Maintaining Airport Infra: A Big Financial Challenge During Pandemic

AERA Domestic Mumbai-airport - Aviatorsbuzz
File photograph integrated Terminal 2 of Chhatrapati Shivaji Maharaj International Airport, Mumbai. Source: rediff.com

The Association of Private Airport Operators (APAO) has sought urgent relief from the government to ensure its members are able to sustain operations and thus save jobs.

APAO on Wednesday issued a statement which said, “Airports are not generating sufficient cash flows to sustain operations, and meet debt obligations. Poor cash flows and consequently downgraded credit ratings have made it impossible to take further financing support from financial institutions.”

APAO member operators manage Delhi, Mumbai, Hyderabad and Bangalore. The airport apex body said that aeronautical revenues have reduced by 75-80 per cent.

Airport Operators Hit

Hit by the COVID-19 pandemic, Indian operators have been struggling with a severe cash crunch, according to APAO. Business Standard reported that in the letter written to the Ministry of Civil Aviation (MOCA), APAO, requesting help, said that the aeronautical revenues have reduced by 75-80 per cent whereas, the non-aeronautical revenues have dropped by 85-90 per cent.

Over 85 per cent of the total costs incurred by the operators are fixed costs. The association said this issue makes it difficult for the operators to survive.

“Due to COVID-19, airport operators had to incur additional operating expenses and capex due to re-designing of infrastructure and SOPs for containment of COVID-19 and processing of passengers in a safe and convenient manner,” a statement said.

The airport operators association wrote that with the steep drop in air traffic, APAO members are finding it difficult to sustain their operations.

“Members are not generating sufficient cash flows to sustain operations, and meet debt obligations. Poor cash flows and consequently downgraded credit ratings have made it impossible for airports to take further financing support from financial institutions,” it said.

The Business Standard report said that with stress on the finances, there is a worry that many of these jobs will be lost. Airport operators pointed out that other countries like Germany, and France are providing support by giving part wages to these workers.

Aviation consultancy firm CAPA reckons passengers will total 80-95 million this year, slightly more than last year’s 52 million passengers.

Revenue Stream Impact on Airport Operator
Aero Revenue Aero revenues have reduced by 75-80% due to lower ATMs and steep dip in passenger traffic.
Non-Aero Revenue Minimal passenger traffic and low buying sentiments among consumers have drastically impacted the non-aero revenue generation at airports. Non-aeronautical revenues have dropped by 85-90%. Loss of non-aeronautical revenue cannot be recouped in future.
Airport Land Monetization Lower realization in the value of land is experienced due to depressed economic conditions and negative sentiments among real estate businesses.

Third Wave Scare

However, if a devastating third wave materialises, the industry will be knocked out of gear again and final numbers are likely to be closer to 80 million. That’s far short of the 140 million who boarded domestic flights in 2019, the last normal Indian aviation year.

For instance, Delhi Airport, which in pre-COVID days had over 2,00,000 passengers passing through its portals daily, suddenly found that number had dropped to between 30,000 and 40,000.

In mid-May, Delhi airport closed Terminal 3 and announced all flights would take off from Terminal 2. Mumbai’s Chhatrapati Shivaji airport is also operating from one terminal.

As per the forecasts by international agencies, the global passenger traffic will not return to pre COVID-19 levels until 2023-24.

APAO said that international traffic recovery will take longer and be subject to bilateral ‘Air Bubble’ arrangements agreed with India.

On the other hand, the domestic traffic recovery will be subject to (1) availability of vaccination (2) containment measures (3) abolishing Negative RTPCR tests (4) removing imposition of mandatory home quarantine measures (5) progress of COVID cases (6) lockdowns imposed by various States and Union territories, etc.

The Operators Association said that Airports are generating jobs for skilled and unskilled categories in big numbers and help the economy. As per the NCAER study conducted in 2017, Delhi Airport generated 1.06 lakhs of direct and 5.01 lakhs of indirect employment as in 2014-15.

Its contribution to Delhi GDP was 6.95%.As per the NCAER study conducted in 2015, Mumbai Airport generated 41,000 of direct and 4.19 lakhs indirect employment as in 2009-10.

Its contribution to Mumbai GDP was 3.29%. With stress on the finances, there is a worry that many of these jobs will be lost. This is the reason, many countries are supporting by giving part wages to these workers, like Germany and France.

 

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