Hyderabad International Airport Case Study Engineering Essay

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Hyderabad International Airport Limited (HIAL) is a joint venture company sponsored by the GMR Group in partnership with Malaysia Airports Holdings Berhad (MAHB), Airports Authority of India (AAI) and Government of Andhra Pradesh. The Company was incorporated to finance, design, build and operate a world class airport at Hyderabad, India.

The airport has been designed to ultimately cater to about 40 million passengers per annum. The first phase of the airport was commenced in a record time of 31 months in March 2008 with a preliminary capacity of 12 million passengers per annum and 100,000 tons of shipment handling capacity per annum. The airport has the greatest taxiway and runway in the country with a length of 4260m (Hyderabad International Airport Ltd, 2005).

The airport is the second PPP Project in the Indian airport infrastructure. The project is bided out on Built Own Operate and Transfer (BOOT) model and the concession period for the project is 30 years. The Bidders were selected through International Competitive Bidding (ICB) basis.

 This is the first venture in the country to have been rewarded the Leadership Energy and Environment Design, silver grading for its eco-friendly design. The total cost of the first phase of the project is INR 24780 million. This airport was opened to the commercial traffic in March 2008, provides world class service and infrastructure in concurrence with International Civil Aviation Organisation (ICAO) standards.

Figure --.. View of Hyderabad International Airport

4.4.2 Project Plan

The first phase consists of construction of a 105,300 square metres terminal building, designed to handle about 12 million passengers per annum. The terminal building contains 12 contact and 30 remote stands for aircraft parking. The other buildings include Air Traffic Control Tower (ATC), Technical Building, Cargo Section, Maintenance Repair and Overhaul (MRO), CFR (Crash, Fire and Rescue) Station and services having a total area of about 35,000 square metres. The project was constructed on a total area of about 5,495 acres (Satish, 2005).

4.4.3 HIAL's Promoters and Contractual Structure

In the year 2003, a Special Project Vehicle (SPV) was launched by the Government of Andhra Pradesh and the Civil Aviation Ministry of India and the under the name of HIAL. As the bid was won by GMR Group, MAHB, this project was fundamentally a Joint Venture (JV) between GMR Group (63%), MAHB (11%), Government of Andhra Pradesh (13%) and the Airports Authority of India (13%) (Net Resources International, 2007).

GMR Group: GMR group is one of the best growing infrastructure organisations in the country with interests in Highways, Airports, and Urban Infrastructure and Energy sectors. Employing the PPP model, the Group has productively implemented various infrastructure projects in India.

Malaysia Airports Holding Berhad: MAHB was incorporated in 1991 in the Malaysian Parliament. The major activities of the company include the management, operation and maintenance in addition to development of airports, with primary significance being placed on the operational competence, cargo and aircraft operations, safety and security of passengers.

The figure - shows the contractual structure and various organizations involved in project.

Figure --- Contractual Structure of HIAL

4.4.4 Funding Arrangements

The total worth of the project for the first phase is INR 24780 million .The financial instruments used in this project that is the debt/equity ratio was kept at 84:16. The means of finance and percentage of share are given in the table below (PPP India database, 2008).

Table-- Funding Details of HIAL

Sno.

Particular

Amount (in INR Million)

Share in %

1

Debt from Banks

19930

2

Government Grants

1070

3

Equity

(a)

GMR Group

2381.4

63

(b)

Malaysian

Airports Holding

Berhad(MAHB)

415.8

11

(c)

Government of

Andhra Pradesh

491.4

13

(d)

Airports Authority

of India(AAI)

491.4

13

Total

24780

4.4.5 Implementation Process

For the initial phase construction, HIAL used international competitive tender method for EPC (Engineering Procurement Construction) tenders for awarding the various contracts. Responses were received from 34 companies from 11 countries. Ultimately in the selection of tenders, seven companies were succeeded for ALS works and six for PTB works. The total construction time is 30 months, of which 27 months is for construction and 3 months is for airport functioning trials and certification. The following are the three types of contract which were implemented in the project (Net Resources International, 2007).

Airside and Landside (ALS) Works Contract

The contract for the ALS works had been awarded to M/S Larsen and Toubro (L&T) Limited. The range of works for this contract includes construction of runways, taxiways to handle wide bodied aircrafts. Besides, L&T also constructed roads, aviation hydrant system, security fence and gates, drainage system, cargo terminal building and various other buildings.

Passenger Terminal Buildings (PTB) Contract

The contract for the PTB works was awarded to the Hongkong based China State Construction Engineering (CSCE). The scope for the PTB works include the erection of the operational terminal building over 100,000 square metres in addition to construction of the building structures, Air Traffic Control Tower (ATC), all civil and finishing works and passenger boarding bridges.

Operations and Maintenance (O&M) Contract

Reliance Industries Limited (RIL) was awarded the contract to operate and maintain India's first elite model of open access of developing the fuel farm inside the HIAL.The Accor Group and Novotel Group were awarded the contract to operate and maintain a Five Star Business hotel to cater to the desires of the transit and business passengers.

4.4.6 Income Stream

HIAL's income is mainly generated from aeronautical or traffic related activities and non-aeronautical or commercial sources. As airports turn into hubs of commercial activity with a push on passenger comfort, non-aeronautical revenues add up to a high share of the total airport revenue. The targeted revenue share for HIAL considerably differs from the AAI and is in line with the global trend.

With the rising significance to non-aeronautical revenues, it seems that airport possession and operation will be most appropriate for private sector investment, because of its privileged efficiencies and facility direction as compared to that of the public sector. In the first year of the operations, the passenger handling capacity in the HIAL is almost two times that of the older airport (Balaraman and Malhotra, 2008). With India becoming a central point in the world financial system at present and more and more Indians intriguing to the skies, there has been resilience in air traffic growth in recent years.

4.4.7 Strengths and Success factors

The following are some of the strengths and success factors which were identified from the project (Balaraman and Malhotra, 2008; Kurmanath, 2009; Vogt, 2009).

This project being the first Greenfield airport project in India, the SPV used the EPC Contract method by which the project was finished in record time of three years.

Modern and inventive strategies were utilized to conquer the operational challenges and the rising Air Turbulence Fuel (ATF), three mega storage tanks for the fuel storage were constructed on the lines of an Open Model Fuel Farm.

To cancel out the rising costs due to the design changes, HIAL used External Commercial Borrowing (ECB) and obtained another debt of amount INR 7180 million.

World Renowned plans were employed in building the maintenance, repair and overhaul (MRO) facility to service airplanes. By welcoming the Lufthansa Technik and Indian Airlines to operate the MRO, extra costs of taking the aircrafts abroad was evaded. This facility can be employed by the airlines operating in other international airports of India, thus, becoming a source of additional income.

HIAL anticipates that the passenger traffic growth would rise by 20 to 25 percent in the first year. The number of passengers is expected to go up from existing 8 million to 9.4 million per annum.

HIAL has received VAT (Value added tax) relief from the Andhra Pradesh Government. This Schedule includes a list of 51 goods that do not attract the tax. This would benefit travellers both at the domestic and international terminals.

Success Factors

The Success factors identified from this project are divided into three categories which are described below.

First, the HIAL have adopted a PPP structure that is suitable for an airport project. Since airports have well-built public good characteristics and also form a division of planned national assets. Besides BOOT structure is the most apt as the government can take over the possessions at the end of the concession period.

Second, though the majority shareholding in this project is with the private sector, government has a sturdy presence. Government has a shareholding of 26 percent, the smallest threshold level required to retain significant sponsor rights.

Third, the contractual structure has proper features to ensure better performance and lessen opportunistic behaviour. Further, the concession agreement has evidently stated the standards for performance. After the expiration of the concession agreement, the possessions revert to the government.

4.4.8 Obstacles of the Project

The difficulties faced by the HIAL during the construction and operation of the project are described below.

Land acquisition for the project was severely opposed by the public as it resulted in depriving a set of people the quality of life and their livelihood. During the process of land acquisition total information about the area of land required was kept hidden from the civic. HIAL faced a variety of risks such as revenue and regulatory risks. The revenue risk was due to demand suspicions and pricing (Balaraman and Malhotra, 2008).The regulatory risks were due to uncertainty in licensing, tariff fixation and revenue sharing.

The other problems faced by HIAL is that several private Airlines were not fascinated in moving to the new airport from the old airport, but ultimately the officials from the Department of Civil Aviation have proclaimed that the old airport would be closed totally for Civil Aviation operations. In addition there was a delay in the construction of elevated express way which connects to the new airport and resistance from the public for increasing the user charges (Bradley, 2008; Lalith, 2009).

4.4.9 Lessons Learned

The following points are the important lessons learned from the above case study.

5450 acres of Land: Voices were raised by the public for the allotment of 540 acres of land for the airport in the preliminary stages.

Opposition to shift the Airport: In the beginning there was lot of opposition and criticism from the workforce and the general public to shift the old airport. There was lot of pressure to operate both the airports simultaneously.

P.V. Narasimha Rao Elevated Expressway: This Expressway connects the main city to the new airport. This is not completed by the time the airport opened to the traffic in March 2008. The work is still taking place for one year after opening of the airport. Due to this lot of difficulty is caused to the general public and also to the airport users.

Opposition for increasing the user charges: There was lot of opposition and criticism for levying the user charges. With immense amount of influence and compelling user charges are now being levied.

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