Four major private airports in the country will require an investment of Rs.27,000 crore in expanding the existing capacity, which has reached near optimum level, by 2021, a report said on Wednesday.

The four private airports-New Delhi, Mumbai, Hyderabad and Bengaluru-cater to nearly 55 per cent of the country's total air traffic.

These airports are operating at near-full capacity and will need to spend heavily on expansion through 2021, said the report by ratings firm Crisil.

“Because of surging footfalls and high capacity utilisation of over 90 per cent, we estimate the four airports would need to invest Rs.27,000 crore for expansion,” Crisil Ratings President Gurpreet Chhatwal said.

Yet, their credit quality will remain healthy because of business model strength backed by robust traffic growth and predictable cash flows under a regulated tariff framework, the rating outfit said.

According to the firm, air passenger traffic in the country grew 20 per cent in the last fiscal which was a big leap over the sedate 9 per cent average seen since 2011.

Bengaluru and Hyderabad airports have clocked even faster growth of over 24 per cent, the report said, adding rising private consumption and healthy economic growth would continue to provide tailwind to traffic growth at airports.

Of the four aerodromes, GMR group runs Delhi and Hyderabad airports, while GVK group operates Mumbai.
In the Bengaluru airport, India-born Canadian billionaire Prem Watsa's Fairfax holds 38 per cent, while Germany's Siemens Project Ventures GmbH has 26 per cent stake.

Besides, state-owned Airports Authority of India and Karnataka State Industrial and Infrastructure Development Corporation hold 13 per cent each. The rest 10 per cent holding is with the GVK group.

Despite such massive funding requirement, credit quality of these airports will not suffer because of low implementation risk. As such expansions are brownfield and modular in nature and conducive tariff regulation, Chhtawal said.

Tariffs such as passenger user fee levied by airports is calculated in blocks of five years, called 'control periods', based on a fixed return on capex and base traffic growth assumption.This not only compensates for the risks taken, but also provides for adjustment in user fee on account of any large variation in traffic, capex plan in a control period, the report noted.

As per Crisil, as the traffic increase rapidly, aeronautical revenue streams from passenger user fees and landing and parking charges would also increase in the ongoing control period.

Significantly, India became the third largest aviation market in domestic traffic last year, unseating Japan. India's domestic air passenger traffic stood at 100 million in 2016 and was behind only the US (719 million) and China (436 million).

“While aeronautical revenues may moderate in the next control period due to adjustment in passenger user fee, rising footfalls can offset this through higher non-aeronautical revenue so its unlikely to curb the earnings momentum of these airports,” Manish Gupta, Director, Crisil Ratings, said.

The contribution from non-aeronautical revenue is expected to increase to over 50 per cent over the next four years from over 35 per cent now. Such unique characteristics make airports a prized infrastructure asset class that enjoys much lower risks compared with roads, power generation, and distribution, as per the report.

Noting that the risks are also lower because of pricing power emanating from operational exclusivities, low complexity of operations, and ability to raise resources by monetising contiguous land parcels, Crisil said liquidity retention will be essential to offset any sharp fall in cash flows most likely from macroeconomic shocks.

Another key risk is timeliness in the tariff setting process and increasing regulatory scrutiny around expenditure, it said, adding the differences in recognising capital costs could potentially lower tariffs and hence returns.