phased development of the airport to meet traffic
requirements.
90% of the land transferred on the effective date should include 100% of the land pertaining to airport /
aeronautical operations
41

Financial covenants
5.2.3.1 Interpretation of bid parameters as concession fee
Existing Provision
In the MCA, the bid parameter is the highest annual premium on total realisable fee (calculated from schedule of fees)
or lowest grant. Together with the premium, the Concessionaire has to pay a concession fees of Re. 1 per annum
Clause no. 31.1
In consideration of the grant of concession, the Concessionaire shall pay to the Authority by way of concession fee
a sum of Re.1 per annum and the Premium specified in clause 31.2 (the “Concession fees”)

Clause no. 31.2
The concessionaire agrees to pay to the Authority for the year commencing from the {day falling after …….. days of
the occurrence of COD}, a premium (the ‘’Premium’’) in the form of an additional Concession Fee equal to {1%
(one per cent)} of the total Realisable Fee during that year, net of any taxes on Fee………..
Recent Example
The Mopa and Navi Mumbai airports have the highest gross revenue share (determined by tariff set by AERA) as the
bidding parameter. The Bhogapuram airport has the highest per passenger fee as the bidding parameter. These
airports are following the 30% hybrid-till model.
Definition of gross revenue was further strengthened in the Navi Mumbai CA by addressing major points of dispute
such as:
Insurance proceeds arising out of revenue loss or business interruption is included as part of administration and
general expenses;
Monies received on behalf of the Authority and credited by the concessionaire to the Authority are not to be
considered as expenses;
Any deposit amounts refunded to the relevant sub-licensee or any other person authorized by the Authority in a
particular Concession Year (provided these pertain to past deposits on which Premium has been paid to the
Authority) are not to be considered as expenses;
It is clarified that gross Revenue will be computed on an annual basis for an Accounting Year, in accordance with
the Indian Generally Accepted Accounting Principles, as applicable on March 31, 2016. Since the principles are
defined, it is a good reference point for unforeseeable revenue and expenses and eradicates possible legal
disputes;
Expansion triggers for capital expenditure can be linked to annual passenger capacity and average peak
hour capacity, in line with provisions of Navi Mumbai Airport, to form part of the MCA for phased
expansion as follows:
The concessionaire will initiate construction works for subsequent phases after phase I, within three
months upon the earlier occurrence of any one of the following traffic triggers:
Actual peak hour passengers exceeds the design peak hour passengers for 50% of the time in a period of
six months on rolling basis
Annual passenger traffic in any accounting year is projected to exceed 75% of the design throughput capacity
of the airport, by taking into account the observed traffic growth rate over the preceding six months
42
Authority’s decision is final in case of ambiguity, discrepancy and dispute. This may be detrimental to the private
player, however, this clause in in favour of the Authority
Also together with the gross revenue share or per passenger fee, the Concessionaire has to pay concession fees as
per the schedule given in the concession agreement.
Challenge
The bidding parameter for all privatised airports, except Bhogapuram airport, has been highest percentage of gross
revenue offered. Although the definition of gross revenue is established in the concession agreement, there have
been cases of disputes between the authority and the concessionaire during the concession period owing to
parameters such as inclusion of lease deposits and exclusion of depreciation in the estimation of gross revenue.
Recommendation
Investors prefer clarity and transparency for the entire project lifecycle, which helps in accounting for all risks before
proceeding with the bidding process, and induces confidence regarding government’s attempts to minimise risks and
uncertainties in the project lifecycle.
‘INR per passenger’ which is a pre-determined inflation linked user fee can be the bid parameter. However, it is
imperative for the Government/Concessioning Authority to optimally share the risk of passenger volume with the
Concessionaire as Greenfield airport projects are highly capital intensive and sensitive to macro-economic factors.
The same has been taken into consideration by way of higher MBAY in subsequent years. Concession Fee payable
to the Authority in terms of ‘INR per passenger’ may be suitably modified so as to allow for all relevant heads under
the aeronautical revenue to be suitably absorbed in MBAY. Hence, it is equally important that there is adequate clarity
on the methodology of obtaining the key input to the calculation of MBAY (aeronautical revenue).
As suggested in the NABH NIRMAN note, there could arise a possibility that at certain airports bidders may feel that
the proposed Minimum Blended Aeronautical Yield (or MBAY) would not be adequate to cover their expenses and
business risks. In such an instance, bidders may be permitted to quote a ‘Negative Concession Fee’. Although the
note proposes that at no point will the increase in MBAY for various interventions such as revenue shortfall loan, traffic
variance, service quality incentives or change in scope etc. shall exceed 50% of the base rate of MBAY for that year,
the same has not been capped in case of negative concession fees in case of unviable airports. However in this case
there needs to be a detailed scrutiny on the appropriate pre-specified ceiling or the level of pass-through that should
be made to the MBAY so as to not affect ‘affordability’. In this regard, instead of only adopting a ‘Negative Concession
Fee’, the Authority can consider combining the negative fee with a one-time grant support. In this way, both the
viability of the project can be enabled as well as users’ tariffs can be kept reasonable. However, the maximum grant
to be granted by the Concessioning Authority must also be capped.
Unlike the complicated calculation of gross revenue and total realizable fee, ‘INR per passenger’ is likely to have a
simplistic calculation, making it easier to predict. Therefore, it may be suitable to adopt as a bid parameter.
19


5.2.3.2 Effect of variations in traffic growth
Existing Provision
In the MCA, the target Passenger traffic (6% CAGR over the base traffic assumed for the airport) in the target year (15
years from date of concession agreement) is defined. Any variation whether upside or downside is directly linked to
the concession period.

19
Refer to Table 5 for detailed analysis
A pre-determined inflation linked parameter - ‘INR per passenger’ may be suitably adopted to minimize
revenue leakage.
43
Clause no. 34.1 Effect of Variation in traffic growth
The Authority and the Concessionaire acknowledge that the passenger traffic in (2040) (the ‘Target Year’) is
estimated to be ***** (the ‘Target Traffic), and hereby agree that for determining modifications to the concession
period under ………………………………..
Clause no. 34.2 Modification in the concession period
Subject to the provisions of clause 34.1.2, in the event of Actual Average Traffic shall have fallen short of the target
Traffic, then for every 1% (one per cent) shortfall of the target traffic …………………
Recent Example
The effect of variation in passenger traffic on the concession period is not considered in the recent CAs. However,
phased development is linked to expansion triggers in terms of peak hour traffic and annual passenger traffic in Navi
Mumbai Concession Agreement. In Mopa and Bhogapuram, the capacity expansion is linked to achieving target
passenger traffic per annum.
Challenge
The variation in passenger traffic is generally taken into consideration while fixing the tariff for the next control period
by AERA but not linked to proportional modification of concession period.
Recommendation
For the pre-determined tariff regime, the effect of variation from the traffic projected in the target year may be retained
as per Clause 34 of the MCA which specifies that any shortfall of traffic by more than 2.5% then for every 1% shortfall
the concession period shall be extended by 1.5% provided such extension will not exceed 20% of the total concession
period. Similarly, for every 1% excess in the target traffic, the concession period will be reduced by 1% provided such
reduction does not exceed 10% of concession period. In addition, to this, the concessionaire may elect to pay a further
premium equal to 20% of the realisable fees in the respective years for the period waived off.

Force majeure and termination
5.2.4.1 Termination payment linked to actual project cost
Existing Provision
In the MCA, the termination payment is linked to the total project cost which is defined as the lowest of:
a) The capital cost, as set forth in the financial package
b) A sum determined by the authority
Clause no. 42.3
42.3.3 Upon termination on account of Concessionaire Default during the Construction Period, no Termination
Payment shall be due and payable for and in respect of expenditure comprising the first 40% (forty per cent) of the
Total Project Cost and in the event of expenditure exceeding such 40% (forty per cent) and forming part of Debt
Due……

Recent Example
In the CA for Mopa, Navi Mumbai and Bhogapuram airports, the total project cost is defined as the lowest of
Effect of variation from the traffic projected in the target year may be retained as per Clause 34 of the
MCA.
44
a) Actual capital costs of the construction works incurred in relation to the construction, implementation and
commissioning
b) The capital cost, as set forth in the financial package
c) Estimated Project Cost (e.g. INR 37,49,00,00,000 in case of Navi Mumbai airport)
Challenge
The actual capital cost is included in the definition of total project cost. However, it is unlikely the actual cost will be the
lowest of the components illustrated. Authority-determined total project cost, which is lower than actual capital cost,
becomes an impediment for the concessionaire as the termination payment received will be lower than the actual
capital cost incurred. Also, the financial institutions are skeptical as the termination payments are linked to the total
project cost and in the event of termination, they will have to bear the brunt. Therefore, to protect the interests of the
concessionaire, the termination clause should be amended.
Recommendation
The amendment will incorporate a linkage of the termination payment to capital cost, which is a percentage higher
than the total project cost. As an example, the termination payment can be linked to a value which is 20% higher than
the total project cost defined in the CA. This will provide a fair treatment to the concessionaire at the time of termination.
The percentage escalation will depend on project to project basis and quantum of investment involved. It will also factor
in the delays on account of Authority’s default and provides a comfort to the investors.

Other provisions
5.2.5.1 User fee - ambiguity in tariff structure
Challenge
The key issue arising in the current concession agreement for both greenfield and brownfield is the misconception in
key parameters for determining the tariff in the control period. For example, interpretation of regulated asset base and
return on equity are some of the parameters which are important determinants of the aggregate revenue requirement
but are often a source of contestation mainly for the privatised airport. Generally, the investor’s ability to recover
operating and capital expenses and earn a return on the capital employed must reflect the risk-reward trade-off the
investor faces.
Recommendation
When a regulation is required, clear and stable economic regulation is essential for the private operator. This should
include a transparent and clear framework stating how charges will be regulated. A lack of clarity concerning the
regulatory framework will increase risk, put into doubt the operator’s ability to earn a return on investment, and limit or
even preclude needed investment.

5.2.5.2 Concession Fees - moratorium
Existing Provision
The termination payment to be linked to a value which is some percentage (as determined by the
authority) higher than the defined total project cost.
Providing clear definition as well as method for calculating each parameter, with each sub-parameter
defined as per the airport category, will eliminate interpretation issues for both the concessionaire and
regulator. This will help reduce the disputes.
45
In greenfield MCA, Concession fee will be a fixed sum of Re. 1 per annum for the concession period. The
Concessionaire shall, commencing from the 15th year of the concession period, pay a Premium equal to 1 per cent of
the total realisable fee which shall be increased every year by an additional 1 per cent of the total realisable fee subject
to an upper ceiling of 30%.
Clause 31.2 – footnote
In the event of the Concessionaire commencing a payment of 1% of Realisable Fee from COD or from any date
thereafter, but no later than the 15
th
(fifteenth) anniversary of COD.
Recent Example
In CA Mopa airport, the moratorium period for payment of concession fee is 5 years, whereas in CA Bhogapuram
airport, the moratorium period is 10 years.
Challenge
For greenfield projects, the initial capital expenditure creates a lot of financial burden for the concessionaire especially
debt service obligations would entail substantial outflows. It is important to give due consideration to this and allow for
a concession fee moratorium recognizing this cash flow pattern.
Recommendation
In the operation period the Concessionaire will have an increasing surplus in its hands on account of the declining debt
service on the one hand and rising revenues on the other, hence it is prudent to offer concession fees moratorium for
greenfield projects. The moratorium period will be decided on project to project basis subject to an upper limit of 15
years.

5.2.5.3 Definition of change in ownership/ Equity lock-in period
Existing provision
In the MCA, the aggregate holding of the selected bidder or consortium member in total equity will be maintained at
51% during construction period and until the first Commercial Operation Date, and by 26% for the rest of concession
period.
Clause 53.1
‘’Change in ownership’’ means a transfer of the direct and/or indirect legal or beneficial ownership of any shares, or
securities convertible into shares, that causes the aggregate holding of the {selected bidder/consortium members}
together with {its/their} Associates in the total Equity to decline below (i) 51% (fifty one per cent) thereof during the
Construction Period and until the 1
st
(first) anniversary of COD, and (ii) 26% (twenty six per cent) thereof, or such
lower proportion as may be permitted by the Authority during the remaining Concession Period……

Challenge
The CAs for Navi Mumbai, Mopa and Bhogapuram airports have an equity lock-in of seven years.
The equity lock-in period is an important aspect of the concession agreement for potential investors, developers and
operators. These players are more comfortable investing in assets that have a minimal equity lock-in period. To protect
the interests of the government and keep a check on the operational quality of the airport, it is imperative to keep a
balanced equity lock-in period. We have observed the conditions of the lock-in period and 100% divestiture in other
sectors:
Providing concession fees moratorium up to sufficient number of years subject to an upper ceiling of 15
years will help the concessionaire to bear the initial debt burden.
46
S no Sector Equity lock-in period in years
100% divestiture allowed post
lock-in period
1. Planning commission MCAs for airports 3 X
2. NMIAL/Mopa/ Bhogapuram 7 X
3. Highways 2
4. Ports 2
Recommendation
Since an airport is a complex infrastructure asset, it is prudent to keep the equity lock-in period for at least five years
to test the operational compliance of the airport by the concessionaire in the initial years. After serving that lock-in
period, the concessionaire can decrease the equity stake and can completely exit in 10 years. Divestiture of 100% put
players in a comfortable position to invest in the airport assets, leading to an increase in private sector participation.

General recommendations
5.2.6.1 Two stage bidding process
Recommendation:
As per the Ministry of Finance and erstwhile Planning commission model PPP documents, a two- stage bidding process
is to be adopted for PPP projects. In the first stage, eligible and prospective bidders are shortlisted. This stage is
generally referred to as Request for Qualification (RFQ) or Expression of Interest (EoI). The objective is to short-list
eligible bidders for stage two of the process. In the second and final stage, which is generally referred to as the Request
for Proposal (RFP) or invitation of financial bids, the bidders engage in a comprehensive scrutiny of the project before
submitting their financial offers
The objective of first stage (RFQ) is to identify credible bidders who have the requisite technical and financial capacity
for undertaking the project. Only the pre-qualified bidders will then participate in the RFP stage which will also help in
reducing the number of bidders for the RFP stage and the winning bid will be selected based on the biding criteria laid
out in RFP and CA.
All the PPP airports developed in the past have been awarded through a two stage bidding process which has proved
to be the most efficient and effective method for award of PPP projects. However it is important to define and adhere
to the timelines of bidding process set out for the specific project to gain maximum benefit out of this type of bidding.
5.2.6.2 Prolonged litigation process
Challenge
The Appellate Tribunal under AERA Act, 2008 is mandated to resolve disputes arising out of tariff fixation by the
regulator. However, the Act also allows for appeal in the Supreme Court within 90 days of the order issued by the
Tribunal. This creates a prolonged delay in arriving at a concrete resolution, affecting both the operator and users
negatively. Recently, the Appellate Tribunal under AERA was merged with the Telecom Dispute Settlement Appellate
Tribunal, which will further delay resolution of disputes. This is because the TDSAT is already mandated to settle
disputes for the telecom and cyber security sectors. Also, representation of an independent aviation expert in the panel
is necessary for effective dispute resolution.
Recommendation:
Equity lock-in period will be extended to five years to ascertain the operational compliance of the
concessionaire in the MCA.
47
The litigation process before the Tribunal to be resolved within 90 days of appeal, which will speed up the resolution
process
The panel to have representation from an independent aviation expert for effective dispute resolution
5.2.6.3 Revise tariff guidelines
There are multiple issues with treating revenue sources and expenses as per the revised tariff guidelines. As per
interactions with multiple players, a few issues and recommendations are identified and illustrated below:
Table 6: Issues & recommendations of tariff guidelines
20

S. No. Issue Recommendation
1 Cost of Equity of 16% is generally accepted by AERA.
However, it is in the process of determining the COE
value for various airports and this value may be
upgraded
The cost of equity shall be fixed to ease
determination of Weighted Average Cost of Capital
and project returns
2 Cost of debt is dependent on prevalent market rate and
is based on period of filing
Similar to cost of debt which is capped at market
rate plus 3%, AERA shall limit the cost of debt to
avoid project losses
3 As per the recent order of Telecom Disputes Settlement
and Appellate Tribunal for Delhi airport, a return is
expected on Returnable Security Deposit for city side,
however, whether it should be treated as debt or equity
is still unclear. This may have impact on D/E ratio which
will affect the value of Cost of Equity
Clarity in terms of treatment of returnable security
deposit as debt or equity shall be given by TDSAT
4 The deficit between expected yield and actual yield is
used for tariff revision and charging of UDF. The first few
years of operation based on ad-hoc tariff for upcoming
projects may create a revenue shortfall which will then
make case for charging of UDF in the first control period
Tariff filing control period shall be linked to
appointed date / transfer date of the airport
5 No difference in tariff determination methodology of
greenfield and brownfield airport
Since the cost involved in a greenfield airport is
much higher, there should be a separate
methodology for greenfield and brownfield airport
6 Dispute over clauses men tioned in CA taking
precedence over AERA tariff guidelines. For example: in
Bangalore airport, the CA considered ground handling,
fuel charges & cargo handling charge as non -
aeronautical revenue. However, the guidelines were
issued post signing of CA and considers these elements
in aeronautical revenue. This is a cause for dispute till
now.
Regulator shall ensure CA provisions to be in
tandem with tariff guidelines to avoid disputes and
discrepancies
Source: CRIS analysis

20
We cannot comment on the methodology of tariff determination by AERA as it is an extensive exercise that goes beyond our scope of work
48
6. PPP framework in Brownfield airports
Brief Background
Brownfield airports are in general more amenable to successfully transitioning to a PPP arrangement as they are
functioning airports with established revenue streams. Privatisation in brownfield airports can range from asset and
scope specific concessions to leasehold sales of the entire airports to a private players. However certain issues can
emerge in deciding values of initial upfront payments that an Authority can claim from a private player as it would be
linked to an accurate and agreeable valuation of the airport’s assets, at the time of its privatization. Several privatization
models in brownfield airports in practice globally have been discussed below.
Types of privatization models
1. Government-ownership with private sector participation
These are operating models, wherein a government endeavors to meet certain objectives without engaging in sale of
assets or transfer of material control to a private player
21
. There are sub types of this model as outlined in the table
below:
Table 7: A few examples of government-ownership with private sector participation
# Model Characteristics in brief Example airport
22

1. Service contracts Procurement of specialist services to run particular functions
within an airport
Is not a mechanism to raise capital receipts or finance
capital expansion plans
Can be combined with other models as part of a broader
financial and commercial strategy to achieve a host of
strategic objectives of the government.


Dubai International Airport :
Baggage handling service
contract,
Delhi International Airport:
IT services contract
2. Management
contracts
Similar to service contracts but more complex and maybe
performance-based; they require the private operator to be
exposed to demand and revenue risk
Risk passed on to the operator, but short-term costs are
increased
Can also be combined with other models to achieve the
government’s strategic objectives


Airport Management
Contracts in the Kingdom of
Saudi Arabia
3. Lease contracts Effectively shorter-duration PPP concessions
In some cases, the authority is required to underwrite a
certain number of passengers to ensure a minimum level of
operating income to the operators
23



İzmir -Adnan Menderes
Airport, Turkey

21
Reference: Airport Ownership and Regulation, IATA Guidance Booklet, June 2018
22
These examples also include cases, where the referred PPP model was implemented in the past.
23
Source: https://www.icao.int/sustainability/CaseStudies/Turkey.pdf, Accessed on July 3, 2018
Contract Span: 1-3 years
Contract Span: 3-5 years
Contract Span: 5-15 years
49
# Model Characteristics in brief Example airport
22

4. Technical
assistance
A management agreement, wherein private player executes
business plan
Reviewing and auditing of existing airport operations to
increase efficiency and planning for future expansion of the
airport
24

Providing professional assistance and support on airport
services-related matters


Astana Airport, Kazakhstan
Sources: World Bank, International Air Transport Association
2. Minority equity sale & full divestiture
In this model, the government authority sells a minority stake in an airport and retains the ownership. This enables it
to access external equity financing and raise capital for further investments in new airports. The investors in the airport
asset would also be expected to improve its management and financial efficiency. A key point in this could be that
investors are more likely to be keen on a stake sale in which the government authority does not possess a “control
premium”. Since the equity on sale can fetch a higher price in the market, the interested buyers would normally expect
a higher gain with some level of control over the airport. In a lot of cases, minority equity sale is a part of a process of
full divestiture.
A full divestiture entails the transfer of ownership of an airport from a government authority to the private sector.
Although ceding control of an airport may not always be an attractive proposition to a government authority, the
valuation of the airport can increase, as investors would typically be willing to pay a control premium in such cases.


An early example of airport privatisation is the floating of shares of the British Airports Authority on the London Stock
Exchange in 1987. Until September 2003, the UK Secretary of State possessed a golden share in the airport to
prevent a take-over by foreign investors. However, in 2006 BAA Plc was de-listed when it was acquired by a
consortium led by the Spanish group Ferrovial. BAA. Ferrovial, owned and operated a number of airports, including
Aberdeen, Edinburgh, Gatwick, Glasgow, Naples International Airport and Stansted Airport. However, by 2014, the
group had sold off all of its other airports, to focus solely on Heathrow Airport in London. Currently, the group
operates under the name of Heathrow Airport Holdings. The group also has a subsidiary, the Heathrow Express
Operating Company, which runs the Heathrow Express, an airport rail link between Paddington Station and
Heathrow Airport.
Heathrow airport served over 78 million passengers in 2017.
Current ownership structure (as of May 2017)
Ferrovial holds maximum equity share – 25%. This is followed by Qatar Holding (20%), CDPQ (12.62%), GIC SI
(11.2 %), Alinda (11.18%), CIC (10%) and USS (10%).

Heathrow Airport Privatisation - Timelines

24
Source: http://www.malaysiaairports.com.my/?m=media_centre&c=news&id=265, Accessed on July 3, 2018
Contract Span: ~10 years
Case Study: Minority equity sale & full divestiture of Heathrow Airport, London
50

Tariff Features at Heathrow Airport
Heathrow Airport is subject to the Airport Charges Regulation 2011, a UK law which was derived from a
European Directive for its member states
The level of charges that is levied every year is in accordance with a pricing formula set by the Civil Aviation
Authority
Single till framework applied for tariff calculation.
Tariff is revised every five years to calculate the five-year increase in aeronautical tariffs allowing expected EBIT
to equal allowed EBIT
Passengers X aeronautical tariffs = aeronautical revenue + non-aeronautical revenue – opex – depreciation =
expected EBIT
Average Regulated Asset Base (RAB) X allowed return (7.75%) = allowed EBIT
Key learnings
Encouraging multiple private parties as part of ownership structure is beneficial in avoiding monopoly in the
sector
Single till framework disincentivises the operator to undertake investments in non-aeronautical services. Due to
this reason, Heathrow Airport faced underinvestment causing airport closure in 2010. Therefore, tariff
framework shall be devised in a way to encourage private participation
Source: AMP capital, Ferrovial/ BAA – A transforming Acquisition


In 2002 Sydney Airport in Australia, was privatised, which till then was owned and managed by the Federal Airports
Corporation. The airport was sold with long-term leases of 50 years with a 49 year extension option. Subsequently
several other regional airports were also privatised. These privatised airports are either listed companies or privately
owned by large investment funds. The Australian Government’s objectives were mainly to increase the international
competitiveness of these airports as well as to improve their operational efficiencies.
The other important objectives were to minimise unnecessary compliance costs and facilitate commercial
negotiations in airports’ operations.
The airports were sold on a leasehold basis by the Commonwealth of Australia for certain upfront and outright
payments. Thus there was no revenue share arrangement as such between these private companies and the
Australian Government. For the companies which are subidiaries of parent holding companies or held in part by
institutional investors, a dividend sharing model exists.
Case Study: Sydney Airport Privatisation Programme
51
In the case of Sydney Airport, the airport is owned and operated by Sydney Airport Corporation Limited
25
which
actually is a separate subsidiary of a holding company by the name of Sydney Airport Limited.
Key features:
Lease tenure: Long term leases of 99 years
Tariff regime: Light-handed regulation, full dual-till approval.
Regulatory features: Australian Competition and Consumer Commission (ACCC) is the overseeing authority
o Monitoring of service quality done annually.
o Price determination undertaken if negotiations between airports and airlines fail
o Major capex for expansion can only be taken with State intervention

Key learnings
The absence of price regulation under light handed regulation was not fully able to contain the market power of
the four major Australian airports
Full divestiture with respect to lease/ concession contracts enables more
Source: AMP Capital, Airport Ownership and Regulation: IATA Guidance Booklet

PPP scenario in brownfield airports in India
Early in 2003, a Cabinet Decision was taken to restructure Delhi and Mumbai airports. The intent was to involve the
private sector in this process by setting up Joint Ventures or JVs for both the airports, with the Airports Authority of
India as a partner in each. A special agreement termed as the Operations, Management and Development Agreement
or OMDA was released in August 2005. As a concession structure of Delhi and Mumbai OMDA is similar.
In 2004, a consortium led by the GMR Group was awarded the concession to operate, manage and develop the Indira
Gandhi International Airport. The group was allowed to acquire ~4600 acres of land against an equity contribution of
Rs. 2450 crores.
26
Traffic at the airport has more than double in the present decade from 25.8 million passengers in
2010 to 63.5 million in 2017.
27

Some of the key features of the concession agreement which was signed then have been presented below -
Concession Period: The total concession period for this arrangement was set at 30 years which was further
extendable by 30 years.
Ownership structure of the JVC: It was mandated in the bid document that airport operators must necessarily be
part of the consortium of private players who would form the JV with the Airports Authority of India. The airport
operators were required to hold a minimum of 10% equity for the first five years of the concession period. After
five years, the requirement for the minimum collective equity stake of the private sector consortium was set at
26%.
Expansion of the airport: The concession agreement required the concessionaire a master plan for the airport for
a 20 year horizon. A key tenet needed of this master plan was for it provide identifiable traffic triggers for
undertaking specific capital expenditure projects and capacity expansions. Further the concessionaire was also
required to physically develop the airport at specific points as identified by this master plan. For capital expenditure
projects costing over Rs. 100 crores, concessionaire was also required to prepare a Major Development Plan.

25
Source:https://assets.ctfassets.net/v228i5y5k0x4/7gQkThyOPKmwAycmQIOmOc/37f1710697644fe2fd8c1ca6790ad7dc/2017_Sydney_Airport_
Annual_Report.pdf, Accessed on February 19, 2019

26
Source: https://www.livemint.com/Companies/nue0TiYimtU2WDG8GcqHEM/CBI-looking-into-GMRs-Delhi-airport-transaction.html, Accessed on
February 19, 2019
27
Source: CAPA
52
Sharing of revenues by the concessionaire with the Authority: The bidding parameter was the share of revenues
that a prospective bidder would pay to the Authority. For Delhi airport, it was 45.99% of projected revenue for a
given year and for Mumbai airport, it was 38.7%.
Framework for calculation of aeronautical tariffs: At the time of the transactions for Delhi and Mumbai airports, the
present regulator namely the Airports Economic Authority of India had not yet been instituted. The concession
therefore directed that the aeronautical charges which the airport could impose be determined as per provisions
of the State Support Agreement.


Recently, AAI floated a tender for privatization of six airports – Ahmedabad, Jaipur, Guwahati, Lucknow, Mangalore
and Thiruvananthapuram. It had a positive response on the participation of bidders. The financial closure of the
same is currently in process.
Some of the key features of the concession agreement which was signed then have been presented below -
Concession Period: The total concession period for this arrangement is set at 50 years.
Expansion of the airport: The concession agreement required the concessionaire a master plan for the airport.
A key tenet needed of this master plan was for it provide identifiable traffic triggers for undertaking specific
capital expenditure projects and capacity expansions. Further the concessionaire was also required to physically
develop the airport at specific points as identified by this master plan.
Sharing of revenues by the concessionaire with the Authority: The bidding parameter is the share of fee
for each domestic and international passenger that a prospective bidder would pay to the Authority.
Framework for calculation of aeronautical tariffs: This is determined by Airport Economic Regulatory
Authority (AERA) as per AERA act 2008 and issued amendments thereafter.
Adani has emerged as the winner for all six airports. The airports have been awarded to the successful bidder and
signing of concession agreements is in process. The winning quotes for the same is mentioned below:
Table 8: Quoted fee per passenger by winning bidder
Name of airport Quoted per domestic passenger fee
(in Rs.)
Sardar Vallabhbhai Patel International Airport, Ahmedabad 177
Jaipur International Airport, Jaipur 174
Chaudhary Charan Singh International Airport, Lucknow 171
Lokpriya Gopinath Bordoloi International Airport, Guwahati 160
Trivandrum International Airport, Thiruvananthapuram 168
Mangalore International Airport, Mangalore 115

Key Learning: Brownfield airport with promising traffic has a better chance for successful privatization. The
private player will be willing to share a higher gross revenue in such a case.

Successful bidding for privatizing six brownfield airports
53
6.1 Suitable PPP framework
An assessment of the most recent PPP frameworks which were tried for the privatization of brownfield airports in India
has been carried out below. This has been done to guide thinking on the building blocks needed for a suitable PPP
framework for brownfield airport projects in India.
1. Partial privatization of Jaipur and Ahmedabad airports in 2017-18
The Airports Authority of India (AAI) started the process of partial privatisation of Ahmedabad and Jaipur airports,
through O&M contracts, in early 2017. This was following the Authority twice declining proposals made by Singapore’s
Changi Airports International in 2016 for undertaking O&M activities at the two airports. The original intent of the
Authority was to hand over terminal management of the two airports to private operators, thereafter relocating the
existing manpower and equipment therein. Certain areas termed “Select Areas” were put forward as the package of
airport assets to come under the ambit of O&M of the selected private player. These essentially comprised the
passenger terminal buildings, including the airport operations control centre, fire control room, kerb side approach road
and passenger boarding bridges, apron areas (excluding cargo side apron areas) and surface car parks.
Some of the major issues in the terms which surfaced and had to be looked into are illustrated below:
i. Concession period
The concession period for the O&M contract was first set at 10 years, and later revised to 15 years. However, a
contract length of 20 years was also requested during the bidding stages.
In the first year of operations, an operator can be expected to have limited potential for building revenue margins
owing to planning and sub-contracting. A shorter tenure of 10 years limits the effective “on contract” tenure of the
operator.
A longer contract tenure can allow the airport operator to engineer its revenue contracts in a manner that
maximises the revenue potential of the airport.
ii. Bidding parameter
The bidding parameter, on the basis of which a prospective operator was to be selected, was fixed as the lowest
revenue share. Given the restricted scope of the project, the potential for revenue was considered to be limited,
making a revenue-share model unattractive to a bidder. Subsequently, the bidding parameter was revised to highest
per passenger fee. It was observed that post the modification of the bidding parameter, the cut-off quote for the same
had to be revised downwards in subsequent corrigenda issued by the Authority.
iii. Scope of operations and maintenance contract
Initially, the scope of operations and maintenance was limited only to the non-aeronautical infrastructure of the
airport such as the passenger terminal building, surface car park and terminal approach roads. As per the latest
draft concession agreement, the scope also includes multi-level car park and any new passenger terminal
building, if constructed during the concession period.
The perception was that the revenue potential from simply managing the terminal-related infrastructure of the
airport was inadequate. The scope also excluded future expansion of the airport, which was also not attractive
to the bidders. Including management of the aeronautical infrastructure in the scope was a key desirable
amongst the bidders.
iv. Equity lock-in period
Initially, when the duration of the contract was set at 10 years, the required equity lock-in period of five years
was considered too stringent.
For equity-lock in to be comfortable to an O&M operator, a longer concession period would be more meaningful.


54

In the above case study, the purpose of the management contract was well defined with limited scope wherein the
private player stands to gain in the short concession period. However, in Jaipur and Ahmedabad management contract,
the purpose of the contract was ambiguous and misleading. We have critically analysed the case, and recommended
changes to the agreement structure, based on stakeholder inputs and the aforementioned case studies. The following
modifications in the concession agreement may possibly lead to the success of the partial privatization model of Jaipur
and Ahmedabad airports.
Management of aeronautical assets and capex decision should be included in the scope of the concession
agreement
A wider O&M scope, encompassing airside and cargo operations, together with capex decisions, in addition to
terminal management, can be given to airport operators.

28
Source: Changi Airports International – Corporate Brochure 2018
29
Source: Changi Airports International – Corporate Brochure 2018
30
Traffic at KFIA grew over 110% by 2016 from its 2008 levels.

Changi Airports International (CAI) in 2008 was awarded a six-year management contract to operate King Fahd
International Airport (KFIA) in Dammam, Saudi Arabia. The mandate was mainly to drive the transformation of the
airport into a best-in-class international airport
28
. Focus areas for undertaking management contract were
improvement in service quality and upskilling of the airport’s resident management and staff. This involved multiple
visits from Singapore to support the resident team with respect to human capital, airport commercial and retail
management, operations efficiency and service quality management. CAI also got an extension of 7 months, the
maximum concession period extension permissible under concession agreement.
Key features:
Scope: Knowledge transfer for enhancing airport service quality to increase passenger traffic and work closely
with the resident team
Payment to Concessionaire: $ 43 million
Involvement in Capex decision: Not with the concessionaire
Key learnings
Procurement of specialist management expertise together with retention of government ownership of the airport.
For example, in collaboration with the local management team of the airport, Changi Airports International (CAI)
implemented a hub development programme
29
, which over time significantly improved traffic at the airport.
30

Knowledge and skill transfer is at times pertinent to enhance quality. Both KFIA management and staff
underwent extensive training through the period of the management contract in areas of airport operations.
Trend in passenger traffic (in millions) at King Fahd International Airport, Saudi Arabia (2003-2015)

Source: General Authority of Civil Aviation, Kingdom of Saudi Arabia
Case Study: Management Contract implementation at King Fahd International Airport
55
The concession period should be set for a duration of more than 15 years
Longer contract tenures can enable operators to build more flexible revenue contracts and plan operations
management at the airport with a long-term mindset.
The bidding parameter should be retained as per passenger fee, rather than highest revenue share
A longer contract tenure, coupled with a per passenger fee basis of payment to the Authority by the operator, is a
better incentive for attracting private participation in O&M contracts. Highest per-passenger fee is recommended
to be retained as the bidding criterion for future O&M bid invitations.
Equity lock-in period should be retained as five years
Equity lock-in is a way to nudge prospective operators to take a long-term interest in the profitability of the asset
they would be operating. Imposing a reasonable equity lock-in period is recommended for future O&M bids.

2. Operations, Management and Development Model issued in December 2018
In December 2018, The Airports Authority of India invited bids for privatization of six airports - Ahmedabad, Jaipur,
Lucknow, Guwahati, Mangalore and Thiruvananthapuram. The bids for Ahmedabad and Jaipur airports were re-invited
following the earlier inconclusive exercise carried out in the year. Unlike the earlier tender process wherein the scope
of services comprised only of operations and management of select areas of the airports, this tender included the
operation and maintenance of the entire airport including city side development and expansion of airports, if required.
This model’s transaction structure is similar to the 2006 OMDA model which was implemented for Delhi and Mumbai
airports, except the bid parameter which was revenue-share in the earlier model. The tender is in process to be
awarded to the highest bidder and the concession agreement will be signed shortly.
Some of the major features of the present model have been described below.
Concession structure
The bid parameter to be quoted by private players is per passenger fee for domestic passengers. For international
passengers, the quoted fee will be doubled. Successful bidder means the qualified bidder quoting the highest per
passenger fee for domestic passengers. The concession period is 50 years from commencement of Commercial
Operation Date (COD).
The concessionaire is required to pay to the Authority a share of his total revenues by way of a monthly concession
fee which would be calculated using the following formula.





Revision of Per Passenger Fee
The Per Passenger Fee payable by the concessionaire is subject to be revised annually as per two given formulae
given separately for two periods (for the period spanning the first fifteen years and the period following that spanning
the remaining thirty five years of the concession).






Monthly Concession Fee =
Per Passenger Fee for International Passengers * International Passenger Throughput for that month +
Per Passenger Fee for Domestic Passengers* Domestic Passenger Throughput for that month

Growth in Per Passenger Fee for Domestic Passengers in the first 15 (fifteen) years of the concession:
Per Passenger Fee for Domestic Passengers of previous year X (1 + 85% of CPI (IW) increase)
Growth in Per Passenger Fee for Domestic Passengers in the rest of the concession period (35 years):
Per Passenger Fee for Domestic Passengers of previous year X (1 + 50% of CPI (IW) increase)
56


Negative growth in inflation rate not considered, therefore even after sudden fall in inflation rate, the per passenger fee
shared with the Authority will remain high.
Initial upfront payments required of the Concessionaire
The concessionaire is expected to make an upfront payment to the Authority within 365days of COD. This comprises
the value of the aeronautical asset base of the airport (termed as the Deemed Regulatory Asset Base (RAB)).
Equity Lock-in Period
The concessionaire has to maintain equity in the project until the 5
th
year from COD. In addition, the concessionaire is
required to continue to have a financial standing and technical capacity better than or at par with their present levels
until the expiry of 5 years from the COD.
Regulatory Framework
The main premise of the regulatory framework for the operations of the selected bidder is that the aeronautical charges
that the bidder can impose would be subject to review once in every five years. An airport’s aeronautical charges would
be set for a period of five years (referred to as the control period) by the regulator viz. the Airports Economic Authority
of India (or AERA). The hybrid-till approach (also referred to as “Shared Till Approval”) is used for determination of the
aeronautical tariffs for the control period.
In this approach the total revenue requirement needed to provide the needed return is calculated considering 30% of
non-aeronautical revenues as a cross-subsidising factor, instead of 100% non-aeronautical revenue as cross-
subsidising factor in single till framework. The benefit in doing so is that this brings down the per-passenger shortfall
of revenues which leads to a lesser tariff being passed on to passengers.
City-Side Development
The Concessionaire is entitled to undertake development, finance, operation and maintenance of real-estate on the
available city-side land of the airport and to deploy it for commercial use. The Concessionaire thus can earn additional
non-aeronautical revenue in two ways –develop the property and earn rentals (developer model) or give the land to a
developer in return for a revenue share arrangement (lease model).
Some of the major issues that may potentially surface are illustrated below:
1. Revenue risks
A downside in inflation rate is not considered for revision in year-on-year growth in per passenger fee,
therefore even after sudden fall in inflation rate, the per passenger fee shared with the Authority will remain
high
In case there is deficiency in physical conditions of assets such as terminal building, city side land etc., which
may impact the quality of service provided by the concessionaire, the concessionaire has no recourse against
the authority if it negatively impacts the traffic
In case there is a change in regulatory philosophy, there is no relief available to the concessionaire for the
first 7 years.
2. Financial risks
AERA is in the process of determining the COE value for various airports and this value may be upgraded.
The Fair Rate of Return will increase in case the cost of equity is revised to be at a higher rate
Cost of debt is dependent on the prevalent bank rate during period of filing. The Fair Rate of Return will
increase in case the cost of debt increases across control periods
3. Other risks
In waterfall mechanism for withdrawal of funds, the provision of debt service due is after payments to
Authority
Provisions regarding city side development with respect to subleasing, assigning or creating any
encumbrance is ambiguous
57
The table below presents a comparative analysis of the two recent models in the brownfield airport development in
India:
Type of model
Points for consideration
Recommendations
Government Private Player
Partial privatization
model – Jaipur and
Ahmedabad (2017-18)
The authority largely
retained control of
management of
aeronautical
infrastructure of the
airports.
The authority also
retained power for
capex-intensive
expansion projects at
the airport.

The scope for the
private player was
largely restricted to
management of the
terminals and non-
aeronautical
infrastructure such as
car-parking.
Short concession period
of 15 years with equity
lock-in period of 5
years.
A wider scope for O&M
encompassing airport
operations and capacity
expansion power to the private
player is recommended. With
the increase in scope, the
concession period is also
expected to increase from the
proposed 15 years.

New O&M Model –
privatisation of six
airports (2018-19)
Significant upfront
payments to be
received by the
Authority for each
airport which can be
used for capex funding
of other smaller
airports.
Per-passenger fee
payable by the
concessionaire is
different for
international and
domestic passengers.
Rising international
traffic at the airport can
create a significant
upside in the eventual
yearly revenue shared
by the concessionaire.
Full aeronautical
operations (except
traffic control and
navigation services)
brought under the ambit
of the private operator.
Freedom in deciding the
best utilisation for city-
side land.
Traffic risk to be borne
by the player with a
termination in contract
due to fall in traffic by
20% in two consecutive
years
This is similar to privatization of
Mumbai and Delhi Airport which
had resulted in positive results in
upgrading these airports. Also,
in the longer term, the
concessionaire stands to gain
considerably from city-side
revenue. This presents an
attractive opportunity to the
concessionaire, therefore this is
a suitable PPP framework.
The latest O&M model adopted by AAI is well received by the private players and has attracted participation. Moreover,
the private players are interested in a long term participation in brownfield airports. Therefore, it is a suitable concession
structure for privatizing future brownfield airports.
Bidding Parameter
CRIS recommends the bidding parameter to be highest fee per passenger, which is an inflation linked fee payable
to the Concessioning Authority.
In the event however that bidders feel that the airport is not profitable enough, they can chose to propose a lower per
passenger fee that would be adequate to cover their expenses and business risks.
Tariff structure
CRIS recommends using the tariff structure followed by AERA as per AERA act 2008. This will be reviewed by the
entity in every 5 years.
In conclusion, we make the following recommendations: -
1. Bidding Parameter: Concession fee in terms of INR per passenger.
2. Tariff Structure: As followed by AERA as per AERA act 2008 and the addendums issued for the act.
58
6.2. Recommendations on concession structure
We have analysed the DCA floated by AAI for the recent privatization of six brownfield airports in India. Based on this
DCA and suggestions received from stakeholders, the following modifications in the concession structure of the MCA
is outlined below:
Scope of project
6.1.1.1 Concession period
Existing provision
The MCA for brownfield airports follows a concession period of 30 years, which can be extended by 30 years. However,
the condition of extension is not specified.
Clause no. 3.1.1
Subject to and in accordance with the provisions of this Agreement, Applicable Laws and the Applicable Permits,
the Authority hereby grants to the Concessionaire the concession set forth herein including the exclusive right,
license and authority to construct, operate and maintain the Airport (the ‘’Concession’’) for a period of 30 (thirty)
years commencing from the COD, and the Concessionaire hereby accepts the Concession and agrees to implement
the Project subject to and in accordance with the terms and condition set forth herein.
Provided that the Concessionaire shall, at any time no earlier than 5 (five) years, but no later than 3 (three) years
prior to completion of the aforesaid Concession Period of 30 (thirty) years, upon issuing a notice to this effect to the
Authority, be entitled, be entitled to an extension of 30 years in the Concession Period under and in accordance with
the provisions of Clause 42.5
Provision in revised DCA released by Airports Authority of India on December 2018
Specifies a concession period of 50 years without any further period of extension.
Challenge
A shorter concession period restricts the concessionaire’s potential to leverage city-side development and achieve
adequate returns in proportion to the initial investment.
Recommendation
As is applicable for greenfield projects, to curb distortion with regards to competition and the resources of the players
involved in the bid process, the concession period should be adequately long to enable the Concessionaire to recover
its investment with a reasonable rate of return, especially with respect to real estate development component. This
would enable the Concessionaire to realize the full potential of the project and thus offer a competitive bid.

Development and operations
6.1.2.1 Right-of-way - land acquisition clearance and approvals
Existing Provision
As per the MCA, right-of-way is one of the condition precedent for the authority in the model, with 90% on prior or at
appointed date and the balance 10% within 90 days.
Concession period should be for 50 years for brownfield airports with no extension of period
59
Clause no. 10.3.2
…………the Parties hereto agree that on or prior to the Appointed Date, the Authority shall have granted vacant
access and Right of Way such that the Appendix shall not include more than 10% (ten per cent) of the total area of
the Site required and necessary for the Airport, and in the event Financial Close is delayed solely on account of
delay in grant of such delays of such vacant access and Right of Way, the Authority shall be liable to payment of
Damages……………
Clause no. 10.3.4
The Authority shall make best efforts to procure and grant, no later than 90 (ninety) days from the Appointed Date,
the Right of Way to the Concessionaire in respect of all land included in the Appendix……
Provision in revised DCA released by Airports Authority of India in 2019
The AAI DCA specifies 90% of assets to be transferred prior to COD or latest by 90 days from COD. However, as per
some sources, this was changed to complete (100%) transfer of assets. .
Challenge
Getting the necessary clearances and approvals is a pre-requisite for any project. However, it is understood that
majority of the airports developed through the privatisation route have faced time and cost overruns owing to delays in
obtaining statutory approvals from various government departments. Land acquisition is one of the main hurdles in
implementation of any project. There have been delays in getting the balance 10% of the land. In some cases, the
balance 10% consists of pockets that form part of the core airport operational area, hampering the progress of
construction of even basis aeronautical infrastructure.
Recommendation
Since in brownfield airport, the airport assets are owned by the authority, the complete land earmarked for the airport’s
operations should be transferred on the effective date.

6.1.2.2 Expansion of the airport
Existing Provision
As per the provisions of the MCA, expansion of the airport is to be undertaken on a need basis. It is triggered when
aeronautical, non-aeronautical and terminal building fall short of the norms and standards specified by the ICAO
documents, applicable guidelines of the DGCA, etc. The concessionaire can then undertake expansion at his own
cost.
Clause no. 25.3
12.8.1 At any time during the Scheduled Completion Date, if the Aeronautical Assets, Terminal Building and Non-
Aeronautical Assets, as the case may be, fall short of the norms and standards specified by ICAO Documents and
Annexes, the applicable guidelines of DGCA, Good Industry Practice and the provisions of this Agreement, the
Concessionaire shall undertake capacity addition and expansion thereof, at its own cost and expense, to meet such
shortfall.
Provision in revised DCA released by Airports Authority of India in 2019
AAI’s DCA directs expansion of the airport to be undertaken under similar conditions as those in the MCA
Challenge
100% right of way shall be given to the land pertaining to airport / aeronautical operations and city side
development
60
Airport projects have a long concession period with high volatility related to traffic and capital expenditure. Hence,
investors need flexibility to be able to react to changes, capitalise on opportunities, and grow the business. It is also
pertinent to note that there is critical link between airport capacity, investment and charges. Therefore, any possibility
of expansion of an airport needs to be planned and linked to trigger points to envisage capital investments. Hence,
expansion triggers need to be clearly defined with no scope of ambiguity so that investors have a clear view to the time
period in which it will need to start on project expansion
Recommendation
It is critical for both parties to envisage the quantum of capital investment that will be required during the concession
period, which can then be linked to the capacity triggers (average peak hour capacity, passenger traffic, etc.) in the
concession agreement, upfront. The investments made need to be recovered with an appropriate return. This will
provide transparency in investments to be made and also ensure phased development of the airport to meet traffic
requirements.
The MCA and AAI’s DCA do not explicitly specify the exact terms under which expansion of the airport should be
undertaken. However, the same is specified in the greenfield CA’s of Mopa and Navi Mumbai should be linked to peak
hour capacity or annual passenger traffic.

Financial covenants
6.1.3.1 Interpretation of bid parameters as concession fee
Existing Provision
In the MCA, the bid parameter is the highest annual premium on total realisable fee (calculated from schedule of fees)
or lowest grant. Together with the premium, the Concessionaire has to pay a concession fees of Re. 1 per annum
Clause no. 31.1
In consideration of the grant of concession, the Concessionaire shall pay to the Authority by way of concession fee
a sum of Re.1 per annum and the Premium specified in clause 31.2 (the “Concession fees”)

Clause no. 31.2
The concessionaire agrees to pay to the Authority for the year commencing from the {day falling after …….. days of
the occurrence of COD}, a premium (the ‘’Premium’’) in the form of an additional Concession Fee equal to {1%
(one per cent)} of the total Realisable Fee during that year, net of any taxes on Fee………..
Provision in revised DCA released by Airports Authority of India in 2019
The concessionaire has to pay a monthly concession fee to the Authority as calculated from the following formula –

(Per Passenger Fee for International Passengers * International Passenger Throughput for that month) + (Per
Passenger Fee for Domestic Passengers* Domestic Passenger Throughput for that month)
Where Per Passenger Fee for Domestic Passengers is the bidding parameter and;
The concessionaire will initiate construction works for subsequent phases after phase I, within three
months upon the earlier occurrence of any one of the following traffic triggers:
Actual peak hour passengers exceeds the design peak hour passengers for 50% of the time in a period of
six months on rolling basis
Annual passenger traffic in any accounting year is projected to exceed 75% of the design throughput capacity
of the airport, by taking into account the observed traffic growth rate over the preceding six months
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Per Passenger Fee for International Passengers: 2 times the Per Passenger Fee for Domestic Passengers
Challenge
The bidding parameter for all privatised airports till date has been highest percentage of gross revenue offered.
Although the definition of gross revenue is established in the concession agreement, there have been cases of disputes
between the authority and the concessionaire during the concession period owing to parameters such as inclusion of
lease deposits and exclusion of depreciation in the estimation of gross revenue.
Recommendation
Investors prefer clarity and transparency for the entire project lifecycle, which helps in accounting for all risks before
proceeding with the bidding process, and induces confidence regarding government’s attempts to minimise risks and
uncertainties in the project lifecycle.
Unlike the complicated calculation of gross revenue and total realizable fee, ‘INR per passenger’ is likely to have a
simplistic calculation, making it easier to predict. Total passenger traffic is a more transparent and easily verifiable
figure over which disputes are not expected to arise. Therefore, it may be suitable to adopt it as the bidding parameter.

Force majeure and termination
6.1.4.1 Termination payment
Existing Provision
In the MCA, the termination payment is linked to the total project cost which is defined as the lowest of:
c) The capital cost, as set forth in the financial package
d) A sum determined by the authority
Clause no. 42.3.3
42.3.3 Upon termination on account of Concessionaire Default during the Construction Period, no Termination
Payment shall be due and payable for and in respect of expenditure comprising the first 40% (forty per cent) of the
Total Project Cost and in the event of expenditure exceeding such 40% (forty per cent) and forming part of Debt
Due……
Provision in revised DCA released by Airports Authority of India in 2019
AAI’s DCA has outlined a formula for the calculation of termination payment which is not linked to the total project cost
but the aeronautical and non-aeronautical assets.
Termination Payment =
1. Amount of Deemed Initial RAB as included by the Regulator in its latest tariff determination of Aeronautical
Charges, depreciated as per the Airport rates considered by the Regulator +
2. Depreciated value of investment by the Concessionaire in any Aeronautical Assets post COD, as considered by
the Regulator during the latest tariff determination of Aeronautical Charges, +
3. Depreciated book value of the investment in Non-Aeronautical Assets, not being assets forming part of City Side
Development, using the overall asset value and allocation ratio between Aeronautical Assets and Non-
Aeronautical Assets considered by the Regulator during the latest tariff determination of Aeronautical Charges;+
Lower of the following:
An inflation linked parameter - ‘INR per passenger’ may be suitably adopted to minimize revenue leakage.
62
4. Depreciated value of any additional Aeronautical Assets which may have been constructed, acquired or installed
by the Concessionaire after the latest tariff determination of Aeronautical Charges by the Regulator as certified by
the Independent Engineer;+
5. Depreciated book value of all Project Assets forming part of the City Side Development in the books of the
Concessionaire;+
6. Actual costs, as assessed by the Independent Engineer, incurred by the Concessionaire in the works-in-progress
handed over to the Authority by the Concessionaire as on the Transfer Date.+
Or
7. Sum of the replacement values net of depreciation of the assets set out above, as determined by an Approved
Valuer, who shall be selected and appointed by the Authority within 15 days of the Transfer Date, and who shall
submit its determination within 30 days of appointment.
The termination amount which would be paid by the Authority to the concessionaire on account of the concessionaire’s
default would be an amount equal to 70% of the termination payment amount (as arrived at from the above formula)
with a deduction of the admitted and paid Insurance Cover.
Challenge
The definition of termination payment does not completely capture the investments made by the concessionaire. In
addition, investment in non-aeronautical assets is usually significant and the same should be considered while
calculating termination payment value. Also, the financial institutions are skeptical in providing funds where only
depreciated value is considered. Therefore, to protect the interests of the concessionaire, the definition of termination
payment should be amended.
Recommendation
The termination payment calculation AAI’s DCA shall be linked to the invested value of aeronautical assets and non-
aeronautical assets as determined by the regulator (AERA or Airports Economic Regulatory Authority of India). This is
a more transparent method of accounting for costs and hence the termination payment amount finally arrived at can
be expected to have the confidence of all stakeholders viz. the Authority, the concessionaire as well as lenders. It is
therefore recommended that the termination payment amount in the event of the concessionaire’s default be modified
as per the provisions laid down in AAI’ DCA. The methodology for calculation of the termination payment amount may
also be modified as per the formula contained (as detailed above) in AAI’s DCA.

Other provisions
6.1.5.1 User fee - ambiguity in tariff structure
Challenge
The key issue arising in the current concession agreement for both greenfield and brownfield is the misconception in
key parameters for determining the tariff in the control period. For example, interpretation of regulated asset base and
return on equity are some of the parameters which are important determinants of the aggregate revenue requirement
but are often a source of contestation mainly for the privatised airport. Generally, the investor’s ability to recover
operating and capital expenses and earn a return on the capital employed must reflect the risk-reward trade-off the
investor faces.
Recommendation
The termination payment formula should be modified to invested value for aeronautical and non-
aeronautical assets as determined by the regulator
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When a regulation is required, clear and stable economic regulation is essential for the private operator. This should
include a transparent and clear framework stating how charges will be regulated. A lack of clarity concerning the
regulatory framework will increase risk, put into doubt the operator’s ability to earn a return on investment, and limit or
even preclude needed investment.

6.1.5.2 Concession Fees - moratorium
Existing Provision
In brownfield MCA, Concession fee will be a fixed sum of Re. 1 per annum for the concession period. The
Concessionaire shall, commencing from the 15th year of the concession period, pay a Premium equal to 1 per cent of
the total realisable fee which shall be increased every year by an additional 1 per cent of the total realisable fee subject
to an upper ceiling of 30%.
Clause 31.2 – footnote
In the event of the Concessionaire commencing a payment of 1% of Realisable Fee from COD or from any date
thereafter, but no later than the 15
th
(fifteenth) anniversary of COD.
Challenge
In the recent AAI bid for six airports, there is no moratorium for payment of concession fee. However, for brownfield
projects where expansion works such as development of terminal building, apron and taxiways are required to be
undertaken, the initial capital expenditure creates a lot of financial burden for the concessionaire especially debt service
obligations would entail substantial outflows. It is important to give due consideration to this and allow for a concession
fee moratorium recognizing this cash flow pattern.
Recommendation
In the operation period the Concessionaire will have an increasing surplus in its hands on account of the declining debt
service on the one hand and rising revenues on the other, hence it is prudent to offer concession fees moratorium for
greenfield projects. The moratorium period will be decided on project to project basis subject to an upper limit of 15
years.

6.1.5.3 Definition of change in ownership/ Equity lock-in period
Existing provision
In the MCA, the aggregate holding of the selected bidder or consortium member in total equity will be maintained at
51% during construction period and until the first anniversary of Commercial Operation Date, and by 26% for the rest
of concession period.
Clause 53.1
‘’Change in ownership’’ means a transfer of the direct and/or indirect legal or beneficial ownership of any shares, or
securities convertible into shares, that causes the aggregate holding of the {selected bidder/consortium members}
together with {its/their} Associates in the total Equity to decline below (i) 51% (fifty one per cent) thereof during the
Providing clear definition as well as method for calculating each parameter, with each sub-parameter
defined as per the airport category, will eliminate interpretation issues for both the concessionaire and
regulator. This will help reduce the disputes.
Providing concession fees moratorium up to sufficient number of years subject to an upper ceiling of 15
years will help the concessionaire to bear the initial debt burden.
64
period prior to 3
rd
anniversary of COD, and (ii) 26% (twenty six per cent) thereof, or such lower proportion as may
be permitted by the Authority during the remaining Concession Period……

Challenge
The latest DCA have an equity lock-in of five years.
The equity lock-in period is an important aspect of the concession agreement for potential investors, developers and
operators. These players are more comfortable investing in assets that have a minimal equity lock-in period. To protect
the interests of the government and keep a check on the operational quality of the airport, it is imperative to keep a
balanced equity lock-in period. We have observed the conditions of the lock-in period and 100% divestiture in other
sectors:
S no Sector Equity lock-in period in years
100% divestiture allowed post
lock-in period
1. Planning commission MCAs for airports 3 X
2. NMIAL/Mopa/ Bhogapuram 7 X
3. Ahmedabad/ Jaipur/ Lucknow/
Guwahati/ Mangalore/
Thiruvananthapuram
5 X
3. Highways 2
4. Ports 2
Recommendation
Since an airport is a complex infrastructure asset, it is prudent to keep the equity lock-in period for at least five years
to test the operational compliance of the airport by the concessionaire in the initial years. After serving that lock-in
period, the concessionaire can decrease the equity stake and can completely exit in 10 years. Divestiture of 100% put
players in a comfortable position to invest in the airport assets, leading to an increase in private sector participation.




Equity lock-in period will be extended to five years to ascertain the operational compliance of the
concessionaire in the MCA.
65
7. Asset recycling framework to monetize airports
7.1 Background
Asset recycling, also known as partial privatization, aims to minimize the risks associated with development within the
infrastructure sector. It enables filling funding gap by privatising existing government owned infrastructure assets and
utilizing the proceeds to finance the development of new infrastructure assets (or refurbish existing assets). However,
the cost-benefit analysis of the new infrastructure asset is imperative to avoid loss of capital to the government. This
analysis is only justified when the net present value of benefits exceeds the capital cost of the asset, further exhibiting
a clear net positive benefit. The assessment of benefits of asset recycling may be determined by considering factors
like type of asset (monopoly, regulated), structure of sale or lease, usage of proceedings and overall fiscal position of
the economy. The asset recycling is believed to be favorable in a fiscally constrained economy where increasing taxes
and taking new debt is not a feasible option. Economically, the asset shall augment the long term productive capacity.
The pension funds, investment banks, insurance firms, PE firms etc. form the market for potential investors since
infrastructure assets are economically regulated along with low risks.
Figure 9: Asset recycling process

Source: CRIS analysis
Private sector investment witnesses impediments such as inability to borrow, overstressed balance sheets and hedging
risk. However, there is an increase in investor appetite for infrastructure since global financial crisis. Private players
are interested in investing in infrastructure assets with long-term contractual arrangements and regulation is a way to
reduce portfolio risks through diversification, and access higher risk-adjusted returns.
Step 1:
While the concept of a derisked model suits private investors, there are different degrees of divestiture that may be
considered by the government. It depends on the objective of monetising the asset. The four main options to divest
existing assets are:
Temporary ownership
Complete control of the asset can be transferred temporarily through a lease/concession agreement with a defined
lease/concession period, for example of 30, 50 or 99 years. This is a standard agreement which is utilised in India’s
infrastructure sector such as airports (Delhi and Mumbai airport), highways (Hybrid annuity projects) etc.
66
Partial ownership
Private investor invests in a partial or minor equity stake in a public asset on a permanent basis, for example 49%
of ownership, and earns returns on the basis of dividend share. For example, in Cochin Airport, multiple private
players have invested in the airport and earn on a dividend share basis.
Temporary – partial ownership
A temporary-partial ownership is a combination of the above, such as under a shared ownership structure but only
for a few years post which the private investor may sell off the stake. This is a standard agreement used in the
Greenfield development in India’s airport sector such as in Hyderabad and Bangalore airports.
Full ownership
The private sector gets full control over the asset on a permanent basis, which is also known as privatization. A 99
lease period may also be witnessed as full ownership. This is usually not adopted in India’s airport sector yet. In asset
recycling, the most preferred option for divesting assets is temporary ownership through a lease or concession
agreement. This is because governments can maintain a direct stake in the asset as an equity shareholder, ensure
regulation of user fees, draft an agreement with safeguard clauses, and assure return of full ownership of the asset in
the future. And the private sector takes full responsibility of operating the asset along with obeying terms and conditions
set out in the agreement.
Step 2:
Next step to the process is to decide on the strategy to reinvest the proceeds from asset divestment. Although
potentially there are many ways to utilise the proceeds, a few common options is given below:
Traditional procurement
The government utilises the proceeds to pay contractors who design and build other assets (design and build
contracts). It is a direct public finance and bears the risk associated with managing the delivery of Greenfield
projects, such as construction delays, time and cost overruns etc. It is suitable for mature governments with the
capability to plan and procure such projects.
Joint Venture
Governments may associate with an investor/ developer/ operator and enter directly into a joint venture for one or
more similar Greenfield infrastructure projects. The government uses the capital proceeds from divested assets to
cover their equity stake in the special purpose vehicle (SPV) alongside the private partner. This is suitable in a
nation where successful and well-established public-private partnerships exist between the government and
private consortiums led by pension funds/ developers/ operators and supported by infrastructure investors.
Greenfield PPP concessions
Asset recycling can also help to enhance Greenfield PPPs. For example, it can use the capital proceeds to provide
guarantees to investors in the form of a standby line of credit (liquidity pool). However, this will only be made
available if the risks materialized in Greenfield stages. This provides an assurance to the private sector investor
and protects the project from failing. It is suitable in emerging markets where there may be perceived higher political
risks by investors.
Step 3:
The last stage in the process is the option of recycling newly built assets by the governments. However, this may only
be possible if the complete ownership of the asset is transferred to the government in a PPP concession or the
government plans to divest its stake in a joint venture. In all cases, an asset recycling strategy focuses on reusing the
capital proceeds from divested assets to provide new infrastructure for future requirements.
Australia is one of the countries where the concept of asset recycling has been widely adopted through Asset Recycling
Initiative (ARI). The initiative provides monetary incentive to states that engage in asset recycling to boost infrastructure
development. When a state monetizes an asset (through sale or lease), and uses the proceeds to reinvest in new
67
infrastructure, it receives an additional 15 percent of the estimated proceeds from the federal government. This
financial contribution is managed through the Asset Recycling Fund (ARF), which is used to make payments to the
states. By June 2016, of the ~$3 billion available for the ARF, ~$2.35 billion
31
was allocated to the participating states.
This allocation of $2.35 billion is expected to incentivise $16.3 billion in infrastructure investment. As of May 2018,
twelve major public assets have been implemented under ARI across the country.
The asset recycling process is adopted by various countries and the implementation is dependent on the dynamics of
the infrastructure sector, maturity of the government and affordability of the private sector. The subsequent section
explores the asset recycling model adopted in India and provides an insight into the willingness of the relevant
stakeholders to implement such models in the country.
7.2 Asset recycling in India
The asset recycling process has been implemented in the road and highways sector in India by adopting Toll – Operate
– Transfer (TOT) model. TOT is an innovative infrastructure project financing mechanism which is gaining prominence
across the world. Countries such as Australia, USA, Puerto Rico and Malaysia have been monetizing infrastructure
assets using TOT like structures. The investment bank group Macquarie in a consortium with one of the largest private
transport infrastructure developers, Cintra invested USD 1.83 billion in the Chicago Skyway for a concession period of
99 years. This was the first privatization of an existing toll road in the United States. Infrastructure Australia has initiated
one of the most aggressive programs of infrastructure asset sales / leasing to fund future infrastructure development.
In India, the Government has prepared a roadmap for an asset recycling model. The Ministry of Road, Transport &
Highways (MoRTH) has chosen to recycle its operational road assets, constructed under EPC and BOT (Annuity)
model, through a Toll Operate Transfer (TOT) model. Under the model, stretches of national highways constructed by
the NHAI are bundled together and transferred out to the private sector. This helps monetise the low to medium yield
assets which are bundled with premium assets. The idea is for profitable assets to cross-subsidise unprofitable ones
and provide economic and social benefits across the country. This model seeks to tap the potential cash flows of
existing and functional road assets which can then be utilized to fund newer projects. This is the first of its kind PPP
model where the concessionaire has access to a developed asset class for a long term investment and the Authority
receives a lump sum as a front ended payment. The model has successfully attracted the interest from large private
equity funds, pension funds and sovereign wealth funds. The model’s concession structure and other key features are
illustrated below:
Source of revenue: Toll collection undertaken by Concessionaire
Bidding parameter: Highest upfront concession fee payable to NHAI
Concession period: 30 years with 100% exit option after 2 years
Method of securitisation: NHAI calculates Initial Estimated Concession Value (IECV) as upfront fee payable by
concessionaire. IECV is the discounted value (discounted at rate equal to 3% above the Bank Rate for debt and
normative rate for equity return) of net free cash flow expected to be generated by the project highway from the
valuation date until end of concession period of 30 years.
Target investors: Minimal construction risk allows for investment from pension funds, sovereign wealth funds etc.

31
1 Australian dollar = 0.71 U.S. dollar
68
Figure 10: Mechanism of TOT Model

In terms of project risks, TOT is free from construction risk, but is subject to market risk. The long term concession
period allows a drop in concessionaire risk. The risks are attributed to a number of factors such as state-of-the-art
tolling technologies such as e-tolling/radio frequency identification, project-specific mechanism for determination of
concession period based on minimum lump-sum concession fee and revenue projections based on traffic growth.
The model creates opportunities for the private players to invest in low risk highway assets. It minimizes revenue risk
due to defined baseline traffic streams and revenue streams. Also, there is no construction risk to the concessionaire
such as delay in construction, interest rate, escalation, contingencies etc. Due to these reasons, a willingness to pay
has been established amongst the private players.
Figure 11: TOT model and its benefits

Some of the key clauses in the TOT concession agreement are as follows:
Capacity augmentation of road stretches to be undertaken if average daily traffic of PCUs in any accounting
years exceeds the designed capacity of 40,000 PCU and shall continue to exceed designed capacity for 3
consecutive accounting years thereafter
Variation in toll collection will be assessed at 2 target points, Target Point 1 and Target Point 2. In case of
shortfall, concession period to be increased by 1.5% for every 1% shortfall in actual fees as compared to target
fee. In case of excess fee, concession period to be decreased by 0.75% for every 1% excess actual fee as
compared to target fee.
The concession period is not to be reduced by more than 5 years, and is not to be increased by more than 10
years.
Dispute resolution is to be done either by mediation, conciliation or arbitration. Mediation is to be done by
Independent Engineer, conciliation and arbitration is to be resolved by the Rules of SAROD and provisions of
Arbitration & Conciliation Act, 1996, as amended from time to time.
69
The first bundle was bid out by NHAI in 2018. The bundle constituted of nine road stretches traversing ~682 kms of
roads. Six road stretches are situated in Andhra Pradesh, and three road stretches are situated in Gujarat. IECV
estimated by the authority was Rs 6,258 Crore. The consortium of MAIF Investments India Pvt. Ltd and Ashoka
Buildcon Limited emerged as the highest bidder, by bidding Rs. 9681 crores, ~1.5 times the IECV of the Authority. The
financial closure of the bundle was achieved on 29
th
August 2018. This shows significant private sector interest and
the model achieved its purpose.
Bids for the second bundle was issued on 6
th
August, 2018. The bundle constitutes of eight road stretches traversing
~586 kms. These stretches are situated in four different states- Rajasthan, Gujarat, Bihar and West Bengal across 12
toll plazas. However, the bids received were less than the estimated IECV value by NHAI. The bundle is expected to
get re-bid.
The participation of global funds is not new to the India’s road and highway sector. In the past, Macquarie, Brookfield,
Cube Highways, and other such global funds took equity in National Highway projects worth INR 4,150 crore. The TOT
model expects to attract international pension funds as they have greater appetite to stay in an investment for longer
duration. This is contradicting to other types of private investors who look for quick results. The bundles are created to
increase the value of an auction and subsequently gaining traction of the pension funds and sovereign wealth funds.
The subsequent section describes the concept of asset recycling in airport sector and explores the applicability of the
same in India’s airport sector.
7.3 Asset recycling in airport sector
As discussed in the first section, there are four key options available in asset recycling frameworks – temporary
ownership, partial ownership, temporary – partial ownership and full ownership. Temporary ownership is the most
common model adopted by governments across the globe. The same is applicable to India’s road and highway sector.
However, its implementation framework requires bundling of infrastructure assets. This section, therefore intends to
focus on the options available (single airport or bundling) under temporary ownership model in the airport sector and
assess applicability of these options to India’s airport sector.
Single airport divestiture
Brief Background
This model involves a concession/ lease agreement between the authority and the operator. It is usually applicable to
brownfield airports where revenue streams are established. The agreement period may range from 25 to 30 years.
The government gives the right to collect user fees to the operator. In addition to the upfront concession fee, the
government may collect a percentage of gross revenue from the concessionaire. The user fees is regulated by the
regulatory body and reviews the escalation of charges periodically.


With the aim of introducing private efficiency in the operation of its airports, the Federal Government of Brazil
launched tender for multiple airports that laid the groundwork for future concessions of major airports. One of the
airports was Rio de Janeiro/Galeão–Antonio Carlos Jobim International Airport, also known as Galeão International
Airport. It is the largest airport in Brazil in terms of total area and it supports business and tourism activity in Rio de
Janeiro, serving as a major air transportation hub for the country and region. It was managed by the state owned
company Empresa Brasileira de Infra-Estrutura Aeroportuaria (Infraero) till it was bid out in 2014. Aeroporto Rio de
Janeiro S/A comprising of Odebrecht TransPort (60 per cent) and Singapore’s Changi (40 per cent) won the bid by
quoting $7.9 billion, which was nearly four times the minimum bid and 31% higher than the runner up bid.
Key features
Case Study: Galeão International Airport
70
Concession period and concession Fee: 25 years concession period; fixed fee as quoted by the bidder ($7.9
billion) to be paid upfront and variable fee of 5% of total annual gross revenue to be paid throughout the
concession period
Ownership structure: 51% stake of Aeroporto Rio de Janeiro S/A and 49% of Infraero;
Expansion trigger: Construction of an independent 10/28 runway system to be completed before reaching
262,900 passenger movements per year
Regulatory framework: Charges regulated as per domestic law
Key learnings
Deal structuring is an important aspect of asset recycling where it is possible to achieve a win-win scenario with
respect to the government, the investor and general public.
Infrastructure assets with strong traffic history has a better chance of stimulating competitive bids
Figure 12: Traffic at Galeão International Airport (2007 – 2017) in million

With the government’s minority stake in the project, the government may intervene in operations whenever
required
Source: PPP stories by IFC, PPP case study by ICAO

Applicability in India’s airport sector
In India, single airport divestiture has been implemented with upfront payment for Delhi and Mumbai airports. Moreover,
in the latest privatization of six airports, the concessionaire requires to pay an upfront fees for adjustment in Regulatory
Asset Base and capital expenditure of ongoing projects. It is a pioneer step towards asset recycling of brownfield
airports. These proceeds may be utilized by AAI for developing other airports.
From past learnings, it has been observed that strong passenger traffic is pertinent for stimulating competition for
divesting an airport asset. To analyse the applicability of the said model in India’s airport sector, domestic (including
custom) and international airports operated solely by Airport Authority of India (AAI) with more than one million
passenger traffic are considered.
71
Figure 13: Total passenger traffic of international and domestic airport (in million) in FY 2018

Source: Airport Authority of India
As observed in the above figure, the range of passenger size of these airports is wide. Only four airports – Chennai,
Kolkata, Pune and Goa - have a robust passenger traffic number that can attract a sizeable upfront investment by
private sector. Other airports have a lower passenger number for undertaking asset recycling process. However, the
growth rate has been more than 15% in the last five years of most airports and may be taken up for privatisation when
the traffic increases to a reasonable level. The history of privatisation the few shortlisted airports has been defined
below:
1. Chennai International Airport
AAI planned to privatise the airport in 2015 and issued a Request for Qualification (RFQ) proposing a similar
structure to Delhi and Mumbai Operation, Management and Development contracts. It received a good response
with about eight bidders expressing interest in participating. Before the issuance of the same, AAI had undertaken
Rs 2,400 crore to construct a new terminal building and other aeronautical infrastructure at the airport. The
concessionaire was expected to invest Rs 492 crore to modify the old international terminal building, provide
connectivity tube to metro rail and upgrade the taxiways and runway. The bids were eventually withdrawn by the
bidders since AAI did not want to let go of the expensive upgrade at the time. It received a sanction of Rs 1,000
crores for modification of old terminal building. The concession structure was then converted into a management
contract. However due to tepid response, the privatisation proposition was finally dropped. The authority may
decide to give the airport on asset recycling model since the airport may hit saturation levels soon. However, it
may face the following impediments:
Space is not available for further expansion of airport making capacity expansion challenging;
Land for another airport is in process of getting earmarked. It may get proposed 40-50 km away from the existing
airport, giving strong competition to Chennai International Airport.

2. Netaji Subhash Chandra Bose International airport, Kolkata
The airport shared the same fate as Chennai International airport. AAI undertook investment in expansion of the
airport and was not willing to privatise it. RFQ for the airport was issued along with Chennai airport leading to
strong response. However, the bids were withdrawn by the bidders. Eventually, the concession structure was
proposed to be converted to a management contract. There was low response for such a contract and the
11.11.11.31.41.41.51.51.6
22.22.32.42.42.4
3.13.13.2
7.6
8.1
19
20
72
privatisation plan got dropped. The authority may decide to give the airport on asset recycling model given that
there is limited political risk.

As observed in the case study, one of the reasons for the bidding success of Galeão International Airport was robust
passenger traffic numbers. It led to a good response on the quoted concession fee. In India, the success of the model
will be dependent on the upfront payment received by AAI enabling the authority to utilise the proceedings and fund
most part of the capital expenditure. In line with the latest privatization of six brownfield airports, AAI may privatize
suitable airports that can offer profitable returns to the private sector players.
73
Bundled airports divestiture
Brief Background
Bundling is a technique of asset recycling mechanism. This technique is particularly applicable to brownfield projects
where the assets are bundled to give a positive return to the operator and cross subsidize less profitable assets. The
arrangement between the authority and the concessionaire varies depending on the level of control that the authority
intends to maintain. While investors would be open to such privatisation models, due diligence needs to be observed
while packaging airports together to ensure the government reaps maximum benefits, while ensuring operational
efficiencies and profit maximisation for private players. The upfront value earned from such a monetisation exercise
may be diverted to construct regional, commercially unviable airports to enhance national connectivity. In practice,
airports in a bundle may range between 2 to 3 in number.


Three airports in the Republic of Congo, namely, Brazzaville, Pointe Noire and Ollombo, are brownfield airports that
were bundled. The government had invested in the development of the terminals and other airport infrastructure.
However, the entity was looking for an operator who can undertake further development and improve overall quality
and efficiency of the airport. Egis along with SEGAP won the bid for operating the airport.
Key features
Concession period and concession Fee: 25 years concession period; fixed fee is paid to the government in
every six months and concession fee with respect to a percentage share of revenue is paid every three months
Bid process: Single stage process for inviting bids and evaluation was based on operational efficiency of the
operator
Ownership structure: 29.5% owned by Egis followed by 25.5% owned by Marseille Provence CCI and 15% by
the Republic of Congo and 30% by Private Congolese Investors
Regulatory framework: Single till framework with review of charges in every five years.
Key learnings
The concession agreement provided for capital and operational flexibility to the operator as the airports came
along with a high traffic risk. This flexibility helped in creating investor confidence. Anticipated traffic risk did
materialize at an airport in 2016 but the flexibility in the concession structure ensured that the privatization could
go ahead in 2011.

Revenue earned from operations can be utilised for further development of the airport
Source: ACI Policy Brief 2018, CRIS Analysis
Traffic trend at Brazzaville International Airport (2003–2017)
Case Study: Bundling of airports in Republic of Congo
74

Applicability in India’s airport sector
Bundling of airports in India may be carried out in two possible ways:
Option 1:

In this model, an existing airport is bundled with a new airport in its vicinity or in the same state. This is mainly to
achieve two objectives:
1. to reduce the tariff at the new airport significantly
2. managing marginal increase in tariff at the existing airport
The existing airport will cross-subsidise the functioning of the new airport in the initial years, post which the new airport
will be fully equipped to handle the burgeoning traffic. This model will help in reducing the overall tariff burden of the
new airport while ensuring quality services. The model’s success is largely dependent on the choice of airports to be
bundled together, which, if done right, can minimise traffic and revenue risk for investors while ensuring higher returns
for the Authority. However, the choice of airports may be subjected to the following uncertainties/ hurdles:
1. Regulatory framework – As major airports fall under the purview of AERA (airports having traffic above 1.5
million passengers per annum), and minor airports under MoCA, tariff filing for the private player may be
challenging
2. Having the same tariff for both airports may not be beneficial for users as it will restrict competition and create
monopolistic behavior

Option 2:

The investor community is inclined towards privatisation of existing brownfield airports with proven track records.
However, considering the Authority’s current airports portfolio, it would be prudent to privatise high potential airports
on a standalone basis, and bundling medium-sized airports to create a decent deal value (~USD 100 million). A high
potential airport will attract investors either way and bundling it with a medium to low-yield airport may dampen the
returns that could be earned from a single airport deal. The idea of cross-subsidising the smaller airport with the larger
one may face the same hurdles as mentioned in option 1.


BrownfieldGreenfieldPackage
BrowfileldBrownfiledPackage
75
7.4 Conclusion
Asset recycling does not have a defined model which gives flexibility to the government to design the concession
structure. It enables the authorities to maximize the value of their infrastructure assets. A successful model is the one
which is a win-win for both the government and the private investor. Since the concept of asset recycling has not been
implemented in India’s airport sector, factors that AAI may consider before implementing privatization on asset
recycling are:
Table 9: Critical factors to be considered for implementing asset recycling
Factor Description
Infrastructure requirement
Infrastructure requirement in the airport is well assessed and exceed
available capital even after debt
Authority debt level
If debt level is high and borrowing more endangers credit rating, and there
are limited options for financing other expenses
Assessment of infrastructure for
new airport
New airports created out of proceeds from asset recycling shall be
assessed thoroughly to avoid cash flow losses to the authority
Government capabilities to build
new airport
The government can access capabilities to efficiently build new airport
and minimize dependability on private sector
Effective operation of existing
airport
The private sector can effectively operate existing airport
Supportive regulatory framework
Regulatory environment shall be conducive to retain interests of long-term
investors
Political support in the community
Asset recycling shall be supported by the community to minimize political
risks
Maintaining control over core
services
Authority can implement safeguards to ensure high quality service and
protect sovereign interest in critical infrastructure
Private-sector readiness
Competitive and private sector environment with capable players and
potential investors to be involved (e.g. pension funds)
Source: CRIS analysis
Till date, AAI has already explored the asset recycling model with eight brownfield airports. AAI can continue to explore
recycling of single airports with good traffic size and robust traffic growth rate. Although bundling of airports may seem
attractive to increase the deal size, the immediate requirement is for privatisation of high potential airports hitting
capacity saturation and requiring amenable investments.

76
8. Summary of key findings
Concession Period
Greenfield – 40+20 years based on Authority’s approval
Brownfield – 50 years with no extension of period
Right-of-way - land acquisition clearance and approvals
Greenfield - 90% of the land transferred on the effective date should include 100% of the land pertaining to airport
operations
Brownfield – 100% land transferred on the transfer date
Expansion of the airport
Expansion triggers for capital expenditure linked to annual passenger capacity and average peak hour capacity to
form part of the MCA for phased expansion
Bidding parameter/ Concession Fee
Greenfield - An inflation linked parameter - ‘INR per passenger’ may be suitably adopted to minimize revenue leakage.
Brownfield – Fee for each domestic and international passenger to be shared with the Authority
Termination payment linked to actual project cost
Greenfield - The termination payment to be linked to a value which is some percentage (as determined by the authority)
higher than the defined total project cost.
Brownfield – The termination payment definition to be linked to invested value of aeronautical and non –aeronautical
assets as determined by the regulator
Concession Fees – moratorium period
Providing concession fees moratorium up to sufficient number of years subject to an upper ceiling of 15 years will
help the concessionaire to bear the initial debt burden.
User fee - ambiguity in tariff structure
Providing clear definition as well as method for calculating each parameter, with each sub-parameter defined as per
the airport category, will eliminate interpretation issues for both the concessionaire and regulator. This will help
reduce the disputes.
Definition of change in ownership/ Equity lock-in period
Equity lock-in period will be extended to five years to ascertain the operational compliance of the concessionaire in
the MCA.
Concession period linked to target traffic
Modification in concession period with respect to difference in target traffic and actual traffic as on target year
determined by the Authority.

77
9. Appendix
9.1 List of Stakeholder Consultations
Stakeholder Segment Organisation Name Officer Met E-mail ID
Developers
GMR Group - Delhi
International Airport Limited
Mr. Siddharth
Kapur, President
Mr. Manomay Rai,
Vice President
Mr. Harsh Gulati,
Head Regulatory,
Finance and
Accounts
sidharath.kapur@gmrgroup.in
BIAL
Mr. Hari Marar,
CEO
hari.m@BIALAIRPORT.COM
Association of Private
Airport Operators
(Scheduled)
Mr. Satyan Nayar,
Secretary General
snayar@apaoindia.com
MIAL/NMIAL
Mr. Rajeev Jain,
CEO
Mr. Vinod Hiran,
CFO (NMIAL)
Mr. Vinay
Chudiwala, GM
Rajeev.Jain@gvk.com
Vinod.Hiran@gvk.com
vinay.chudiwala@gvk.com
Government Agencies
Ministry of Civil Aviation
Shri Arun Kumar -
Joint Secretary
arun.kumar63@nic.in,
Airports Economic
Regulatory Authority
Shri.
Manchendranatha
n, Chairman
Ms. Puja Jindal,
Secretary
Shri. S. Samanta,
Member
chairperson@aera.gov.dot.in,
puja.jindal@nic.in
Director General of Civil
Aviation
Shri J.S. Rawat,
Joint Director
General
dgoffice.dgca@nic.in
Airports Authority of India
Shri. Guruprasad
Mohapatra, IAS,
Chairman
Shri. S. Suresh,
Member Finance
chairman@aai.aero
memberfin@aai.aero
Investors
Canada Pension Plan
Investment Board
Ms. Kavita Saha,
Senior Principal,
Infrastructure Real
Assets
ksaha@cppib.com
78
Stakeholder Segment Organisation Name Officer Met E-mail ID
IDFC Alternatives
Mr. Milind Joshi,
Partner
(Infrastructure)
milind.joshi@global-infra.com
Brookfield Asset
Management
Mr. Hardik Shah,
Senior Vice
President
hardik.shah@brookfield.com
Macquarie Infrastructure
and Real Assets
Mr. Suresh Goyal,
Country Head,
Mr. Deep Gupta,
Managing
Director, and
Mr. Abhimanyu
Diwan, Manager
suresh.goyal@macquarie.com,
deep.gupta@macquarie.com,
abhimanyu.diwan@macquarie.c
om
National Investment and
Infrastructure Fund
Mr. Prasad
Gadkari, Head -
Investment
Strategy and
Policy
prasad.gadkari@niifindia.in
9.2 List of upcoming greenfield and brownfield airports
S. No. Name of district/ city and state of greenfield airports Estimated cost (INR crores)
1 Mopa, Goa 3,100
2 Navi Mumbai, Maharashtra 16,704
3 Shirdi, Maharashtra 321
4 Sindhudurg, Maharashtra 520
5 Bijapur, Karnataka 150
6 Gulbarga, Karnataka (initial phase) 14
7 Hasan, Karnataka 592
8 Shimoga, Karnataka 38.9
9 Kannur, Kerala 1892
10 Durgapur, West Bengal 670
11 Dabra, Madhya Pradesh 200
12 Pakyong, Sikkim 553.5
13 Karaikal, Puducherry 170
14 Kushinagar, Uttar Pradesh 448
15 Dholera, Gujarat 1,712
16 Dagadarthi Mendal, Andhra Pradesh 293
17 Bhogapuram, Andhra Pradesh 2,260
79
S. No. Name of district/ city and state of greenfield airports Estimated cost (INR crores)
18 Oravakallu, Andhra Pradesh 200
Total 29,517
S. No. Name of district/ city and state of Brownfield airports recently received in-principle approval
for development on PPP
1 Ahmedabad
2 Jaipur
3 Mangalore
4 Thiruvananthapuram
5 Lucknow
6 Guwahati
9.3 Deviations from MCA drafted by erstwhile Planning Commission –
greenfield airports
Clause
No.
Clause of
Deviation
Name of Concession
Agreement
Deviation Recommendation
53.1 Definition of
Adjusted
Depreciation
Value
Planning Commission Mentions written down value method
to be applied in case of buildings and
permanent structures at 3% annual
depreciation rate
Buildings and permanent
structures should be
depreciated using the
depreciation
methodology and not on
the basis of fluctuations
in price index. Therefore,
clause in MCA may
persist
Mopa Airport Mentions written down value method
to be applied in case of buildings and
permanent structures at 3% annual
depreciation rate
Navi Mumbai Airport Does not mention this method of
calculation
53.1 Definition of
Adjusted Equity
Planning Commission After the 4th anniversary, the adjusted
equity is the sum equal to Base Adjusted
Equity, reduced by 0.11% at the
commencement of each month
No framework is given on
the revision of TPC when
price index increase by
more than 3%. Therefore
to avoid ambiguity, the
clause In MCA may
persist.
Mopa Airport After the 4th anniversary, the adjusted
equity is the sum equal to Base Adjusted
Equity, reduced by 0.11% at the
commencement of each month
Navi Mumbai Airport After the 4th anniversary, the adjusted
equity is the sum equal to Base Adjusted
Equity, reduced by 0.17% at the
commencement of each month.
Also, in case the price index increases
by more than 3% between Reference
Date and Phase I COD, then the
parties shall meet and revise the
effect of this increase on Total Project
Cost
80
Clause
No.
Clause of
Deviation
Name of Concession
Agreement
Deviation Recommendation
2.1/ 53.1 Scope of project/
Definition of
aeronautical
assets
Planning Commission Includes city side development Definition of aeronautical
assets and city side
development may
change from project to
project basis
Mopa Airport Includes city side development
Navi Mumbai Airport Includes Land Development Work to be
completed under LDS Agreements
53.1 Definition of
Aeronautical
services
Planning Commission 52 services defined listed as part of
definition
An exhaustive list of
services should be given
to avoid ambiguity in
terms of charges that
forms the part of tariff
determination.
Mopa Airport Services as per AERA act where only 6
services are listed along with an
ambiguous point that the stakeholders
for which the charges are to be
determined by the authority
Navi Mumbai Airport Services as per AERA act where only 6
services are listed along with an
ambiguous point that the stakeholders
for which the charges are to be
determined by the authority
34.2 Impact of revenue
windfall/ gain on
tariff
determination
Planning Commission Target traffic has been provided and any
shortfall or gain is compensated by
adjusting concession period.
Passenger traffic should
be linked to the revenue
windfall or gain in order
to:
1. Capture increase in
revenue due to increase
in passenger traffic
2. Guarantee
compensation to the
concessionaire in case of
reduction in traffic
The MCA clause to
prevail
Mopa Airport Under recovery and over recovery of
aeronautical revenues for the first control
period is adjusted/ carried forward in the
next control period, which is based on the
difference of allowed yield per passenger
for the first control period and higher of
actual per passenger yield per
passenger for first control period or
approved yield per passenger for
Dabolim airport.
Navi Mumbai Airport Under recovery and over recovery of
aeronautical revenues for the first control
period is adjusted/ carried forward in the
next control period, which is based on the
difference of allowed yield per passenger
for the first control period and higher of
actual per passenger yield per
passenger for first control period or
approved yield per passenger for CSIA
airport.
4.2 Damages for
delay by the
Authority
Planning Commission Incorporated in case of non-fulfilment of
condition precedent by the authority
Damages shall be paid
by the authority in case
on non-fulfilment of
condition precedent
Mopa Airport Incorporated in case of non-fulfilment of
condition precedent by the authority
Navi Mumbai Airport Not mentioned
4.1 Time period
allowed to the
Authority to fulfill
condition
precedent
Planning Commission 90 days from the date of agreement 90 days is a fair amount
of time for fulfilling
condition precedent. The
MCA clause to prevail.
Mopa Airport 45 days from the date of agreement
Navi Mumbai Airport 60 days from the date of agreement
81
Clause
No.
Clause of
Deviation
Name of Concession
Agreement
Deviation Recommendation
5.1 Obligations of the
Concessionaire
Planning Commission 1. No clause is mentioned relation to
compliance with DGCA and BCAS
2. Concessionaire to make reasonable
efforts to facilitate land acquisition and
procure environmental and forest
clearances
3. Provide or cause to be provided
ground handling services at the
airport
4. Scenario in case of reduced stake of
O&M associate is not mentioned
1. Concessionaire to
comply with instructions
and requirements of
DGCA and BCAS and
allow DGCA and BCAS
to inspect the site at their
own cost. This should be
added to ensure safety.
2. Concessionaire should
not facilitate in land
acquisition and
clearance as it comes
under the purview of the
authority
3. Provide or cause to be
provided Aeronautical
Services and Non -
Aeronautical Services at
the Airport. Providing
services comes under
the purview of the
concessionaire.
4. The O&M contractor
should remain an
associate of the preferred
bidder for a period of at
least 3 years from Phase
I COD. This ensures
O&M obligations of the
concessionaire.
Mopa Airport 1. Concessionaire to comply with
instructions and requirements of
DGCA and BCAS and allow DGCA and
BCAS to inspect the site at their own
cost
2. No clause on concessionaire's effort
on facilitating land acquisition and other
clearances
3. Provide or cause to be provided
ground handling services at the airport
4. Scenario in case of reduced stake of
O&M associate is not mentioned
Navi Mumbai Airport 1. No clause is mentioned relation to
compliance with DGCA and BCAS
2. No clause on concessionaire's effort
on facilitating land acquisition and other
clearances
3. Provide or cause to be provided
Aeronautical Services and Non -
Aeronautical Services at the Airport
4. The O&M contractor shall remain an
associate of the preferred bidder for a
period of at least 3 years from Phase I
COD. In case the associate no longer
remains the associate, the
concessionaire shall execute service
performance contract with the O&M
associate
5.4 Obligations
relating to
shareholding of
the authority/
Obligations
relating to golden
share
Planning Commission No percentage share of equity
mentioned in the shareholder's
agreement
Percentage share shall
be mentioned. This may
change from case to
case basis. However,
Golden share would
ensure Authority’s
control.
Mopa Airport No percentage share of equity
mentioned in the shareholder's
agreement
Navi Mumbai Airport Issuance and allotment of 26% (twenty
six percent) Equity of the Concessionaire
to the Authority
5.5 Obligations
relating to DGCA
license
Planning Commission The Authority shall endeavor to provide
necessary support to the Concessionaire
for obtaining the Applicable Permits from
DGCA no later than 60 (sixty) days
DGCA should be given
90 days to ensure
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from the date of filing of the due and
complete application by the
Concessionaire with the DGCA
compliance to safety
requirements
Mopa Airport The Authority shall endeavor to provide
necessary support to the Concessionaire
for obtaining the Applicable Permits from
DGCA no later than 60 (sixty) days
from the date of filing of the due and
complete application by the
Concessionaire with the DGCA
Navi Mumbai Airport The Authority shall endeavor to provide
necessary
support to the Concessionaire for
obtaining the Applicable Permits from
DGCA no later than
90 (ninety) days from the date of filing of
the due and complete application by the
Concessionaire with the DGCA
5.8 Obligations
relating to
employment of
trained personnel
Planning Commission The Concessionaire shall ensure that the
personnel engaged by it in the
performance of its obligations under this
Agreement are at all times properly
trained for their respective functions
The Concessionaire
should comply with the
Applicable Laws and the
Applicable Permits in
relation to the hiring of
local personnel. This
addition ensures that the
concessionaire trains the
local personnel as per
the limits set out in
applicable laws.
Mopa Airport The Concessionaire shall ensure that the
personnel engaged by it in the
performance of its obligations under this
Agreement are at all times properly
trained for their respective functions
Navi Mumbai Airport The Concessionaire shall ensure that the
personnel engaged by it in the
performance of its obligations under this
Agreement are at all times properly
trained for their respective functions. The
Concessionaire shall comply with the
Applicable Laws and the Applicable
Permits in relation to the hiring of
local personnel, and shall endeavor to
employ as many local personnel
including but not limited to the Project
Affected Persons and/ or any of their
family personnel during the
implementation, development and
operations of the Project.
5.10 Obligations
relating to non-
discriminatory
access
Planning Commission The concessionaire shall not, in any
month occurring after the 3rd
anniversary of COD , handle the
aircrafts or cargo of an associate firm or
any other person in whom it has a
direct or indirect financial interest if
such aircraft/ cargo exceed 50% of the
total number of aircrafts or volume of
cargo.
Clause in MCA may
prevail to ensure that the
concessionaire does not
pursue other interests
that falls out of scope of
the concession
agreement
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Mopa Airport No such sub clause mentioned in the
DCA
Navi Mumbai Airport No such sub clause mentioned in the
DCA
5.11 Obligation relating
to competition
Planning Commission The concessionaire shall not directly or
indirectly or through associate firms, or in
any manner acquire control over an
airport situated within a radius of 150
km from the airport and exceed a
share of 25% of such control. In
addition, the concessionaire has to
ensure the same for its own airport
Concessionaire interest
in competing facilities be
minimized to avoid
monopoly in any region.
Clause in MCA may
prevail.
Mopa Airport No such clause mentioned in the DCA
Navi Mumbai Airport No such clause mentioned in the DCA
5.13 Obligation relating
to aesthetic
quality of the
airport
Planning Commission The concession has to ensure high
standards in terms of aesthetic quality
and achieve integration
Aesthetic quality is
imperative to achieve
world class airports
status. Therefore, clause
in MCA may prevail.
Mopa Airport No such clause mentioned in the DCA
Navi Mumbai Airport No such clause mentioned in the DCA
6.1 Obligation of the
Authority
Planning Commission 1. Concessionaire may request to
procure applicable permits relating to
environmental protection and
conservation of airport (excluding city
side development), at the cost and
expense of the concessionaire
2. Authority to make best endeavors to
procure that no local tax, toll or
charge is levied or imposed on the use
of whole or any part of the airport
3. Authority to assist the concessionaire
in procuring police assistance for
regulation of traffic, removal of
trespassers and security on airport
Clause in MCA may
prevail as the authority
shall undertake these
activities to ensure
protection and safety of
the airport.
Mopa Airport 1. Concessionaire may request to
procure applicable permits relating to
environmental protection and
conservation of airport (excluding city
side development), at the cost and
expense of the concessionaire
2. Authority to make best endeavors to
procure that no local tax, toll or
charge is levied or imposed on the use
of whole or any part of the airport
3. Authority to assist the concessionaire
in procuring police assistance for
regulation of traffic, removal of
trespassers and security on airport
Navi Mumbai Airport No such clause mentioned in the DCA
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12.4 Construction of
the Airport
Planning Commission The 1095th (one thousand ninety fifth)
day from the Appointed Date shall be the
scheduled date for
completion of the Phase I of the Project
The date of construction
shall change from case to
case basis and should be
as realistic as possible
Mopa Airport The 1095th (one thousand ninety fifth)
day from the Appointed Date shall be the
scheduled date for
completion of the Phase I of the Project
Navi Mumbai Airport The 1245th (one thousand two hundred
forty fifth) day from the Appointed Date
shall be the scheduled date for
completion of the Phase I of the Project
12.2 Concessionaire
and Authority
obligation on
submission of
Master plan of the
airport
Planning Commission Not mentioned The concessionaire
should be obligated to
submit the master plan to
avoid any delay in
construction start date
Mopa Airport Not mentioned
Navi Mumbai Airport 1. Within 30 (thirty) days of the
submission of the Master Plan, the
Authority shall provide to the
Concessionaire, any comments or
suggested changes that the Authority
may have on the Master Plan. The
concessionaire shall address the same
within 30 days.
2. If the Concessionaire does not submit
the initial Master Plan to the Authority,
the Authority has the right to levy
liquidated damages on the
Concessionaire at the rate of Rs.
10,00,000/- (Rupees Ten Lakh) for every
day of delay, provided that, the
Concessionaire’s total liability in such
case shall not exceed Rs. 5,00,00,000
(Rupees Five Crore).
3. The Concessionaire further agrees to
update and resubmit the Master Plan
periodically, every 5 (five) years to the
Authority for its review and comments
14.2 Completion
certificate
Planning Commission No later than 30 (thirty) days prior to the
likely Completion of the relevant Phase
of the Airport, the Concessionaire shall
notify the Authority and the Independent
Engineer of its intent to subject the
Airport to the Tests.
90 days is a fair amount
of time for the same and
clause needs to be
modified
Mopa Airport No later than 90 (ninety) days prior to
the likely Completion of the relevant
Phase of the Airport, the Concessionaire
shall notify the Authority and the
Independent Engineer of its intent to
subject the Airport to the Tests.
Navi Mumbai Airport No later than 90 (ninety) days prior to
the likely Completion of the relevant
Phase of the Airport, the Concessionaire
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shall notify the Authority and the
Independent Engineer of its intent to
subject the Airport to the Tests.
16.1 Change of scope Planning Commission

Works with regards to expansion of
aeronautical and non -aeronautical
assets will not be considered as change
of scope and costs and expenses will be
borne by the concessionaire
Clause in MCA may
prevail as the
concessionaire will
benefit from any
expansion of
aeronautical or non-
aeronautical assets
Mopa Airport If the capital expenditure incurred due to
change of scope is accepted and
considered by AERA for the
determination of tariff, then all
expenditure will be borne by the
concessionaire. If the Authority grants
any payment for the same, the
concessionaire shall refund the amounts
received from the Authority in not more
than 60 days of AERA accepting such
capital expenditure
Navi Mumbai Airport Any costs incurred by the Authority
herein, shall be informed by the Authority
to the Concessionaire on the completion
of such works or services. The
Concessionaire shall submit a statement
of such costs along with its application for
the determination of the Aeronautical
Charges to AERA, and pay to the
Authority, all such amounts in 12 (twelve)
equal monthly instalments thereof.
27.1 Appointment of
independent
engineer
Planning Commission The appointment of the Independent
Engineer shall be made within 180 (one
hundred eighty) days of the date of
execution of this Agreement, and such
appointment shall be valid for a period of
3 (three) years.
Clause in MCA shall
prevail as the time period
for appointment takes
time
Mopa Airport The appointment of the Independent
Engineer shall be made within 180 (one
hundred eighty) days of the date of
execution of this Agreement, and such
appointment shall be valid for a period of
3 (three) years.
Navi Mumbai Airport The appointment of the Independent
Engineer shall be made within 30 (thirty)
days of the date of execution of this
Agreement, and such appointment shall
be valid for a period of 3 (three) years.
29.1 Time period for
achieving
financial close
Planning Commission The Concessionaire hereby agrees and
undertakes that it shall achieve Financial
Close within 180 (one hundred eighty)
days from the date of this Agreement and
in the event of delay, it shall be entitled to
Clause in MCA may
prevail as the process of
financial close is a time
consuming process
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a further period not exceeding 120 (one
hundred twenty) days.
Mopa Airport The Concessionaire hereby agrees and
undertakes that it shall achieve Financial
Close within 180 (one hundred eighty)
days from the date of this Agreement and
in the event of delay, it shall be entitled to
a further period not exceeding 120 (one
hundred twenty) days.
Navi Mumbai Airport The Concessionaire hereby agrees and
undertakes that it shall achieve Financial
Close within 180 (one hundred eighty)
days from the date of this Agreement and
in the event of delay, it shall be entitled to
a further period not exceeding 60 (sixty)
days.
46.1/ 46.2 Change in Law Planning Commission In case of increase or reduction in scope,
if the financial effect exceed higher than
1 crore or 0.5% of realisable fee, then
the authority will notify concessionaire
and propose amendments.
In order to give comfort to
the concessionaire, it is
imperative to include
clause relevant to
change in law. Clause in
MCA may prevail.
Mopa Airport In case of increase or reduction in scope,
if the financial effect exceed higher than
1 crore or 0.5% of aeronautical
charges, then the authority will notify
concessionaire and propose
amendments.
Navi Mumbai Airport Any event or occurrence at any time
during the term of this Agreement that
may constitute a ‘change in law’ or
alleged ‘change in law’, shall not be a
ground for any alteration or
amendment to any term hereof or of
any rights and obligations flowing
from this Agreement in favour of the
Concessionaire.
Clause numbers are as per MCA drafted by erstwhile Planning Commission
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9.4 Deviations of DCA for six airports from MCA drafted by erstwhile
Planning Commission – brownfield airports
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Article 2.

Scope of the
Project
Planning
Commission MCA for
brownfield airports
The scope of the Project (the “Scope of the
Project”) shall mean and include during the
concession period:
(a) Operation, management and
development of the Airport, on the site
set forth, in accordance with the
provisions of this agreement
(b) Development of the airport as specified
together with provision of Project
Facilities as specified and in conformity
with the Specifications and Standards
set forth
(c) development, operation and
maintenance of City Side on the Site as
specified and in accordance with the
Agreement’s provisions
(d) performance and fulfilment of all other
obligations of the Concessionaire in
accordance with the Agreement’s
provisions and matters incidental thereto
or necessary for the performance of any
or all of the obligations of the
Concessionaire under the Agreement
The new DCA has explicitly
mandated the designing and
financing of the airport whereas
the MCA mandates the
development of the airport in
accordance with the
requirements of the Master Plan
(together with descriptions of
Aeronautical Assets, Terminal
Building, Non-aeronautical
assets, reserved area, city side
developments and funded
works) which is to form a part of
the concession agreement.
Thus the new DCA puts the onus
of expansion related-works from
design to development directly
on the concessionaire. Further
this DCA also specifies that the
development has to be phased.
It is recommended that the
freedom for development
decisions be allowed to the
concessionaire in line with the
new DCA, rather than having
further expansion -related
designs pre-specified in the
concession agreement at the
time of its signing.

Draft Concession
Agreement released
by Airports Authority
of India in December
2018
The scope of the Project (“Scope of the
Project”) shall mean and include, during the
Concession Period, the operations,
management and development of the Airport
covering:
(a) design, development, financing,
construction, upgradation and expansion of
the Airport in a phased manner, on the Site
and as per the requirements broadly set forth
in Schedules together with provision of
respective Project Facilities as specified, and
in conformity with the Specifications and
Standards set forth, and in accordance with
the Applicable Laws and Applicable Permits;
(b) operations, maintenance and
management of the Airport in accordance
with the provisions of this Agreement,
Applicable Laws and Applicable Permits;
(c) development, operation and maintenance
of City Side, in accordance with the
provisions of this Agreement, and, in
particular, Schedule A, Schedule B and
Schedule C; and
(d) performance and fulfilment of all other
obligations of the Concessionaire and
matters incidental thereto or necessary for
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the performance of any or all of the
obligations of the Concessionaire under this
Agreement, in accordance with the provisions
of this Agreement, Applicable Laws and
Applicable Permits.

Article 5.3 Obligations
related to
Change in
ownership

Planning
Commission MCA for
brownfield airports
The Concessionaire cannot undertake or
permit any Change in Ownership, except with
the prior written approval of the Authority.
Acquisition of >=25% equity of the
concessionaire or any direct/indirect control
of the Board of Directors of Concessionaire
shall constitute a change in ownership.

According to the new DCA an
equity transfer of 15% or more
would be treated as a change of
ownership which is less than the
limit of 25% as specified in
Planning Commission’s MCA.
The DCA makes it more
stringent for a concessionaire’s
equity holders to dilute their
stakes. This could aid in
attracting only investors with a
long-term horizon at the time of
bidding.

It is therefore recommended that
the provision in the MCA for
brownfield airports pertaining to
change of ownership be suitably
modified along the lines of that in
the DCA.
Draft Concession
Agreement released
by Airports Authority
of India in December
2018
The Concessionaire cannot undertake or
permit any Change in Ownership, except with
the prior written approval of the Authority.
Acquisition of >=15% equity or any
direct/indirect control of the Board of
Directors of Concessionaire shall constitute a
change in ownership.

Article 6.4 Obligations
in respect of
Existing
Contracts

Planning
Commission MCA for
brownfield airports
The MCA requires the following conditions
pertaining to existing contracts to be fulfilled -
• Authority will, during the Inception
Period, perform and comply with all its
obligations under the Existing Contracts,
at its own cost and expense, procure
novation of such contracts and
agreements in favour of the
Concessionaire
• If the Authority is unable to procure
novation of any Existing Contract it shall
execute a power of attorney, effective on
and from the COD, designating the
Concessionaire (acting through its
authorised representative) as its
attorney
• The Authority shall endeavor not to (i)
renew any Existing Contracts that are
due to expire within the inception period
(period commencing from the date of
the agreement and expiring upon the
occurrence of COD)
The DCA’s terms pertaining to
obligations in respect of existing
contracts are similar to those
contained in the Planning
Commission MCA.
With regard to consulting with
the concessionaire in the matter
of renewal of existing contracts
due to expire the MCA gives a
time window of 5 days to a
concessionaire to consider a
contract and so does the DCA,
It is recommended that tine
window be increased as 15 days
instead of 5 days
. It is recommended that the
Authority bear the costs for
novation, including stamp
duties.
It is therefore recommended that
the MCA be modified to state
under this clause that stamp
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• Prior to renewing any Existing Contract
and/or execution of a new contract, the
Authority shall consult with the
Concessionaire and consider its
comments for which purpose the
Authority shall provide 5 business days
duties would be borne by the
Authority and that the time
period for consideration of
renewal of existing contracts be
increased to 15 days instead of
5 days.

Draft Concession
Agreement released
by Airports Authority
of India in December
2018
The agreement requires the following
conditions pertaining to existing contracts to
be fulfilled -
• Authority will, during the Inception
Period, perform and comply with all its
obligations under the Existing Contracts,
at its own cost and expense, procure
novation of such contracts and
agreements in favour of the
Concessionaire
• If the Authority is unable to procure
novation of any Existing Contract it shall
execute a power of attorney, effective on
and from the COD, designating the
Concessionaire (acting through its
authorised representative) as its
attorney
• The Authority shall endeavor not to (i)
renew any Existing Contracts that are
due to expire within 3 months of the
COD.
• Prior to renewing any Existing Contract
and/or execution of a new contract, the
Authority shall consult with the
Concessionaire and consider its
comments for which purpose the
Authority shall provide 5 business days.
Article 10 Right of Way

Planning
Commission MCA for
brownfield airports
The parties hereto agree that on or prior to
the COD, the Authority shall have granted
vacant access and Right of Way such that the
Appendix shall not include more than 10% of
the total area of the Site required and
necessary for the Airport. For the avoidance
of doubt, the Authority acknowledges and
agrees that the Appendix shall not include
any land which may prevent or delay the
construction of Mandatory Works required to
be completed before the 2
nd
anniversary of
COD. (excerpt from 10.3.2)

The Authority shall make best efforts to
procure and grant, no later than 90 days from
COD, the Right of Way to the Concessionaire
in respect of all land included in the Appendix
and in the event of delay for any reason other
than Force Majeure or breach o f this
Essentially both the MCA and
DCA provide for 90% of right of
way prior to COD.
The concession agreement
should explicitly specify that full
100% Right of Way should be
granted to the concessionaire
prior to COD or latest by a fixed
period of time, say 90 days, from
the COD.
This would completely remove
any uncertainty that a
concessionaire would have
relating to status of available
land prior to signing of the
agreement.
It is recommended that the MCA
be modified to provide for 100%
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Agreement by the Concessionaire, it shall
pay to the Concessionaire Damages in a sum
calculated at the rate of Rs. 1000 per day for
every 500 square meters.. Commencing from
the 91
st
day of the COD and until such Right
of Way is procured. (excerpt from 10.3.4)
access instead of partial access
prior to COD.
Draft Concession
Agreement released
by Airports Authority
of India in December
2018
Without prejudice to the provisions of Clause
10.3.1, the Parties hereto agree that on or
prior to the COD, the Authority shall have
granted vacant access, Right of Way and
lease such that the Appendix shall not
include more than 10% (ten percent) of the
total area of the Site, required and
necessary for the Airport, and in the event
Financial Close is delayed solely on account
of delay in grant of such access Right of Way
and lease, the period for the achievement of
the Financial Close shall be extended by the
Authority in accordance with the provisions of
Clause 4.1.2. The Appendix shall not
include any land which may prevent or
delay the construction of Aeronautical
Assets and the Terminal Building without
which the Completion or Provisional
Completion may not be granted.
Article 15 Operation of
the Terminal
Building

Planning
Commission MCA for
brownfield airports
The Concessionaire agrees and undertakes
that the level of service in the Terminal
Building shall, during the Peak Hour, be no
inferior to ‘Level of Service – D’ as specified
by IATA from time to time and in the event the
level of service is inferior to Level of Service
– D in any Accounting Year, the
Concessionaire shall pay Damages to the
Authority which shall be determined at the
rate of 1% of the total revenues from Fees for
that Accounting Year. (15.2.1 of PC MCA)
The DCA sets a higher standard
than the MCA to be attained by
the concessionaire in Level of
Services (IATA – Optimum).
Further the DCA specifies that
the monitoring of Level of
Service at the terminal building
would be done on a quarter to
quarter basis, rather than on an
accounting year basis.

A more frequent monitoring can
ensure greater consistency on
the part of the concessionaire to
maintain the specified IATA
Level of Service at the terminal.

Hence it is recommended that
the MCA be modified to keep the
required Level of Service at
IATA – Optimum (Level of
Service – ‘C’) and also require
the concessionaire to maintain
such level overall in successive
quarters rather than in
successive accounting years.
Draft Concession
Agreement released
by Airports Authority
of India in December
2018
The Concessionaire agrees and undertakes
that the level of service in the Terminal
Building shall, during the Peak Hour, not be
inferior to ‘Level of Service C’ (optimum
standards) as specified by IATA from time to
time and in the event it is observed that the
level of service is inferior to IATA ‘Level of
Service C’ (optimum standards) during Peak
Hours in any quarter and does not cure within
90 (ninety) days from the occurrence of such
degradation of level of service in any
Concession Year, the Concessionaire shall
pay Damages to the Authority which shall be
determined at the rate of 0.5% (zero point five
percent) of the total revenue from Fees for
the immediate preceding quarter.
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Article 31 Concession
Fee

Planning
Commission MCA for
brownfield airports
In consideration of the grant of Concession,
the Concessionaire shall pay to the Authority
by way of concession fee a sum of Re.1 per
annum and the Premium (as specified in the
next clause). (31.1)
The Concessionaire agrees to pay to the
Authority for the year commencing from <>
days of the occurrence of COD a premium in
the form of an additional Concession Fee
equal to x% <to be quoted by the bidder at
the time of bidding> of the Total Realisable
Fee, net of any taxes on Fee; and for each
subsequent year thereafter, the Premium
shall be determined by increasing the
proportion of Premium to the total Realisable
Fee in the respective year by an additional
1% as compared to the immediately
preceding year.
In the MCA the b idding
parameter is basically a share of
the total revenues that the
Concessionaire would earn in a
year, whereas in the DCA, the
bidding parameter has been
changed to per-passenger fee
(with the fee payable per
international passenger being
twice that payable for a domestic
passenger).

Payment on a per-passenger
basis removes all ambiguity that
can arise in the definition of
revenue to be considered for
determining the share that would
be payable by the
concessionaire to the Authority.

Further the total passenger
traffic is a more transparent and
easily verifiable figure over
which disputes are not expected
to arise.

It is therefore recommended that
the MCA be suitably be modified
to require the concessionaire to
pay a monthly fee to the
Authority calculated in the basis
of a pre-bid per-passenger fee
multiplied by the total passenger
traffic in a given month, along
the lines of what has been
provided in the DCA.
Draft Concession
Agreement released
by Airports Authority
of India in December
2018
The concessionaire has to pay a monthly
concession fee to the Authority as calculated
from the following formula -

(Per Passenger Fee for International
Passengers * International Passenger
Throughput for that month) + (Per
Passenger Fee for Domestic Passengers*
Domestic Passenger Throughput for that
month)
Where Per Passenger Fee for Domestic
Passengers is the bidding parameter and;
Per Passenger Fee for International
Passengers: 2(two) times the Per
Passenger Fee for Domestic Passengers
Termination
for fall in
Passenger
Traffic
Planning
Commission MCA for
brownfield airports
No indication regarding termination payment
in the event of passenger traffic decline has
been provided in the Model Concession
Agreement.
The DCA lessens traffic risk to
which the concessionaire could
be susceptible to by providing an
exit mechanism for the
concessionaire in the event the
traffic at the airport in a year falls
below a certain threshold (if
passenger traffic change is
negative by 20% or more for
more than two successive
years).

This provision of the DCA are
recommended for incorporation
in the MCA, as it lends comfort
to an investor/concessionaire in
Draft Concession
Agreement released
by Airports Authority
of India in December
2018
In case the passenger traffic change is
negative by 20% or more for than two
consecutive years, the agreement may be
terminated by either party by 180 days from
the date of expiry of the second concession
year, by giving a notice of 30 days.
Upon such Termination, the Authority shall be
liable to pay to the Concessionaire an amount
equal to 70% (seventy percent) of the
Termination Payment.

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the aspect of foreseeable traffic
growth at the airport. An
additional provision that should
be included in the concession
agreement is a prohibition on
development of any new airport
by the Authority within 50
kilometers of the airport for the
first ten years of the concession
period. This shall also help in
containing traffic risk in the short
term.


Article
42.3
Termination
Payment at
the end of
the
Concession
Period
Planning
Commission MCA for
brownfield airports
Upon Termination on expiry of the
Concession Period by efflux of time,
Termination Payment equal to the product of
24 (twenty four) and the Realisable Fee
recovered for and in respect of the last month
of the Concession Period shall be due and
payable to the Concessionaire; provided that
in the event any Project Assets, essential for
the efficient, economic and safe operation of
the Airport shall have been acquired and
installed after the 25
th
anniversary of COD,
with prior written consent of the Authority, a
Termination Payment equal to 80% of the
Adjusted Depreciated Value of such Project
Assets shall be made by the Authority to the
Concessionaire.
The DCA links the termination
payment to the value of City Side
Development and omits linking it
also to investments in airside
infrastructure which the
Concessionaire would have
made over the course of the
Concession Period.

However the MCA links
termination payment to
approved Project Assets which
form part of the actual
aeronautical infrastructure of the
airport, while City Side
Development assets are
excluded.

It is recommended that the
termination payment payable by
the Authority to the
Concessionaire at the end of the
Concession Period be linked to
both the Airside and City Side
assets which the concessionaire
would have invested in over the
course of the concession period.
The MCA may be suitably
modified incorporating this.
Draft Concession
Agreement released
by Airports Authority
of India in December
2018
Upon Termination on expiry of the
Concession Period by efflux of time:
The Authority shall pay to the Concessionaire
an amount equal to 50% of the lower of:

(i) the depreciated book value, if any, of
such Project Assets forming part of the
City Side Development, which have
been capitalized in the books of the
Concessionaire by the 30
th
anniversary
of COD

(ii) the replacement value of such Project
Assets net of depreciation forming part
of the City Side Development, which
have been capitalized in the books of the
Concessionaire by the 30
th
anniversary
of COD, as determined by an approved
Valuer who shall be selected and
appointed within 15 days of the Transfer
Date, and who shall submit its
93
Clause
No.
Clause of
Deviation
Name of
Concession
Agreement
Deviation Recommendation
determination within 30 days of his
appointment.

94
9.5 Deviations from MCA drafted by erstwhile Planning Commission –
Airport Terminal
Clause
No.
Clause of
Deviation
Name of
Concession
Agreement
Deviation Recommendation
2.1 Scope of
Project
Planning
Commission
1. Operation, management and development of the
Terminal on the site
2. Construction and procurement of the
aeronautical assets
3. Construction and procurement of the terminal
building
4. Construction and procurement of the non-
aeronautical assets (including cargo facilities,
car park, flight kitchens, warehousing facilities,
airline offices, administrative offices and
associated facilities)
To attract more bidders,
the scope may include
development aspect of
the aeronautical and
non-aeronautical assets
as followed by the
Planning Commission
MCA.
Jaipur and
Ahmedabad
airport
1. Operation and maintenance of select areas:
Passenger terminal building situated on the O&M
Operator Facilities, including the airport
operations control centre, fire control room,
kerbside approach road and passenger boarding
bridges
Apron area including management of ground
handling services through approved ground
handling agencies
Surface car park
Multi-level car park developed by the Authority in
accordance with the provisions
All terminal approach roads
All other areas, structures, assets, equipment,
facilities and machinery forming part of the O&M
operator facilities
Any new passenger terminal building, apron area
or terminal approach road
2. Provision of User Services and Non-aeronautical
services at the O&M Operator Facilities
3. Performance and fulfilment of all other obligations
in the agreement
3.1.1 Concession
period
Planning
Commission
The concession period is for 30 years, which is
extendable by 30 years on concessionaire request.
If the concessionaire has
the right to construct the
terminal, then the
concession period
should be 30 years.
However, if the scope of
project is limited to O&M,
then concession period
of 15 years is a fair
amount of time as a
concession period.
Jaipur and
Ahmedabad
airport
The concession period is for 15 years.
31.1 Concession
fee
Planning
Commission
The concession fee is INR 1 per annum along with a
premium of the total realizable fee.
The concession fee In
the form of premium per
95
Clause
No.
Clause of
Deviation
Name of
Concession
Agreement
Deviation Recommendation
Jaipur and
Ahmedabad
airport
Monthly concession fee for any month is per passenger
fee multiplied by Total Passenger Throughput for
that month in the previous year and escalated by
passenger growth.
The concessionaire also has to pay a Variable Terminal
Operator Fee, which is calculated as the difference
between amounts deposited in the deposit account and
aggregate of fixed O&M operator monthly amount.
passenger should be
used
32.1 User fees Planning
Commission
The tariff structure is followed as per the schedule of
fixed fee which is a part of the concession agreement.
The tariff structure
followed in Jaipur and
Ahmedabad airport may
be used
Jaipur and
Ahmedabad
airport
The operator is entitled to set the fees and charges
for the user services. In case the same is regulated by
AERA, then the operator can’t charge a fee higher than
that.
53.1 Equity lock
in/ Exit
mechanism
Planning
Commission
The selected bidder along with its associate has to hold
51% during the period prior to 3
rd
anniversary of
COD. In addition, 26% or such lower proportion may be
permitted by Authority during the remaining concession
period.
Equity lock-in period
shall be for five years to
ascertain the operational
compliance of the
concessionaire in the
MCA. As much as 26%
of equity can be
maintained for the next
10 years.
Jaipur and
Ahmedabad
airport
Prior to fifth anniversary, the aggregate holding of
the player with O&M experience in the total equity
shall not decline below 51% and of player with
development and expansion experience shall not
decline below 26%. On or after 5
th
anniversary, the
aggregate holding shall be at least 51% of total equity,
individually or collectively.
Clause numbers are as per MCA drafted by erstwhile Planning Commission

96
9.6 Revenue Streams
The income sources an airport play a significant role in structuring the overall transaction. The two categories of airport
income sources are aeronautical revenues and non-aeronautical revenues. The concession fees defined in the
concession agreements is dependent on the combination of these revenues.
Aeronautical Revenues Non-Aeronautical Revenues
Landing Fees
Terminal Area Air Navigation Fee
Aircraft Parking & Hangar Charges
Airport Noise Charge
Passenger Service Charge
Security Charge
Ground Handling Charges
En Route Air Navigation Fee
Night flight fees
Concession fees for Aviation Fuel & Oil
Concession fees for Commercial Activities
Revenues from Car Parking & Car Rentals
Rental of Airport Land, Space in Buildings & Assorted
Equipment
Fees charged for Airport Tours, Admissions etc.
Other non-airport Revenues
Source: World Bank
For calculation of revenue streams, tariff determination can be either on the basis of a single-till mode, wherein both
aeronautical and non-aeronautical activities are accounted for, whereas on a dual till mode only aeronautical activities
are accounted for. Whereas a single-till basis leads to lower charges for airlines, a dual-till approach increases
revenues for the airport operator.
32

9.7 Regulatory framework
The key agencies in India’s aviation sector are being manages by Ministry of Civil Aviation (MoCA). MoCA is the nodal
agency for formulating national policies and programmes in the aviation sector and monitor implementation of these
policies. The key agencies that form a part of the ministry are illustrated below:
Directorate General of Civil Aviation (DGCA)
The key agenda of the entity is to ensure safety
by through regulation and safety oversight
system.
Airport Authority of India (AAI)

32
Source: https://www.business-standard.com/article/economy-policy/airports-to-get-boost-via-hybrid-model-116041500050_1.html, Accessed on
July 17, 2018
Figure 14: Key agencies that regulate aviation sector

97
AAI is responsible for provision of communication, navigational and surveillance aids. As discussed, it is
responsible for design,
development, operation and maintenance of passenger terminal and provision of passenger facilities and
information systems
Bureau of Civil Aviation Security (BCAS)
BCAS started as a cell under DGCA and was primarily responsible for coordination, monitoring, inspecting and
training personnel under security division. However, it was later recognised as an independent body in 1987. It is
also responsible for laying down aviation security standards in accordance with ICAO for airport operators and
their security agencies.
Airports Economic Regulatory Authority of India (AERA)
The core function of AERA is to set tariffs for aeronautical services and determine the development fees for major
airports. The entity also plans to monitor performance standards relating to quality, continuity and reliability of services.
It undertakes functions set out in the AERA act 2008.




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