The land available for commercial development in Kempegowda International Airport (KIA) has become contentious with some stakeholders urging the Airport Economic Regulatory Authority (AERA) to consider its value before reviewing the current user development fee (UDF) paid by passengers.
At present, the GVK-led Bangalore International Airport Ltd. (BIAL) is charging an UDF of Rs. 260 from departing domestic travellers and Rs. 1,070 from international passengers. It has approached AERA seeking an increase in UDF and tariff for other services to fund its future expansion plan. In response, AERA initiated a consultation process.

Revenue models
As per the submission made by the State government to AERA, BIAL has been given 4,008 acres with the aim of catering to 50 million passengers (5 crore) per annum. At least 720 acres are available for non-aeronautical, or commercial, activities.

In the present arrangement, all revenue from aeronautical services is considered for determining user charges. This is the single till model originally proposed by AERA. Now, AERA is open to a hybrid till model under which all revenue from aeronautical and 40 per cent from non-aeronautical services will be considered.

BIAL’s take
The airport operator has said AERA does not have jurisdiction over real estate activities. It has argued that as per the land lease deed with the State government, it is free to utilise the land for aeronautical and non-aeronautical activities. It has also cited the concession agreement and the State support agreement to substantiate its claim.

The objection
After AERA released the consultation paper last week, Federation of Indian Airlines (FIA) and Bangalore Political Action Committee (B.PAC) raised the issue of land development for determining UDF.

"Since BIAL has not submitted any concrete proposal for bridging the funding gap through monetisation of land, real estate deposits or any other instruments, the aeronautical tariff (including UDF) cannot be determined for capital expenditure funding," FIA said.
B.PAC has said that the land for non-aeronautical purpose is not earning any revenue, which could benefit the travelling public. It wants the government to take over the land, develop it and cross subsidise UDF.

Government stand
Vandita Sharma, Principal Secretary, Infrastructure Development Department has written to AERA stating "the government (which holds 13 per cent stake in BIAL) has no issue with the stand taken by AERA that whatever revenue BIAL may generate from commercial exploitation of the excess land should be entirely ploughed back into the airport project." She, however, has said that deducting upfront the market value of the land used for commercial development from regulatory asset base (RAB) might result in skewed cash flow.

Expert says
"BIAL is not announcing its real estate plan because AERA would treat it as part of the airport’s revenue (the single till model considers all revenue from aero and non-aero services), which could even bring down UDF or even eliminate it fully, thus benefitting passengers," an aviation expert with knowledge on the consultation paper, claimed.

The stand of the Karnataka government, the expert felt, is not in the interest of the travelling public.

Real estate at airport
The non-aeronautical activities at KIA involve development of Airport City, which includes a Centre of Excellence, a knowledge-based hub with the focus on the aviation industry, an IT-ITES SEZ, a business district and a Central Area to house a multi-modal hub and a parking zone. The BIAL website says that all these are expected to be ready by 2020. However, during the inauguration of T1 terminal in December 2013, BIAL managing director G.V. Sanjay Reddy told reporters that the areas for real estate development had not been identified.