Logistics

User fees at BLR airport to rise in new 5-year term starting April

P Manoj Mumbai | Updated on March 13, 2021

The user development fees (UDF) at Bangalore International Airport are set to rise significantly in the new five-year period beginning April, to offset the lower passenger traffic during the last year of the existing five-year period that ends this month and completion of capital expansion projects, according to Prem Watsa, Chairman of Fairfax India Holdings Corporation which controls India’s third largest airport.

The aero tariffs - one of the three sources of revenue to the airport- collected from airlines and passengers for landing, parking and other services, are set for five-year periods (called ‘control periods’) by the Airport Economic Regulatory Authority (AERA).

Any under or over recovery of tariffs in any control period will be adjusted in the subsequent control period by adjusting downwards or upwards the fee that the airport is allowed to charge for its aero services to passengers and airlines. The tariffs that the airport can charge have a very significant impact on the cash flow generated which, in turn, has a major impact on the financing for the planned expansion of the airport.

The tariff order for the second control period (from April 2016 to March 2021) was finalised by AERA in August 2018, after the control period began.

“Because of the significant underachievement of passenger traffic in the last year of the second control period and the completion, during the third control period (from April 2021 to March 2026), of capital projects, UDFs are expected to increase significantly in the third control period,” Watsa told shareholders in a March 5 letter.

Fairfax India owns 54 per cent stake in Bangalore International Airport Limited (BIAL)

BIAL revenues declined 79 per cent in the first half of FY21 to $23 million as passenger traffic plunged to zero in the wake of travel restrictions imposed by the government to deal with the pandemic followed by a gradual recovery thereafter.

“Given the impact of the pandemic on the travel industry across the world, BIAL’s financial performance in 2020 did not come as a surprise. Passenger traffic fell 60% from the previous year to about 14 million and cargo handled dropped 17% primarily because of the reduced belly capacity (from fewer passenger flights). BIAL’s revenue dropped 58% to $83.1 million, resulting in a loss after tax of $66.8 million versus a profit of $53.8 million in 2019,” Watsa said, adding that “this is only temporary”.

“We expect higher user fees in the third five-year control period which will start in April 2021.With the higher UDFs and the ultimate return of passenger volumes to pre-pandemic growth levels, aero revenue is expected to return to normal levels in the fiscal year ending March 2023,” Watsa said.

As part of its plans to monetise 460 acres of land and raise revenue, BIAL through a wholly owned special purpose vehicle has negotiated deals for development of 176 acres of land focussing on business parks; a retail, dining and entertainment village; hospitality; and convention and exhibition centres.

The SPV Bangalore Airport City Limited (BACL) has completed land lease for a 3D printing facility for which it has received the first payment. It has also agreed the land lease for a large central kitchen for the premier airline services company.

Separate term sheets have been signed for a joint development ‘‘built to suit’’ campus for a multinational corporation and a trade centre, Watsa added.

Published on March 13, 2021

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