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08.02.2006

Airport Modernisation: The Real Issues

Jayati Ghosh

If anyone had any doubts about the misleading analysis and suppression of information purveyed by most of the mainstream media, these doubts should be dispelled by the latest evidence with respect to the recent strike by airport employees. This has been widely reported as the retrogressive actions of some employees who simply want to keep their jobs and are therefore impeding modernisation.

The chaos and mess at airports and the inconvenience of passengers has been described in the media in the most agonised terms, with frequently expressed fears about how this strike will adversely affect India's ''international image''. In the process, the real reasons why the airport employees have taken the decision to strike, and issues relating to the modernisation or privatisation of airports, have actually been suppressed.

The argument is being presented as one in which those who want to expand and modernise India's airports are being prevented by a bunch of backward looking trade unionists who want everything to remain the way it is. But this is the opposite of the truth. The workers' fight against privatisation is based on the argument that a perfectly acceptable and desirable plan for modernising the airports has been available, presented by the Airports Authority of India to the Cabinet nearly three years ago, using the available cash reserves of the AAI as well as borrowed funds.

In fact, if the central government had not deliberately held up this plan, the country could already have been benefiting from the latest and most modern airports especially in the metros. Instead, this proposal was suppressed, because the basic aim of both the previous NDA government and the current UPA government has been to hand over airports to the private sector. So this is a clear case in which a public sector organisation has been run down and not allowed to modernise using its available reserves, to pave the way for eventual privatisation.

As a result, there is no question now that most of our large airports are in a mess, badly short of space and services, and desperately in need of renovation or even complete overhaul. This has adverse implications which go beyond the convenience of passengers, since airports have become important hubs of trade and so this affects cargo trade and commercial promotion generally.

There are now many examples of different ways of managing airports. The experience so far suggests that even where airports have been ''privatised'', in most cases this has not meant the actual transfer of ownership or even control.

This is because airports, and especially those which are major national or international hubs, fall very clearly in the category of strategic infrastructure assets, and it is usually seen as crucial to maintain some degree of national control. This is why most governments - even champions of privatisation such as Australia - have put definite restrictions and caps on the proportion of foreign investment and the actual control exercised by foreign parties.

Add to this the fact that airports are by definition natural monopolies, since location-specificity implies that there is no real choice, except perhaps for airlines in the process of choosing which ''hub'' to use. Otherwise, it is hardly possible, say, for passengers to say they would prefer to fly to Chennai than to Delhi because of better airport facilities in the former. This feature of being a natural monopoly means that if an airport is not under direct public control, it must at least be under strong public regulation to ensure that unfair monopolistic practices do not become rampant.

Internationally, the most successful examples of airport management typically involve some amount of private outsourcing for particular activities while retaining overall public control. Thus, many airports have successfully brought in private parties to invest in cargo handling facilities or even whole terminals, hangars and parking bays, servicing and overhauling facilities, marketing and shipping yards, export zones and so on. Such contracted services dominate as the main form of ''privatisation'' in most airports in the US, Europe and Japan.

There is a further point. Obviously, the development of airports has to be in accordance with a master plan for the relevant urban area, which considers the overall development of not just the airport but also the surrounding region. Therefore it clearly cannot be undertaken by any private party in isolation, but requires the involvement of local government bodies, industry associations and other groups.

The issue of cross-subsidisation is also important. This is probably the most important feature of most transport networks which has encouraged public holding of such facilities. Thus, railways in India use profits from heavily-used routes to finance losses from providing services to more remote and less heavily trafficked areas. The same is true of the public airlines - it is obvious that most private airlines only flog the very profitable inter-metro routes and avoid smaller cities and towns which nonetheless require such connectivity.

Similarly, thus far, the AAI has used the profits made from major metropolitan airports (such as Delhi and Mumbai) to promote and support the development of airports in other cities, smaller towns and more remote locations which would not command the same interest. Mumbai and Delhi airports are the most profitable and heavily used airports in India, and losing them would dramatically reduce the funds available with AAI to develop other airports.

AAI is currently one of the more profitable public sector companies, with reserves and surplus funds of Rs. 3,000 crore, and almost zero-debt status. This can easily meet the anticipated expenditure for the development of the airports of the country, including those in Delhi and Mumbai, especially since the corporation can leverage this healthy financial condition to raise loans from the market.

Instead, the UPA government has clearly gone against the promise made in its own CMP, and opted for straightforward privatisation without adequate consideration of the security, strategic and other issues. And the entire bidding process has been extremely irregular and full of impropriety, leading to accusations of subjectivity and manipulation to favour certain parties. It led to a situation where only two bids were treated as viable for the two airports, implying no contest. Even the highly respected outside expert appoint by the government, Mr. Sreedharan, pointed to flaws in the criteria used for shortlisting, and in effect suggested that the entire bidding process be reopened.

In such a background, it should be evident that the airport workers on strike were not fighting for their own jobs or wages, but for what is the national interest. Instead of recognising the real issues and creating the basis for a genuine national debate, most of the mainstream media has chosen to obfuscate and suppress the vital information which matters as much for the future of the country.

 

© MACROSCAN 2006