Hyderabad Airport: Project Finance
GMR Hyderabad International Airport Limited (GHIAL)
Course Instructor: Prof. Padmalatha Suresh Submitted By: Presented By: Group 8, Section-B Abhishek Singh Shashi Bhushan Dwivedi Vivek Sinha Chaitanya Kini Isha Agarwal Kshitij Varshney (2010062) (2010167) (2010176) (2010192) (2010201) (2010206)
1
INTRODUCTION
Mr A. Subba Rao, CFO of GMR Infrastructure was wondering about the success of building international airports. On a fine summer morning in 2007, sitting in his office he is analysing the sustainability of a very important project and its impact on the future cash flow of the company. While thinking about aeronautical & non aeronautical revenues generated from Hyderabad International Airport in future Mr A. Subba Rao is thinking about risks involved in this project that have direct impact on company’s revenue, accordingly he has to negotiate about the UDF (User Development Fee) with the government. UDF is to be considered only in cases and years where the target revenue of a major airport is projected to fall short of the admissible expenditure. He knows that UDF is a huge source of revenue but only for initial years of operations, after that revenues generated through non aeronautical operations becomes crucial. So his major concern is the impact of non-aeronautical revenue on GHIAL’s balance sheet in later period. Also the main parameter which he was thinking is of air traffic forecast which is subject to degree of risks and uncertainties in the dynamic changing business environment. Mr A. Subba Rao knows that it is not possible to determine events like timing of recessions, fuel shortages, etc. The cyclical nature of tourism and economic growth would be difficult to capture by any existing model. The aviation sector in Hyderabad was not in a good position and the coming years were neither good. Mr A. Subba Rao was in the final phase of completing the international airport at Hyderabad and all these concerns were hovering in his mind. The world
Course Instructor: Prof. Padmalatha Suresh Submitted By: Presented By: Group 8, Section-B Abhishek Singh Shashi Bhushan Dwivedi Vivek Sinha Chaitanya Kini Isha Agarwal Kshitij Varshney (2010062) (2010167) (2010176) (2010192) (2010201) (2010206)
1
INTRODUCTION
Mr A. Subba Rao, CFO of GMR Infrastructure was wondering about the success of building international airports. On a fine summer morning in 2007, sitting in his office he is analysing the sustainability of a very important project and its impact on the future cash flow of the company. While thinking about aeronautical & non aeronautical revenues generated from Hyderabad International Airport in future Mr A. Subba Rao is thinking about risks involved in this project that have direct impact on company’s revenue, accordingly he has to negotiate about the UDF (User Development Fee) with the government. UDF is to be considered only in cases and years where the target revenue of a major airport is projected to fall short of the admissible expenditure. He knows that UDF is a huge source of revenue but only for initial years of operations, after that revenues generated through non aeronautical operations becomes crucial. So his major concern is the impact of non-aeronautical revenue on GHIAL’s balance sheet in later period. Also the main parameter which he was thinking is of air traffic forecast which is subject to degree of risks and uncertainties in the dynamic changing business environment. Mr A. Subba Rao knows that it is not possible to determine events like timing of recessions, fuel shortages, etc. The cyclical nature of tourism and economic growth would be difficult to capture by any existing model. The aviation sector in Hyderabad was not in a good position and the coming years were neither good. Mr A. Subba Rao was in the final phase of completing the international airport at Hyderabad and all these concerns were hovering in his mind. The world