Huge Opportunity in Airport Infrastructure
The civil aviation market in India is on a high growth trajectory. With a 300 million middle-class income group having disposable income to travel at least once a year by air and India's growing economy that will support the traffic trends both in passenger and cargo, the Aviation Industry in India offers large untapped growth opportunities.
By 2025, the country will be the third-biggest aviation market in the world, behind only China and the US, according to a study by the International Air Transport Association (IATA), a global aviation industry body. However, as most of this growth will depend on domestic traffic, India faces the twin challenges of ensuring that local aviation projects are financially feasible and that its infrastructure can cope with the growing domestic demand.
The growing passenger numbers present a serious challenge for the government, as significant capacity constraints persist in the aviation sector. According to the Centre for Aviation (CAPA, an aviation sector consultancy), India's passenger numbers are likely to exceed the country's total airport capacity by 2022. This is skewed towards some of the largest airports in the country; for instance, those in the metropolitan cities of Mumbai and Delhi are already facing significant capacity constraints.
Most airports (both joint venture and AAI operated) have either reached saturation levels or are expected to reach optimal capacity within a decade. Timely creation of new capacity, as well as augmentation of existing capacity through increasing productivity, is thus the need of the hour. Airport capacity up-gradation and expansion require both the development of new greenfield airports and the expansion of existing brownfield airports and this will be funded by the Indian private sector and AAI by leveraging its balance sheet.
India currently has over 100 active airports, and the development of many more is on the anvil to improve air connectivity between cities and ease congestion at existing airports. In fact, the government plans to set up another 100 airports by 2040, which points to the huge construction opportunity waiting to be tapped.
India's aviation industry is expected to witness Rs 35,000 crore (US$ 4.99 billion) investment in the next four years. The Indian government is planning to invest US$ 1.83 billion in the development of airport infrastructure along with aviation navigation services by 2026.
NextGen Airports for Bharat [NABH] Nirman
In order to meet the growing demand, the NextGen Airports for Bharat [NABH] Nirman initiative was launched to enhance airport capacity by more than five times to handle a billion trips a year. This scheme constitutes investments to be made in airport upgrades by both the private sector and the state-owned Airports Authority of India (AAI) in the due course of time. The three key aspects of NABH Nirman are fair and equitable land acquisition, a long-term master plan for airport and regional development, and balanced economics for all stakeholders.
Despite a separate policy being in place for greenfield airports, most of them have faced inordinate delays due to land acquisition issues, difficulties in securing project finance, political and social friction, delays in securing environmental clearances, policy ambiguities, etc.
To address these challenges, in August 2018, the government proposed a new financial model for building greenfield airports under NABH Nirman 2018. The guiding principles of the proposed transaction structure are affordability, sustainability, and predictability.
Under the new financial model, the concession fee given by the airport operator to the concessioning authority will be based on the “per passenger aeronautical model”. Currently, the transaction structure for airports, run under the joint venture route, is based on the revenue sharing model. The proposed model concession agreement will be fine-tuned after industry feedback.
A new Cargo Policy was also released to tap the unexplored potential of the cargo segment. The policy aims to leverage the air cargo network to provide cargo transportation to the masses at an affordable cost and to connect every village to the national and global supply chain.
Vision 2040
India has a 20-year roadmap to develop civil aviation and envisions a five-fold increase in airports to handle over a billion trips a year. The “Vision 2040” document outlines development needs for the sector.
In January 2019, the Ministry of Civil Aviation (MoCA), for the very first time, unveiled a well-laid-out long-term plan – Vision 2040. The document charts out a roadmap to make India a global aviation hub, highlighting the growth potential in different subsectors of the aviation industry and detailing the action steps required to achieve the desired objective.
India's domestic air passenger traffic is expected to grow at an average compound annual growth rate of 8.5 percent by 2040, taking the sector close to the target of 1 billion passengers by 2040. The projected passenger traffic (to, from, and within India) for FY 2040 is 1124 million. This comprises around 821 million domestic passengers and around 303 million international passengers (to and from India). To handle this quantum of traffic, a massive increase in airport infrastructure is a necessity.
Based on the projected growth in traffic, India will require capacity augmentation at brownfield airports as well as the setting up of new greenfield airports. Vision 2040 aims to have 200 operational airports by 2040, compared to 106 active airports at present. If such plans are realized, India's top 31 cities will house two airports each – Delhi and Mumbai, potentially three. The commercial airline fleet is likely to grow from 622 carriers in March 2018 to around 2,359 in March 2040.
The total capital expenditure for brownfield and greenfield capacity expansion in India till 2040 is conservatively expected to be in the range of USD 40-50 billion, excluding land acquisition costs. The central government is said to be weighing up the establishment of a new fund, with a starting corpus of $2bn, to support low-traffic airports in the initial stages of expansion.
Current Issue
01-2026
