There are 449 airports in India and among these, the Airports Authority of India (AAI) owns and manages five international airports, 87 domestic airports and 28 military airstrips, providing air traffic services over the entire Indian airspace and adjoining oceans.

Keeping in line with its policy of liberalisation, the government of India decided to corporatize Delhi, Mumbai, Chennai, and Kolkata airports in order to induct the much needed capital for expansion and modernisation of these airports to world class standards.

The overhaul of services included infrastructure development, upgrading of manpower and establishing communication systems and navigation facilities in airports.

The modernisation of Delhi - also known as the Indira Gandhi International Airport (IGIA) - and Mumbai  airports had been considered as early as 1996 by the AAI.

In 1998, then prime minister Atal Bihari Vajpayee made a declaration that world class airports should be set up in the country.

The following year, a task force on infrastructure recommended that a long-term lease for outsourced management should be considered.

History

In June 2003, the AAI board approved a modernisation proposal and on 11 September 2003, the National Democratic Alliance government approved a proposal under which private investment, including foreign direct investment (FDI), could rise to 74 per cent to modernise the Mumbai and Delhi airports [Transactions Database].

These airports accounted in India for 47 per cent of the passenger traffic, 58 per cent of cargo traffic and 38 per cent of aircraft movement in 2003-04. They generated one third of all revenues earned by the AAI. Both Delhi and Mumbai airports handled twice as many aircraft movements as they were originally designed for, resulting in congestion for both aircraft and passengers.

The bidding process began in May 2004 with an original completion date of September 2004.

Bids were finally received by September 2005.

The bidders were:

• Reliance-ASA
• GMR-Fraport
• DS Construction-Munich
• Sterlite-Macquarie-ADP
• Essel-TAV

In November 2005, two teams were shortlisted; they were:

• Reliance-ASA 
• GMR-Fraport

A final decision was made in January 2006 by the Empowered Group of Ministers (EGoM) after compromising on some of its own set parameters for one of the airports.

The GMR-Fraport team was declared the winner and the development of Delhi Airport was made a priority due to the Commonwealth Games in 2010.

Losing bidder Reliance-ASA challenged the decision and filed a petition with the High Court of Delhi on 2 February 2006, labeling the selection "arbitrary" and claiming that the procedure was not sufficiently transparent.

After two stages of legal battle, the Reliance-ASA finally lost the case in November 2006 and the original awardees retained their position.

The Project

The project includes the modernisation and upgrade of the IGIA Airport and involves the construction of a new integrated passenger terminal (terminal 3) to cater for both domestic and international traffic over a 30-year concession, with an option to extend it for a further 30 years.

Also featured in the plan are 55 aerobridges with an expectation that 90 per cent of all passenger traffic at terminal 3 will be handled via aerobridges by 2010.

The new terminal will also have access through a six-lane road connecting to national highway (NH8).

It will also be connected to a metro line to the city centre-the line will be partly funded by DIAL.

Financing

Financial close was reached on 26 June for the US$2.25 billion Indira Ghandi international airport (IGIA).

ICICI came in as the initial underwriter of the US$1.25 billion senior debt amount, bringing to the table a syndicate of eight banks acting as MLAs.

The MLAs on the deal and amounts they contributed are:

• ICICI Bank - US$ 793.75 million
• Abu Dhabi Commercial Bank - US$156.25million
• BNP Paribas - US$50 million
• Intesa SanPaulo - US$50 million
• BayernLB - US$50 million
• HSH NordBank - US$50 million
• Calyon - US$50 million
• KfW - US$50 million

From the US$1.25 billion senior debt, US$350 million was financed by non-Indian banks in US dollar, the rest being financed in Rupees by ICICI.

The total equity amount is US$1 billion. The debt:equity ratio is 56:44.

The Delhi International Airport SPV comprises:

• GMR Group - 50.1 per cent (US$500m)
• Airports Authority of India - 26 per cent (US$260m)
• Fraport - 10 per cent (US$100m)
• Malaysia Airports Holdings - 10 per cent (US$100m)
• India Development Fund - 3.9 per cent (US$39m)

The senior debt has a maturity of 13 years with pricing set at GSEC+185bps.

The EPC contractors are Larsen & Toubro, Pratibha Industries and Kashyap Sons.

Herbert Smith and Amarchand Mangaldas acted as legal advisers to the lenders. Mott MacDonald is acting as technical adviser to the sponsors.

Conclusion

The extraordinary growth of India's economy has placed increased demands on the nation's aviation infrastructure to accommodate rising passenger and cargo volumes.

As a result, India is facing enormous infrastructure development challenges as it strives to enhance air service quality, airport efficiency, flight security, and air-space management.

It has been estimated that by 2020, Indian airports will handle around 100 million passengers including 60 million domestic passengers and cargo in the range of 3.4 million tonnes per annum.

The government's airport modernisation plan proposes investments of US$9 billion by 2010 and it plans to develop around 300 unused airstrips across India - a move that has raised projections for jets required for regional connectivity.

Infrastructure must remain a top priority for government policy. This implies a clear long-term framework for investment, with no arbitrary decisions which undermine foreign investor confidence.

The project at a glance