Why the Delhi airport is in a financial mess

The Airports Authority of India (AAI) has rejected a move to bail Delhi International Airport Ltd (DIAL) out of a financial crisis by extending it a Rs 350 crore (Rs 3.5 billion) loan at nine per cent rate of interest.

The proposal was mooted at a Prime Minister's Office (PMO) meeting, chaired by the principal secretary to the prime minister in August.

AAI has also not accepted another proposal to let DIAL pay its share of revenue on a 'cash' basis, saying it was not found to be in conformity with its accounting principles. Paying on a 'cash' basis would mean the payment would be made based on actual revenues, excluding dues from Air India.

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DIAL has been facing a cash crunch because the state-owned Air India has not paid dues of over Rs 250 crore (Rs 2.5 billion).

However, the company has to pay its 45.99 per cent revenue share to joint venture partner AAI at the beginning of the month, based on normal revenue projections.

During the meeting at the PMO chaired by its principal secretary, it was decided that AAI, being one of the shareholders of DIAL, may explore various possibilities, including a short-term loan, to avoid the risk of the airport facing financial problems on account of non-payment of dues by Air India.

The meeting was also attended by Nasim Zaidi, civil aviation secretary, AAI chairman V P Agarwal, Vini Mahajan and Davinder Sandhu from the PMO, as well as GM Rao and Kiran Grandhi, chairman and managing director of DIAL, respectively.

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Rejecting the proposal, AAI said it had no provision for extending any such loans to any entities, including its joint ventures.

The state-owned airport operator said it had already borrowed Rs 1,500 crore (Rs 15 billion) from the open market at an interest rate of 10 per cent per annum.

AAI has argued its dues with various airlines and concessionaries as on March 31, 2011 amounted to Rs 1,687 crore (Rs 16.87 billion).

The dues against Air India rose to Rs 845 crore (Rs 8.45 billion) till June 30, 2011.

It has also argued against the loan, saying it would need to finance ongoing airport projects, including the mega projects of Kolkata (Rs 1,000 crore (Rs 10 billion)) and Chennai (Rs 590 crore (Rs 5.9 billion)).

The other reason for rejection it has given is it has to pay advance tax and service tax. The payment of these taxes in respect of the billing on Air India without realisation has adversely affected the company's cash flow.

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DIAL says it needs money primarily because of two reasons: its Airport Development Fee (ADF) has been stopped and Air India has not been paying it for a year.

"Our short-term borrowings have increased to Rs 650 crore (Rs 6.5 billion) and we are in a tight liquidity situation.

The government needs to ensure Air India starts paying something to us and we are allowed to charge ADF," said a GMR spokesperson.

AAI chairman V P Agarwal did not respond to an SMS query and phone calls.

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DIAL's cash crunch was compounded by a court order to stop charging ADF, leading to a daily loss of Rs 2 crore. Before the order, every domestic passenger leaving the Delhi airport was charged Rs 200 and every international passenger Rs 1,300 as development fee.

Delhi airport has been upgraded and is being maintained by DIAL, a joint venture led by Bangalore-based GMR group (which holds 54 per cent stake). AAI holds 26 per cent. Malaysia Airports Holdings and Fraport hold 10 per cent each in the joint venture company.

According to the agreement between the government and DIAL, the latter is required to share 45.99 per cent of its gross revenue with the public sector airport operator.