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Who?ll reap maximum rewards?

Unions should not crib because AAI income is likely to soar.

india Updated: Feb 06, 2006 01:50 IST

In the theatre of the absurd played out before our airports last week, did anyone wonder for a minute why the AAI Unions were agitating.

Carrying the ideological baggage of the Left is all very well, but what is the benefit that modernisation/privatisation of the Mumbai and Delhi airports accrues to the employees of AAI.

The AAI as per the shareholders agreement structured for the airport modernisation programme will remain a 26 per cent shareholder in the entity that builds out the new airports. So, obviously it gains 26 per cent of the profits that the new ventures will make.

More than that, 46 per cent of the revenues of the new Delhi airport and 38 per cent of the revenues of the new Mumbai airport are to accrue to AAI as per the terms and conditions of the joint venture. This makes it extremely lucrative for AAI, going forward.

What then was the AAI agitating about? Rationalisation of the employees was definitely one of the issues. Whether these employees would be absorbed or not was clearly an issue uppermost in their minds. But let us look at the positive side. Employee rationalisation was hardly an issue and the PM gave an assurance on this subject.

Originally, only 60 per cent of the employees were to be absorbed by the new JV. Anyway, since both the airports will have phenomenal growth rates, the current strength of the employees might fall short in the future and the JV might actually have to hire more people to meet the demand.

For starters, let us look at the state of the AAI revenues:

AAI in 2004-05 generated revenues of approximately Rs 2,700 crore and a profit before tax of Rs 600 crore. Of this, nearly 60 per cent of the revenues come from Mumbai and Delhi airports. Which means that around Rs 1,600 crore revenues come from Mumbai and Delhi airports.

Under the joint venture agreements, the revenue projections for Delhi airport for 2006-07 is in the vicinity of Rs 900 to 1,000 crore and a similar amount is expected from Mumbai. Under the revenue sharing formula, GMR will have to fork out Rs 460 crore (46 per cent) in case the revenues are Rs 1,000 crore to AAI.

A similar formula will see GVK give Rs 380 crore to AAI, provided revenues are Rs 1,000 crore. As a result, AAI will generate a net income of Rs 840 crore on this account alone from these airports. This will be much more than the total profit before tax of AAI presently (which is Rs 600 crore).

And this is not all. In addition, since AAI holds 26 per cent of the JVs, a sum amounting to 26 per cent of the net profit from both airports will also accrue to them.

Analysts aver that revenues for Delhi and Mumbai airports are likely to grow on annualised basis at 20 per cent for the next five years. Which means that the revenue will double by 2010. Hence AAI’s income on a revenue sharing formula will also double. At this rate AAI will have a net revenue of Rs 1,700 crore per annum from just these two airports.

Surely all this means a better quality of life for AAI employees. Interestingly, the AAI’s main grouse is that its plan to modernise the airports was not considered at all. AAI presently has reserves and surplus of Rs 2,737.03 crore and net worth of Rs 2,903 crore.

Was AAI financially capable to develop these airports? AAI could have certainly raised finances of over Rs 5,000 crore or more as debt, which was sufficient to develop the two airports since it has balance sheet size of around Rs 3,000 crore in terms of net worth.

But then the issue is whether the Airports Authority of India could have developed only these metro airports and not been able to go beyond it. Therefore, there are only two models going forward, either give AAI both these airports and privatise the rest or use the current model of modernising the two — Delhi and Mumbai — and ask AAI to develop all the other airports.

Having said this, experts argued that the government should have opted for the alternative model where it should have allowed Airports Authority of India to develop Delhi and Mumbai and privatised the rest of the airports through the JV route. This would have led to more equitable growth.

First Published: Feb 06, 2006 01:03 IST