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• With aviation sector facing turbulent times, industry body Assocham today called for fair valuation and viability of all stakeholders while fixing airport tariffs and creating an environment for attracting infrastructure investments.Operating viability is paramount to ensure healthy inflow of private funds in future public private partnerships (PPPs), it said in representation to the Airports Economic Regulatory Authority of India (AERA). Airports will require an investment of Rs 675 billion during the 12th Five Year Plan (2012-17) of which Rs 500 billion is expected to be the share of private sector.
• But Delhi airport operator is making heavy losses due to increased cost of operating a huge facility while being able to charge the tariff as per the Airports Authority of India (AAI) rate card common for all airports which is not even in line with inflation, said The Associated Chambers of Commerce and Industry of India (Assocham).``Even with the increase in tariff proposed by the regulator, Delhi International Airport Limited (DIAL) is expected to face liquidity crunch in 2012-13 and 2013-14 which will jeopardise the viability of operations,`` said secretary general D.S. Rawat.
• More significantly, AERA`s assumption of future passenger traffic growth at 15% and aircraft traffic movement at 12% seems very aggressive and should be re-visited. High growth witnessed in the past ten years due to entry of low-cost carriers has now been tamed.The number of new routes added by domestic carriers in the past three years has been substantially lower than the cumulative routes added in the past ten years, said Mr Rawat. Due to various efficiency issues, utilization of aircraft has been low and airlines are expected to focus on this aspect before entering the next phase of fleet expansion.
• ``Low yields and relatively lower load factors are indicator of over-supply and cut-throat competition,`` he said adding passenger traffic will grow at close to 10% compared to 17% assumed by the AERA.Given the risk profile of airports, a return of equity of 20% plus is needed to attract investments. But aviation sector is cyclical in nature and the degree of severity or volatility in cash flows is higher. Airport risks are the highest among infrastructure sectors like power, ports and roads.
• From an opportunity cost perspective, DIAL was not obliged to re-invest the deposit monies back in business as a means of project funding. Having done so, this source of finance should be treated as equity and a return equal to the return on equity determined should be allowed, said Rawat.``Investors and lenders seek a return from the day capital is deployed. However, the regulator`s philosophy is not to provide for any return in the construction period. We urge the regulator considers compensating the operator for no-return period in the tariff revision for the return period,`` he said.

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