Airport Privatization
PROJECT ASSIGNMENT “Airport Privatization in India –Emerging Legal issues”
* SLT RICHA GIRI
Introduction
The business of owning and managing airports, once considered a safe haven, is challenging even the best managers. Higher fuel prices and an economic downturn that started in the United States and is spreading to other countries are reducing demand for air travel and causing airlines to make deep cuts in capacity. While the impacts of these trends vary widely by airport and region, one thing is clear: Fewer passengers mean less airport revenue. On top of the anticipated drop in passengers and revenue, several other trends are impacting airports, including huge airport development and operational challenges, increased pressure on airport costs, and much higher uncertainty with regard to future passenger demand. For the foreseeable future, airport managers face a much higher level of uncertainty and strategic risk. How they anticipate and manage these risks—and possibly turn the risks on their heads to create new sources of growth—will help determine how successful and profitable their airports are in the coming years.
Although privatization is a sensitive issue, the government has managed to bring about significant changes in the framework that governs sector investments. Today: (a) 100% FDI is permissible for existing airports; FIPB approval required for FDI beyond 74%; (b) 100% FDI under the automatic route is permissible for greenfield airports; (c) 49% FDI is permissible in domestic airlines under the automatic route, but not by foreign airline companies; (d)100% equity ownership by Non Resident Indians (NRIs) is permitted; (e) AAI Act amended to provide legal framework for airport privatization; (f) 100% tax exemption for airport projects for a period of 10 years.
A survey by the International Air Transport Association revealed that for the year 1999, Delhi and Mumbai airports ranked amongst the three least favoured
* SLT RICHA GIRI
Introduction
The business of owning and managing airports, once considered a safe haven, is challenging even the best managers. Higher fuel prices and an economic downturn that started in the United States and is spreading to other countries are reducing demand for air travel and causing airlines to make deep cuts in capacity. While the impacts of these trends vary widely by airport and region, one thing is clear: Fewer passengers mean less airport revenue. On top of the anticipated drop in passengers and revenue, several other trends are impacting airports, including huge airport development and operational challenges, increased pressure on airport costs, and much higher uncertainty with regard to future passenger demand. For the foreseeable future, airport managers face a much higher level of uncertainty and strategic risk. How they anticipate and manage these risks—and possibly turn the risks on their heads to create new sources of growth—will help determine how successful and profitable their airports are in the coming years.
Although privatization is a sensitive issue, the government has managed to bring about significant changes in the framework that governs sector investments. Today: (a) 100% FDI is permissible for existing airports; FIPB approval required for FDI beyond 74%; (b) 100% FDI under the automatic route is permissible for greenfield airports; (c) 49% FDI is permissible in domestic airlines under the automatic route, but not by foreign airline companies; (d)100% equity ownership by Non Resident Indians (NRIs) is permitted; (e) AAI Act amended to provide legal framework for airport privatization; (f) 100% tax exemption for airport projects for a period of 10 years.
A survey by the International Air Transport Association revealed that for the year 1999, Delhi and Mumbai airports ranked amongst the three least favoured