Airport Development - Travails

Recently, I had an opportunity to interact with the Chief of a Group Company managing the restructuring of an International Airport in India. Let me put forth certain key observations from the interaction.

• The biggest challenge for the Said international airport is the slums spread over 200 + acres, which have slowed the progress of the project. As of now, what I understand is there is a material change in the international terminal and has eased much of the earlier operational issues. Now, the focus is on construction of a new terminal which would take in the incremental traffic in the ensuing years. The international financial crisis amid fears of recession is having an adverse impact on the inbound traffic. However, there is not much change in the out-bound traffic, which however is expected to fall in the ensuing quarters.


• So, the subject company has handed over the rehabilitation and development to a well known Real estate firm XYZ. XYZ is responsible for creating housing for the Slum population in and around Said airport on priority basis. This would be on the Land bank owned by XYZ.


• Then, it would take up the migration of the people living in those slums to these housing structures. Given that the said process would create undue delay, XYZ would first erect temporary structures and shift the people and immediately hand over the land around airport to the Airport developing company, which would take up the development work.
  v What does XYZ gain for all this slum pain, I shot the question? Coz, XYZ is not into the business of slum development…..For all the said work, XYZ would get access to clearly earmarked Land would be made available to XYZ for real estate development. That’s a Big asset to XYZ in the ensuing years as Said airport grows leaps and bounds amid expectations of being a prospective Financial hub of Asia-pacific and the near future for the merging new economy order……are u confused? Yes, with fall of US financial system …just wait and watch as the Trade equations are set to change across the world…..
  
  The other imperative learning from the meeting was the distress scenario the newer airports in India are experiencing. What I understand is that there has been a substantial 60% downtrend in air traffic. Further, as it is the first year of operations the airport projects are bleeding and things would work towards adverse as the initial moratorium for the debts raised by the company ends. The interest servicing coupled with lower accretion of income would compound the issues.
  
  To conclude, it was a interesting conversation with the Chief, as it helps to look into the execution of the above type mega projects and certain projects as trivial as Slum migration would bring forth benefits in the form of Prime land bank. I am sharing the key takeaways from the conversation because I felt the above subject was an interesting business model and you would benefit from the knowledge.
  
  Hope you appreciate the fact that, I have not named the companies in specific as it was a gentle man conversation and being a Banker I am subject to certain ethics in my professional code of conduct.

Disclaimer: The author of this page is not a registered financial advisor, and you should not construe anything written here to be investment advise. You should consult a qualified broker or other financial advisor prior to making any actual investment or trading decisions. All information is a point of view, and is for educational and informational use only. No representation is being made that any investment made on the basis of data or information on this blog will result in profits. The author accepts no liability for any interpretation of articles or comments on this blog being used for actual investments.