Monday, March 10, 2008

Tale of two airports

Tale of two airports
Closed-door policymaking and its pitfalls With air traffic likely to increase dramatically, both HAL and Devanahalli can, and should, co-exist
A Ravindra and Ashwin Mahesh


Public debates on important matters of public policy are a fascinating aspect of democracy. It is unfortunate that the debate over the closure of HAL Airport is taking place only days before the deadline. It ought to have solicited wide public input long ago, and thereafter been made on the basis of publicly available positions of the governments of India and Karnataka. Instead it was quietly established through a concession agreement with the developer of the new airport at Devanahalli. And much water has flown since then.
Even at this late juncture, the seminar organized by the Centre for Public Policy of IIM, Bangalore, this week went some distance towards restoring public debate to an important issue. All the participants were unequivocal in their positions, allowing the audience to make their judgments based on the credibility of the various presentations. We should have more such debates in the city, on many more issues.
According to Albert Brunner, CEO, Bangalore International Airport Ltd, there are several reasons why HAL Airport should be closed. One significant point he made was that if Bangalore wants to create a strong air traffic hub for the south of India, it should put its eggs into one basket — the new airport. Keeping the old airport open would mean the city would lose its long-term potential to become such a hub. HAL Airport should be closed not because it has stopped serving its purpose, but because a stronger purpose could now be better served by BIA.
That view would be easier to accept if the new airport was more accessible. But the reality is that BIA is a fair distance to the north of the city, and the great economic engines of the recent years have all substantially been in the south of the metropolitan. Traffic across this space is nightmarish, and the relief efforts have thus far amounted to promises of better infrastructure, and a few small but ineffective steps in the short term. Connectivity to BIA continues to be poor.
More importantly for the long run, we shouldn’t forget how close Bangalore is to the border with other states. The now-emerging twin city of Hosur is to the south, and second city Mysore is also in this half of the equation. Continuing economic linkages with these areas is likely to create further demand for air travel in the southern suburbs. If substantial improvements in connectivity to BIA do not occur rapidly, it is bound to lead to the search for a new airport across the state line, which may be considerably more accessible.
Already there are reports of airlines planning to cut back flights to Bangalore. The user development fees that BIA proposes to charge are also steep, and would considerably raise the fares of low-cost operators.
HAL itself is of the view that its airport should continue, albeit with lower volumes of passenger traffic. Partly, it may be motivated by an interest in earnings, but some of the argument appears well-founded. There are capacity constraints at BIA too, and the demand for air travel in the region is running far ahead of even recent projections. BIA is also severely constrained by having Yelahanka air base to its west and HAL-controlled air space to the south, so only a portion of the total air space around the new airport can be exploited for growth. Why close HAL under those circumstances?
There is substance in BIAL’s argument that the developers of the new airport have put in huge money in creating the new infrastructure, and their business model for profitability should be upheld. Even those who want HAL Airport kept open concede this, but worry that a miserable experience in accessing the new facility, for passenger as well as cargo movement, would
suppress demand for air travel, and even lead some organizations to consider shifting their operations.
In any event, there is no risk of undermining BIAL’s business calculations by keeping HAL Airport open. As Devesh Agarwal of the Bangalore Chamber of Industry and Commerce points out, the new airport was conceived at a time of relatively low growth in air traffic in the city, which quickly turned into a rapid clip and then a burst in the last three years. The lower estimates of air traffic growth made 8-10 years ago could partly explain the state’s unpreparedness on developing access to the new airport. But equally, it’s plausible that if such strong growth had been foreseen, the government may not have agreed to the closure of HAL Airport.
The key point to note is that the concession agreement was signed during a period of low to moderate growth. This implies that the financing for BIA was agreed upon based on much lower estimates for demand, and the money invested in BIA would return the expected profit even if HAL Airport were to be retained. The question that remains is: Once the original profit consideration has been guaranteed, should BIA have sole entitlement to the upside in air travel?
Brunner appears to think so, arguing for good measure — much like a former Enron CEO — that a breach of the agreement to close HAL Airport would erode India’s credibility in the international investment community. Certainly, the government should be careful to honour contracts, but at 10-12% state GDP growth per year, we should be able to give investors confidence in other ways, and bargain for the best. Let’s also not forget that the land given to BIA is large enough to replicate Heathrow airport, without anywhere near the volume of traffic in London.
Oddly, the state government doesn’t appear to be trying hard to flex its economic muscle; maintaining investor confidence is something that officials are alert to. V P Baligar, principal secretary (infrastructure), was, for much of his presentation at the seminar, in sync with BIAL’s stance.
Merely having a debate like this, in an open forum, is a big positive step, and the willing participation of different stakeholders signals there is still room for cooperative engagement. Indeed, listening to Brunner, Baligar and S R Iyer (DGM, Aerodrome Operations) who presented the HAL view, one would certainly believe so. Between these speakers, a reference to ‘compensating’ BIA for any loss of air traffic to continuing operations at HAL emerged four times, and one is tempted to believe that there is a deal to be done, if only the participants could sit together and make reasonable claims to the economic spoils that lie ahead. The government must steer the participants towards an amicable resolution, without waiting for the courts to take the call.
(The authors are visiting faculty at Centre for Public
Policy, IIM, Bangalore)

The issue of keeping the HAL airport would not have come, with the international airport set to open, if we had had a dedicated road. When I was the civil aviation minister, we had planned for a dedicated road and elevated rail link. But over the years the land earmarked has been disappearing. Now no land is there for the projects we had planned for except for the dedicated six-lanes. At that time the promoters of the airport was not willing to go ahead with the project unless the HAL closure was ensured in the agreement. Now the only recourse is that there should be an agreement between HAL and the international airport promoters for operating short haul flights. The revenue earned can be shared. R V Deshpande | FORMER MINISTER


It is not possible for the government to retain both airports as separate agreements have been signed with promoters — Bangalore International Airport Ltd (BIAL) and GMR Hyderabad International Airport Limited (GHIAL) — in Bangalore and Hyderabad, respectively, granting them exclusive rights over the flight operations. There is no change in government’s stand. The ministry will respect the concessional agreement. Ashok Chawla | CIVIL AVIATION
SECRETARY

1 Comments:

At Tuesday, March 11, 2008 at 7:11:00 AM GMT+5:30, Anonymous Anonymous said...

First of all, I think we should all congratulate Mr Brunner and his team for completing the project on schedule - in the face of hostility and indifference. I find it difficult to believe that 2 airports are viable. Cities in the world having multiple airports have several times the traffic that Bangalore has or will have in the near future (90 flights an hour is the peak at JFK. Bangalore is about 25). The political class and city administration need to hang their heads in shame at waking up so late and trying to then undermine the viability of teh airport with irresponsible statements. They owe a collective aplology to the people of Bangalore and work overtime to make connectivity happen. But, that, of course, is asking for too much. The easier way is to portray Mr Brunner and BIAL as an evil corporation bent on maintaining a monopoly. That is what they will, unfortunately, do.

 

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