Cochin International Airport Limited

Cochin International Airport Limited

1 Cochin International Airport Limited Multi Year Tariff Proposal FY 2016-17 to FY 2020-21 December 2015

Cochin International Airport Pvt. Ltd. Multi Year Tariff Proposal FY 17-FY21 2 Table of Contents 1. Preamble ___ 6
2. Background ___ 6
3. Traffic ___ 11
Passenger Traffic ___ 11
Air Traffic Movements ___ 12
Air Cargo ___ 14
4. Capital expenditure ___ 15
Need for the new International terminal and modification of existing terminals ___ 15
Parking bays, runway, taxiways and roads ___ 16
Cargo Facilities ___ 17
IT Systems ___ 17
CISF residential building ___ 18
Other Capital Projects ___ 18
Financing of the new international terminal ___ 19
Summary of total capital expenditure ___ 19
Capital expenditure for the second control period ___ 19
5.

Allocation of Fixed Assets ___ 21
6. Regulatory Asset Base (RAB) for the Control Period ___ 23
7. Fair Rate of Return (FRoR ___ 24
Debt ___ 24
Equity ___ 24
Weighted average gearing ___ 25
Fair Rate of Return (FRoR ___ 25
8. Operations and Maintenance Cost ___ 25
Employees’ Cost ___ 27
Operational Expenses ___ 28
Repairs and Maintenance expenses ___ 28
Power, Water and Fuel charges ___ 29
Safety & Security expenses ___ 29
Vehicle running and maintenance expenses ___ 30
Housekeeping expenses ___ 30
Consumables expenses . . 31

Cochin International Airport Pvt. Ltd. Multi Year Tariff Proposal FY 17-FY21 3 Other operational expenses ___ 31
CUTE operating expenses ___ 32
Administration and General Cost ___ 32
Summary of Operations and Maintenance expenses ___ 33
9. Depreciation ___ 34
10. Tax on income ___ 36
11. Non-aeronautical revenues ___ 36
Non-aeronautical royalties, license fees and lease rentals ___ 37
Duty free revenue ___ 38
Utility service charges ___ 39
Interest Income ___ 39
Other Income ___ 39
12. Additional Issues ___ 40
Contingent liabilities ___ 40
Cargo tariff filing ___ 41
Fuel throughput royalty ___ 41
Ground handling royalty ___ 41
13.

Aggregate Revenue Requirement ___ 41
14. Yield Calculation and escalation factor ___ 42
15. Conclusion ___ 43
16. Annexures . . 43

Cochin International Airport Pvt. Ltd. Multi Year Tariff Proposal FY 17-FY21 4 List of Tables Table 1: Ownership structure of CIAL as on 30 November 2015 ___ 7
Table 2: Passenger Traffic at Cochin Airport (million pax ___ 12
Table 3: Projected passenger traffic at Cochin International Airport (million ___ 12
Table 4: Growth in Air Traffic Movements at Cochin Airport ___ 13
Table 5: Forecasted number of passengers per ATM at Cochin International Airport ___ 13
Table 6: Projected air traffic movement at Cochin International Airport ___ 13
Table 7: Growth in Domestic Air Cargo handled at Cochin Airport ___ 14
Table 8: Growth in International Air Cargo handled at Cochin Airport ___ 15
Table 9: Projected cargo traffic at Cochin International Airport (MT ___ 15
Table 10: Total capital expenditure for new international terminal and related works ___ 16
Table 11: Capital expenditure for roads, runways and culverts ___ 17
Table 12: Major capital expenditure in the second control period ___ 19
Table 13: Estimated Capital expenditure under Single Till ___ 20
Table 14: Estimated Capital expenditure under Shared Till ___ 20
Table 15: Aeronautical and non-aeronautical assets allocation basis for existing assets ___ 21
Table 16: Aeronautical and non-aeronautical assets allocation basis for new assets ___ 22
Table 17: Aeronautical assets proportionexisting assets ___ 22
Table 18: Aeronautical assets proportionnew assets ___ 22
Table 19: Aeronautical assets proportiontotal assets ___ 23
Table 20: Computation of RAB for the control period – Single Till ___ 23
Table 21: Computation of RAB for the control period – Shared Till ___ 23
Table 22: Debt and Cost of debt under Single Till ___ 24
Table 23: Debt and Cost of debt under Shared Till ___ 24
Table 24: Calculation of weighted average gearing – Single Till ___ 25
Table 25: Calculation of weighted average gearing – Shared Till ___ 25
Table 26: FRoR computed under various scenario ___ 25
Table 27: Proportion of aeronautical expenses ___ 26
Table 28: Basis of segregation of O&M cost among aeronautical and non-aeronautical services ___ 27
Table 29: Historical CAGR for employees' cost ___ 27
Table 30: Employees’ cost considered under Single Till ___ 28
Table 31: Employees’ cost for Aeronautical services – Shared Till ___ 28
Table 32: Historical CAGR for Repairs & Maintenance expenditure ___ 28
Table 33: Repairs and maintenance expenses under Single Till ___ 28
Table 34: Repairs and maintenance expenses for Aeronautical services – Shared Till ___ 28
Table 35: Historical CAGR for power, water and fuel charges ___ 29
Table 36: Power, water and fuel charges under Single Till ___ 29
Table 37: Power, water and fuel charges for Aeronautical services – Shared Till ___ 29
Table 38: Historical CAGR for safety & security expenses ___ 29
Table 39: Safety & security expenses under Single Till ___ 30
Table 40: Safety & security expenses for Aeronautical service – Shared Till ___ 30
Table 41: Historical CAGR for vehicle running & maintenance expenditure ___ 30
Table 42: Vehicle running and maintenance expenses under Single Till .

Cochin International Airport Pvt. Ltd. Multi Year Tariff Proposal FY 17-FY21 5 Table 43: Vehicle running and maintenance expenses for Aeronautical services – Shared Till ___ 30
Table 44: Historical CAGR for housekeeping expenses ___ 30
Table 45: Housekeeping expenses under Single Till ___ 31
Table 46: Housekeeping expenses for Aeronautical services – Shared Till ___ 31
Table 47: Historical CAGR for consumables expenses ___ 31
Table 48: Consumables expenses under Single Till ___ 31
Table 49: Consumables expenses for Aeronautical services – Shared Till ___ 31
Table 50: Historical CAGR for other operational expenses ___ 31
Table 51: Other operational expenses under Single Till ___ 32
Table 52: Other operational expenses for Aeronautical services – Shared Till ___ 32
Table 53: CUTE operating expenses ___ 32
Table 54: Historical CAGR for administration expenses ___ 32
Table 55: Forecast basis for various components of administration expenses ___ 33
Table 56: Administrative and general expenses under Single Till ___ 33
Table 57: Administrative and general expenses for Aeronautical services under Shared Till ___ 33
Table 58: Summary of total O&M expenses under Single Till ___ 33
Table 59: Summary of total O&M expenses for Aeronautical services – Shared Till ___ 34
Table 60: Useful life for certain assets ___ 34
Table 61: Depreciation under Single Till ___ 35
Table 62: Depreciation under Shared Till ___ 35
Table 63: Tax on income under Single Till ___ 36
Table 64: Tax on income under Shared Till ___ 36
Table 65: Non aeronautical revenue forecast basis ___ 36
Table 66: Non-aeronautical royalties, licensee fees and lease rentals ___ 38
Table 67: Duty free revenues ___ 38
Table 68: Utility service charges ___ 39
Table 69: Interest income under Single Till ___ 39
Table 70: Interest income under Shared Till ___ 39
Table 71: Other income ___ 39
Table 72: Revenue forecast for golf course and other commercial activities ___ 40
Table 73: Total Non-aeronautical revenue forecast under Single Till ___ 40
Table 74: Total Non-aeronautical revenue forecast under Shared Till ___ 40
Table 75: Aggregate Revenue Requirement under Single Till ___ 41
Table 76: Aggregate Revenue Requirement under Shared Till ___ 42
Table 77: ARR and estimated yield per pax for Single Till ___ 42
Table 78: ARR and estimated yield per pax for Shared Till .

Cochin International Airport Pvt. Ltd. Multi Year Tariff Proposal FY 17-FY21 6 1. Preamble Cochin International Airport (also referred as “Cochin airport” or “CIA”) is one of the major airports notified by Airports Economic Regulatory Authority of India (“AERA” or the “Authority”) under the provisions of the AERA Act 2008. Pursuant to AERA Act 2008, AERA issued guidelines for the purpose of determination of aeronautical tariffs for major airports through its orders1 (“Guidelines”) which are applicable to:  Airport Operators  Service providers for cargo, ground handling, and supply of fuel Cochin International Airport Limited (CIAL) submitted Multi Year Tariff Proposal (MYTP) for the first control period from FY2011 to FY2016.

Our earlier MYTP submission was made in two parts. The initial MYTP submission was made in 2011. With elapse of time, AERA had requested CIAL to update the MYTP submission made in 2011. CIAL submitted the updated MYTP and ATP in 2014, pursuant to carrying out consultations with airport users in February 2013, on the proposed new terminal development project. The revised MYTP was submitted along with the Project Investment File and AUCC report which were prepared in accordance with the provisions of the AERA Guidelines.

CIAL is now submitting the MYTP for the second control period from FY2017 to FY2021. 2. Background Cochin International Airport is widely recognized as a low-cost functionally efficient airport. The airport was operationalized in 1999 and is considered as a pioneering project in India’s aviation sector. Passenger traffic grew from 0.2 million in FY 2000 to 6.4 million in FY 2015. In the past 5 years, traffic has grown at a compounded annual growth rate of 10.2%. Cochin International Airport is the busiest airport in Kerala and estimated to handle about 12.4 million passengers by FY 2021. A significant part of air traffic is driven by strong state-domiciled Non-Resident Indian (NRI) community residing in the Middle East and attractiveness of the state as an international and domestic tourist destination.

Cochin International Airport is owned and managed by Cochin International Airport Limited (CIAL) which has a unique ownership structure involving equity contributions from Government of Kerala, financial institutions, and more than 16,000 individual investors who are mostly nonresident Keralites (NRKs). The airport is widely recognized as a low-cost functionally efficient airport in the country. The shareholding pattern of equity investors is shown in the table below – 1 Airports Economic Regulatory Authority of India “Terms and Conditions for Determination of Tariff for Airport Operators” – Guidelines, Feb 2011; Airports Economic Regulatory Authority of India (Terms and Conditions for Determination of Tariff for Services Provided for Cargo Facility, Ground Handling and Supply of Fuel to the Aircraft) Guidelines, January 2011

Cochin International Airport Pvt. Ltd. Multi Year Tariff Proposal FY 17-FY21 7 Table 1: Ownership structure of CIAL as on 30 November 2015 Equity Partner % Share Government of Kerala 32.4% Directors, their relatives and associates 31.7% BPCL 3.4% National Aviation Company Limited 3.3% HUDCO 3.3% State Bank of Travancore 3.3% KSIDC, Plantation, KTDFC, KAMCO 1.7% Federal Bank Limited 2.0% Indian Overseas Bank 0.3% Others 18.7% Total 100% Rights Issue In June 2015, CIAL raised about INR 382.6 crore through a rights issue to existing equity shareholders. About 765 lakh shares of INR 10 face value were offered at a premium of INR 40 per share (issue price of INR 50 per share) in the ratio of 1:4 to the shareholders for raising this amount.

The objects of the Issue are as follow – 1. CIAL is expanding its terminal capacity by constructing a state-of-the-art 15 lakh square feet International Terminal building with an anticipated capital outlay of approximately INR 1000 crore, which will be met from internal accruals, proceeds from rights issue and debt finance. 2. The object of the issue is to part finance the construction cost of the new International Terminal Building, other ongoing projects and also for the future expansion & diversification projects of CIAL.

The Government of Kerala has also subscribed to this rights issues and hence, it would need to be utilized towards the stated objective.

The company is also bound to ensure adequate returns to its shareholders subscribing to the rights issue including the Government of Kerala. Pioneering low-cost airport CIAL has been successful in developing a low cost airport with a relatively low capital expenditure. This has been made possible through:

Cochin International Airport Pvt. Ltd. Multi Year Tariff Proposal FY 17-FY21 8  Modular expansion philosophy  Award of multiple contracts competitively tendered as opposed to a single large turnkey contract  Simple and no-frills development model  Use of locally available materials  Prudent financial management The said modular approach has led to Cochin International Airport being one of the lowest cost airports among the major airports in India. The management of Cochin International Airport has focused on making the airport affordable by keeping a strict control on costs. Cochin International Airport was developed with a capital expenditure of approximately INR 300 crore, one of the lowest in the country among comparable airports with similar capacity.

The entire land area of 1,275 acres was acquired at market value, which is unlike any other privately operated airport in India.

In keeping with its philosophy of being cost efficient in airport development and operations, CIAL has been able to develop the airport with a comparatively smaller quantum of land as compared to other major airports. Any major future expansion would require additional land involving significant expenditure. It is to be noted that aeronautical tariffs at Cochin Airport have remained unchanged since 2001. The management has also stuck to its commitment to users to keep the aeronautical charges unchanged until the commissioning of the new international terminal. CIAL has clearly demonstrated that it is ahead of its peers in controlling capital costs, and delivering a functional, no-frills and operationally efficient airport.

CIAL believes in efficient management of resources and expenses. The philosophy of effective cost management can be seen in Cochin International Airport’s operations as well. The operational expenditure per passenger is among the lowest at Cochin airport, despite it not having benefits of economies of scale as compared to other private airports in the country. Notwithstanding the low operational expenditure, CIAL has ensured high standards of customer service and planned development of infrastructure facilities in line with this objective.

In August 2015, CIAL became the first airport in the world to be completely operated on solar power. The 12 MW solar power plant set up on the eastern side of the airport supplies upto 52,000 units per day against an estimated daily consumption of 48,000 per day currently. The solar plant consists of 46,150 photovoltaic panels spread over 45 acres of land. Two additional plants with aggregate capacity of 12.4 MW are planned to be set up and are expected to be operational within the next 12 months. The plant is also the first megawatt scale installation of a solar PV system in the State of Kerala.

The power plant assets are owned and managed by CIAL’s subsidiary, CIAL Infrastructures Limited (CIL).

CIAL has three wholly-owned subsidiary companies (i) Cochin International Aviation Services Limited (CIASL)

Cochin International Airport Pvt. Ltd. Multi Year Tariff Proposal FY 17-FY21 9 (ii) CIAL Infrastructures Limited (iii) Air Kerala International Services Limited Cochin International Aviation Services Limited (CIASL) Cochin International Aviation Services Limited (CIASL) is a wholly owned subsidiary of Cochin International Airport Limited (CIAL), established in 2006 to create a world-class Maintenance Repair and Overhaul (MRO) facility in Cochin, India.

CIASL envisions developing this in to a full-fledged Aircraft Maintenance, Repair and Overhaul facility and is looking for a long-term association with reputed technical partners to provide high quality services at most competitive cost.

CIASL’s Aircraft Maintenance Organization is presently approved by the DGCA2 to undertake up to 'A' Checks on Airbus A 320 family aircraft. The AMO is also approved by UAE GCAA and Sri Lankan CAA and the approval from European Aviation Safety Agency (EASA) is under process. Presently, line maintenance services of CIASL is confined to Cochin International Airport. The Company is proposing to expand its services to Trivandrum and Calicut International Airports very shortly. CIASL’s clients include Etihad Airlines, Air Arabia, Sri Lankan Airlines, Emirates, Tiger Airways and Qatar Airways.

CIAL Infrastructures Limited (CIL) CIAL Infrastructures Limited (CIL) was incorporated for venturing into power and other infrastructure projects.

CIL has already commissioned a 13 MW solar power plant at the Airport premises. CIL has also taken steps to implement eight Small Hydro Electric Power (SHEP) Projects in different locations in the State aggregating to approximately 50 MW, which are in various stages of progress. Air Kerala International Services Limited Air Kerala International Services Limited (AKISL) was set up with the primary objective of establishing a low cost airline based at Cochin International Airport, to benefit the huge population of non-resident Keralites in the Middle East. The current policy restriction of Government of India, requiring Indian carriers to have a fleet of at least 20 aircraft and 5 years of operations in the domestic market has constrained AKISL from taking the initiative forward.

The new draft civil aviation policy released in October 2015 has proposed easing of restrictions for Indian carriers to 2 Directorate General of Civil Aviation, Government of India

Cochin International Airport Pvt. Ltd. Multi Year Tariff Proposal FY 17-FY21 10 operate international operations by linking it to domestic flying credits. Once the policy is approved, AKISL will be able to take this initiative forward. Need for an appropriate regulatory framework CIAL has incurred significant capital expenditure for expansion of the airport including construction of a new international terminal building. Additional capital expenditure is planned to be incurred during the forthcoming control period in line with the forecasted growth in traffic at the airport.

While AERA’s Guidelines for tariff determination prescribe a single-till regulatory framework, it is our humble view that application of the single till tariff regulatory framework as per the Guidelines would penalize Cochin airport, albeit unintentionally, for being a low-cost, functionally efficient airport, which has kept aeronautical tariffs unchanged for a continuous period of nearly 15 years.

Other private airports such as Delhi, Mumbai, Bangalore and Hyderabad are either regulated or have got favorable orders/decisions under a shared till framework. The Ministry of Civil Aviation (MoCA), Government of India has also released the draft National Civil Aviation Policy which indicates hybrid till framework with 30% cross-subsidy of aeronautical tariffs, as the way forward.

We would, therefore, like to reiterate that the single-till approach is not the most appropriate for CIAL and request the Authority to consider Shared Till Regulatory approach as proposed in this MYTP in the right earnest, which does not compromise the ultimate intent of the purpose of regulation. This MYTP presents tariff calculations under Single Till and Shared Till regulatory approaches. We would like to humbly submit to AERA to adopt Shared Till approach for Cochin International Airport for the next control period, by reiterating the reasons mentioned earlier: 1. Cochin airport operates in a highly competitive environment with the presence of multiple international airports, viz.

Trivandrum Airport (230 km), Calicut Airport (160 km), proposed Kannur Airport (270 km), and Coimbatore Airport (170 km) in the vicinity. Competitive market dynamics and focus on growth would continue to ensure reasonable tariffs for airport users.

2. CIAL has demonstrated its commitment to keep air travel affordable, without compromising on timely capacity creation or service quality. With the new international terminal expected to be commissioned next year, airlines, passengers and other service providers at the airport will continue to enjoy the high quality of infrastructure and conveniences at the airport at affordable charges. 3. CIAL has been a pioneer in developing airport infrastructure in Kerala and actively strives to improve the air travel penetration in the region by keeping the tariffs affordable. CIAL’s commitment to promote the industry is evidenced by the fact that it has not increased

Cochin International Airport Pvt. Ltd. Multi Year Tariff Proposal FY 17-FY21 11 aeronautical tariffs since 2001 but has focused on increasing its non-aeronautical revenues and subsidizing aeronautical tariffs even before the setting up of AERA. 4. It is pertinent to mention that the Government of Kerala holds significant equity in CIAL (32%). The chairman of the board of directors is the Chief Minister of Kerala while the executive functions are headed by a senior IAS officer. Thus, on account of the government’s active involvement in the airport development and operations, safeguarding public interest would continue to remain a key priority for CIAL.

5. CIAL has been constantly engaging with its users and stakeholders at the airport in all operational and commercial matters. All commercial contracts with airlines and other service providers have been negotiated and finalized on a consensual basis, on terms and conditions that address the concerns and interests of either party. 6. Aeronautical charges at the airport could not have remained low without a conscious effort by the management to balance the interest of all stakeholders and voluntarily cross-subsidize airport charges from other aero-related income sources. This is a philosophy that has been consistently demonstrated by the CIAL management with support from the Government of Kerala and has stood the test of time.

7. However, we are constrained to seek an increase in tariffs because of the substantial capital expenditure being incurred towards the new international terminal and other modernization and capacity enhancement works. 8. We have already completed a formal user consultation process with the AUCC in February 2013 on the new terminal development project and the estimated capital expenditure. Assets and expenses pertaining to cargo operations have been included as part of this MYTP for the purposes of aeronautical tariff determination, since cargo assets and operations currently are currently managed by CIAL.

3. Traffic Passenger Traffic Domestic and international passenger traffic has shown a consistent growth since FY 2007 except for FY 2009, when air traffic demand was impacted by the global financial crisis. Historical growth in domestic traffic has been driven by a period of sustained increase in per capita incomes, low air fares, active promotion of Kerala’s tourism industry and increasing business travel given Kochi’s importance as a business center in Kerala. Growth in international traffic at Kerala has been primarily driven by NRKs and tourists.

Cochin International Airport Pvt.

Ltd. Multi Year Tariff Proposal FY 17-FY21 12 In FY 2015, Cochin airport was the seventh largest Indian airport in terms of passengers handled. Passenger traffic has grown at a CAGR of 10.2% for FY 2010-FY 2015. The airport is only behind Delhi, Mumbai and Chennai by international traffic volumes. International passenger traffic at Cochin International Airport has increased significantly in FY 2016. During the first half of FY 2016 (April – September), the total passenger traffic has increased to 3.8 million as compared to 3.1 million during the previous year. Passenger traffic during the full year FY 2016 is expected to reach 7.9 million.

This sudden increase in traffic is as a result of diversion of traffic from Kozhikode Airport which has been partially closed for renovation. We expect this increase in traffic, due to diversion from Kozhikode Airport, to be a short-term phenomenon, and have excluded this increase in our traffic projections for the control period Table 2: Passenger Traffic at Cochin Airport (million pax) 2011 2012 2013 2014 2015 2016 (estimated) CAGR Domestic 1.99 2.14 1.97 2.11 2.66 3.23 10.2% International 2.36 2.59 2.93 3.27 3.74 4.11 1 4.642 11.7%1 Total 4.35 4.73 4.90 5.39 6.40 7.341 7.872 11.0%1 1. Excluding Kozhikode airport diversions 2.

Including Kozhikode airport diversions Passenger traffic is estimated to reach 12.4 million by FY2021. This forecast is based on a growth rate of 10.2% per annum for domestic passenger and growth rate of 11.7% for international passenger after adjusting for diversions from Kozhikode.

Passenger traffic for FY 2016 is forecasted based on extrapolation of the half year traffic numbers after accounting for traffic diversion from Kozhikode. Traffic projections for FY 2017 onwards is based on historical Compounded Annual Growth Rate (CAGR) for domestic and international traffic. The international traffic during first half of FY 2017 has been adjusted to account for diversion from Kozhikode as it is expected that the phenomena will continue during the first half of FY 2017 as well. Table 3: Projected passenger traffic at Cochin International Airport (million) 2016 2017 2018 2019 2020 2021 CAGR Domestic 3.23 3.56 3.92 4.32 4.76 5.25 10.2% International 4.64 4.85 5.13 5.73 6.40 7.15 11.7%1 Total 7.87 8.41 9.05 10.05 11.16 12.39 11.0%1 1.

Excluding Kozhikode diversions Air Traffic Movements Domestic ATMs at Cochin International Airport have increased from 23,476 in 2010 to 26,823 in 2015 while international ATMs at the airport have increased from 18,068 movements in 2010 to 25,970 movements in 2015. The ATMs during this period is shown below.

Cochin International Airport Pvt. Ltd. Multi Year Tariff Proposal FY 17-FY21 13 Table 4: Growth in Air Traffic Movements at Cochin Airport 2010 2011 2012 2013 2014 2015 CAGR Domestic 23,476 22,600 22,817 21,252 24,082 26,823 2.7% International 18,068 18,481 18,324 20,286 23,134 25,970 7.5% Total 41,544 41,081 41,141 41,538 47,216 52,793 4.9% ATMs at Cochin International Airport has increased significantly in FY 2016. During the first half of FY 2016 (April - September), the total air traffic movements have increased to 28,334 as compared to 25,990 during the first half of previous year. ATM traffic during the full year FY 2016 is expected to reach 58,795.

This sudden increase in air traffic movements is partially as a result of diversion of traffic from Kozhikode Airport which has been partially closed for renovation. We expect this increase in traffic, due to diversion from Kozhikode Airport, to be a short-term phenomenon, and have excluded this increase in our traffic projections. ATMs at Cochin International Airport have been forecasted using the forecasts for passenger traffic (as detailed in the previous section) and forecast of Pax per ATM for domestic and international airports. Pax/ ATM at Cochin International Airport presently for domestic operations is 111.3 and for international operations in 155.5.

We expect the Pax/ ATM at Cochin International Airport to increase to 120.3 for domestic operations and to 163.1 for international operations by FY2021. These estimates of Pax/ ATM have been benchmarked to comparable airports at Bengaluru and Hyderabad.

The passengers per ATM estimated for the next 5 years at Cochin International Airport is as follows – Table 5: Forecasted number of passengers per ATM at Cochin International Airport FY Domestic Passengers/ATM International Passengers/ATM 2016 111.3 155.5 2017 113.1 157.0 2018 114.9 158.5 2019 116.7 160.0 2020 118.5 161.5 2021 120.3 163.1 Based on number of passengers per ATM and forecasted traffic numbers, the CAGR over FY 2016 to FY 2021 for domestic ATMs is 8.5% and for international ATMs is 9.2% (after adjusting for diversions from Kozhikode). The projected ATMs at Cochin International Airport for the control period is shown below.

Table 6: Projected air traffic movement at Cochin International Airport

Cochin International Airport Pvt. Ltd. Multi Year Tariff Proposal FY 17-FY21 14 2016 2017 2018 2019 2020 2021 CAGR Domestic 29,011 31,461 34,126 37,027 40,184 43,620 8.5% International 29,784 30,896 32,336 35,781 39,598 43,825 8.0% Total 58,795 62,356 66,462 72,808 79,782 87,445 8.3% The growth in air-traffic and ATMs would require Cochin International Airport to invest in a secondary runway in the medium to long term. As a low-cost airport operating without government subsidy or land, Cochin International Airport requires sufficient funds to finance the acquisition of land and development of secondary-runway.

Cochin International Airport needs to plan in advance for this expansion given the challenges around land acquisition and financing. Air Cargo Cochin International Airport handles international and domestic cargo including perishables, valuables and general cargo. Air cargo traffic has increased from 5,951 Metric Tons (MT) in FY 2002 to 64,940 MT in FY 2015. In the past 5 years, cargo traffic at Cochin International Airport has grown at a CAGR of 9.4%. Cargo traffic is dominated by exports to Middle East and Europe. Out of the 64,940 MT of cargo handled in FY 2015, approximately 54,633 MT was Export-Import (EXIM) cargo.

Air cargo handled at Cochin airport has grown from 41,394 MT to 64,940 MT during FY 2010 – FY 2015. Table 7: Growth in Domestic Air Cargo handled at Cochin Airport MT 2011 2012 2013 2014 2015 2016 CAGR Outbound 1,921 2,205 2,162 2,150 2,630 2,693 7.0% Inbound 5,018 5,099 5,196 5,825 7,677 8,346 10.7% Total Domestic 6,939 7,303 7,358 7,975 10,307 11,039 9.7% Domestic outbound cargo has been forecasted to grow at a CAGR of 7.0% per annum over base year FY2016 based on historical CAGR of FY2011 to FY2016. Domestic inbound cargo has been forecasted to grow at a CAGR of 10.7% per annum over base year FY2016 based on historical CAGR from FY2011 to FY2016.

Total domestic cargo is expected to reach to 17,658 MT by FY 2021.

Cargo traffic at Cochin International Airport has increased significantly in FY 2016. During the first half of FY 2016 (April - September), the cargo traffic has increased to 38,932 MT as compared to 34,137 MT during the first half of previous year. Cargo traffic during the full year FY 2016 is expected to reach 76,876 MT. This sudden increase in cargo traffic, specifically export cargo, is as a result of diversion of traffic from Kozhikode Airport which has been partially closed for renovation. We expect this increase in traffic, due to diversion from Kozhikode Airport, to be a short-term phenomenon, and have excluded this increase in our export cargo traffic projections.

Cochin International Airport Pvt. Ltd. Multi Year Tariff Proposal FY 17-FY21 15 Additionally, import cargo traffic at Cochin International Airport has fallen from 12,239 MT in FY 2015 to 4,209 MT (estimated) in FY 2016 due to restrictions imposed on import cargo and couriers. It is expected that such restrictions would continue and as a result, import cargo would remain at a lower level as compared to historical levels. Growth in international cargo is based on the historical CAGR for the period FY2010 – FY2015 as international cargo in FY2016 has increased due to diversions from Kozhikode.

Export cargo has been forecasted to grow at a rate of 10.6% per annum while import cargo has been forecasted to grow at a CAGR of 4.4% per annum. The total international cargo is expected to reach to 82,775 MT by FY2021.

Table 8: Growth in International Air Cargo handled at Cochin Airport MT 2010 2011 2012 2013 2014 2015 2016 CAGR1 Export 25,628 24,867 26,183 28,818 33,277 42,394 61,628 10.6% Import 9,872 9,286 9,358 10,355 13,189 12,239 4,209 4.4% Total International 35,500 34,154 35,541 39,172 46,465 54,633 65,837 9.0% 1. From FY2010 – FY2015 due to sudden change in FY2016 as a result of diversions from Kozhikode and restrictions on import cargo Total cargo at Cochin International Airport is expected to reach to 100,433 MT by 2021. Table 9: Projected cargo traffic at Cochin International Airport (MT) 2016 2017 2018 2019 2020 2021 CAGR Domestic Departure 2,693 2,881 3,082 3,297 3,528 3,774 7.0% Arrival 8,346 9,241 10,231 11,327 12,540 13,884 10.7% Total Domestic 11,039 12,122 13,312 14,624 16,068 17,658 9.9% International Export 61,628 51,849 57,341 63,413 70,129 77,557 10.6%1 Import 4,209 4,394 4,587 4,789 4,999 5,219 4.4% Total International 65,837 56,244 61,928 68,202 75,128 82,775 7.2%1 Total 76,876 68,365 75,240 82,826 91,196 100,433 7.5%1 1.

CAGR is calculated over a base year FY 2015 4. Capital expenditure Traffic at Cochin International Airport has increased beyond a level supported by existing infrastructure. In order to handle increased traffic at the airport, CIAL is developing a new international terminal and has also planned for additional capacity expansion. Need for the new International terminal and modification of existing terminals The existing domestic terminal at Cochin International Airport was constructed in 1999 and has a design capacity of 800 peak hour passengers (400 embarking and 400 disembarking passengers).

The international terminal has a maximum peak hour handling capacity of 2,400 passenger

Cochin International Airport Pvt. Ltd. Multi Year Tariff Proposal FY 17-FY21 16 movements. Currently the peak hour throughput at Cochin International Airport is more than 1,000 passenger movements for domestic operations. The domestic terminal at Cochin Airport is significantly congested in terms of available area per peak hour passenger when compared to other major airport terminals in India. In order to address the capacity constraint at the domestic terminal as well as cater to future growth in international traffic, CIAL is under process of developing a new international terminal at the airport.

The construction of the new terminal is underway and is expected to be commissioned in FY 2016-17. The existing international terminal would thereafter be converted to a domestic terminal, thus enhancing both the domestic and international passenger handling capacity at the airport. Post expansion, the peak hour passenger handling capacity of the airport is expected to increase to 3,200 passenger movements for domestic operations and 4,000 passenger movements for international operations.

The estimated cost of developing the new international terminal at CIA has been benchmarked with similar airport projects undertaken in India in the last five years. The estimated cost for development at Cochin Airport is observed to be among the lowest as compared to other airport expansion/ development projects. CIAL has conducted consultations with the Airport Users Consultative Committee (AUCC) on the proposed project as per guidelines of AERA and the report has been duly forwarded to AERA and thereafter the construction of new terminal was commenced on 1st February 2014. The total capital expenditure envisaged for the new terminal development is INR 1101.3 Cr (including related infrastructure and costs already incurred in FY15 which amounts to INR 195.6 Cr).

Capital expenditure on modification of existing terminals is estimated at INR 54.7. CIAL has maintained strict control on capital expenditure for the terminal. The capital expenditure of the new terminal is the lowest among comparable airports in the country. Table 10: Total capital expenditure for new international terminal and related works Particulars FY 15 WIP 2016 2017 2018 2019 2020 2021 Buildings & Civil Works 169.8 299.9 58.0 0.0 0.0 0.0 0.0 Runway, Roads and Culverts 16.7 130.0 32.2 0.0 0.0 0.0 0.0 Plant and Equipment 6.0 205.4 124.2 18.1 18.5 0.3 0.3 Computers and Accessories 3.0 13.5 4.3 0.0 0.0 0.0 0.0 Office Equipment 0.0 0.0 1.1 0.0 0.0 0.0 0.0 Total 195.6 648.8 219.8 18.1 18.5 0.3 0.3 Parking bays, runway, taxiways and roads In line with airport expansion and new terminal development, the corresponding air-side infrastructure is being augmented to support increased traffic at Cochin International Airport.

The major projects during FY2017 – 21 include development of approach roads, railway over bridge,

Cochin International Airport Pvt. Ltd. Multi Year Tariff Proposal FY 17-FY21 17 ring road, flood control measures, 0-9 CAT approach, service road, parking bays reconfiguration works, runway re-carpeting & code F correction, rapid exit & vertical link and construction of additional parking bays. The total capital expenditure on parking bays, taxiways, runway and roads is estimated at INR 508.1 Cr from FY2016 to FY2021. Table 11: Capital expenditure for roads, runways and culverts Particulars 2016 2017 2018 2019 2020 2021 Construction of Approach road 31.8 22.2 0.0 0.0 0.0 0.0 Construction of ROB 8.2 5.8 0.0 0.0 0.0 0.0 Service road 0.0 8.6 7.8 0.0 0.0 0.0 0-9 ILS 0.0 7.5 0.0 0.0 0.0 0.0 Ring road, Chengal Thodu bridge 0.0 5.4 0.0 0.0 0.0 0.0 Ring road phase II 0.0 0.0 0.0 5.8 0.0 0.0 Flood Control Measures 0.0 0.0 4.4 0.0 0.0 0.0 Reconfiguration works of bay 1,2,3 0.0 0.0 0.0 40.3 0.0 0.0 Recarpeting and Code F Correction 0.0 0.0 0.0 111.7 89.5 0.0 Rapid Exit & Vertical Link 0.0 0.0 16.7 17.3 0.0 0.0 Construction of parking bays phase II 0.0 0.0 0.0 0.0 25.1 100.1 Total 40.0 49.41 28.9 175.1 114.6 100.1 1.

Difference is due to rounding off Cargo Facilities Total cargo at Cochin International Airport is expected to reach to 100,433 MT by 2021. A new integrated export warehouse is planned to process export cargo which would expedite cargo handling and increase efficiency. CIAL is also planning investments in automation of the new integrated export warehouse.

New integrated export warehouse will have following facilities - handling area of 15,000 Sq m, truck docks with dock levelers, parking area, work stations with ULD weighing arrangement, ULD Racking system with ETV to store loaded ULDs, DG handling room for storage and Handling, Radio Active room which will be certified by BARC, Staff Rooms and Document Storage Area, Information Centre, TSP counters, strong room, customs, PQ and CIAL offices. The total capital expenditure for new integrated export warehouse is estimated at INR 68 cr and on automation of export warehouse is INR 57 cr. Other cargo related capital expenditure is estimated at INR 6 Cr.

IT Systems At Cochin International Airport, till FY2016, SITA was the service provider for CUTE related services. CUTE, CUSS, BRS Systems have reached End-of-Life as well as End-of Support and have to be replaced with new systems (hardware and software application) in line with the technology trends and hence required additional capital expenditure. Under a revised business

Cochin International Airport Pvt. Ltd. Multi Year Tariff Proposal FY 17-FY21 18 model CIAL has decided to incur capital expenditure and handle CUTE operations at Cochin International Airport.

CUTE, CUSS and BRS CIAL had so far outsourced the activities of Common User Terminal facilities (CUTE), Baggage Reconciliation Service (BRS) and Common User Self Services (CUSS) to M/s SITA, which pays a royalty of USD .41 per departing passenger to CIAL. M/s SITA has agreements with all airlines for rendering these service at a rate of USD 1.25 per departing passenger. The current contract between CIAL and M/s SITA will expire on 31.12.2015.

CIAL proposes to render CUTE, CUSS and BRS directly to airlines with effect from 01-01-2016. The capital and operating expenditure for provision of these services will be incurred by CIAL. M/s SITA has been awarded the contract through a competitive tendering process for supply, installation and commissioning of the hardware, software and equipment for remote connectivity services. M/s SITA will also provide operations and maintenance of the CUTE, CUSS and BRS facilities. (Copy of agreement 26-06-2015 marked in Annexure 2) CIAL will enter into agreements with various airlines for providing CUTE, CUSS and BRS services from 01-01-2016.

A draft agreement has been shared with various airlines. The total capital expenditure envisaged for CUTE services provisioning is INR 27 Cr. Other IT systems related capital expenditure includes computers, servers, hardware, software, renovation of existing international terminal IT infrastructure, E-Gate, Data center revamping, replacement of existing FIDS and PAS, Parking management system, networking systems and replacement of arrival conveyor.

The total IT systems capital expenditure including CUTE from FY 2016 to FY 2021 is estimated at INR 96 Cr. CISF residential building CISF has requested for development of residential building for staff working at Cochin International Airport. The total capital expenditure for CISF residential building is estimated at around INR 74 Cr. Other Capital Projects Capital expenditure on family entertainment center is estimated at INR 282 Cr and capital expenditure for commercial complex is estimated at INR 41 Cr. The maintenance capital expenditure for the second control period is estimated at INR 207 Cr.

Other capital projects at Cochin International Airport during FY2016 – 21 include ground handling equipment, alternate water source for airport, office building for regulatory agency, ground support building, GSE building, furniture, office equipment and commercial buildings. The total capital expenditure on these projects is estimated at INR 389 Cr from FY 2016 to FY 2021.

Cochin International Airport Pvt. Ltd. Multi Year Tariff Proposal FY 17-FY21 19 Financing of the new international terminal Altogether 37 work packages are awarded towards this project. So far project works amounting INR 345 crore (as on 17.11.2015) is completed and the balance will works/packages are expected to be completed within the schedule completion date of May 2016. The total value of packages so awarded for new international terminal is 762 crore and apart from that other allied infrastructure development for new terminal such as elevated road, new road, ulility, Apron, Car park etc are also awarded for an amount of INR 280 crore.

CIAL has entered into an agreement with M/s Federal Bank for a term loan of INR 500 crore at a floating rate equivalent to the Bank’s Base Rate. The current Base Rate of Federal bank 9.95%. The moratorium period as per the loan agreement is three (3) years from the date of the first disbursement of the loan, which is March 2015. The repayment of the loan will be made in forty (40) equal quarterly instalments commencing from January 2018. The details are given in the loan agreement attached in Annexure 1.

As on date, CIAL has availed INR 146.56 crore of debt from this term loan facility towards capital expenditure for the new international terminal.

Remaining capital expenditure related to new international terminal to be financed through rights issues and internal accruals. Summary of total capital expenditure Capital expenditure on aeronautical assets has been considered under the shared till approach. The maintenance capital expenditure to be incurred for the maintenance and enhancement works is apportioned to various assets heads (Buildings & civil works, Runway, roads and culverts, plant & Equipment, office equipment, furniture and fixtures, vehicles and intangible assets based on the gross block ratio.

Capital expenditure for the second control period Total Capital Expenditure planned for the next control period (FY2017 – 21) is around 1954 cr. Major capital expenditure projects planned/ underway at Cochin International Airport are –  New terminal for international operations  Modification of existing terminals  Parking bays, runway, taxiways and roads  Planning for Secondary runway  Cargo facilities  IT Systems  CISF Residential Building  Other capital projects Table 12: Major capital expenditure in the second control period 2017 2018 2019 2020 2021 Total New International Terminal 219.8 18.1 18.5 0.3 0.3 257.0

Cochin International Airport Pvt. Ltd. Multi Year Tariff Proposal FY 17-FY21 20 2017 2018 2019 2020 2021 Total Modification of existing terminals 54.7 0.0 0.0 0.0 0.0 54.7 Parking bays, runway, taxiways and roads 49.4 28.9 175.1 114.6 100.1 468.1 Cargo Facilities 0.3 47.0 84.1 0.0 0.0 131.3 IT Systems 30.3 8.3 13.2 13.7 1.9 67.4 CISF Residential Building 0.0 0.0 0.0 0.0 74.4 74.4 Other Capital Projects 124.8 124.8 36.8 188.0 219.8 694.2 Maintenance Capital expenditure 0.0 0.0 0.0 95.5 111.3 206.8 Total 479.2 227.2 327.8 412.0 507.8 1954.0 The capital expenditure on ongoing-projects in FY 2016 is around INR 735 Cr.

The estimated year-wise capital expenditure under single till and shared till for FY2017 – 21 has been set out in the following tables – Table 13: Estimated Capital expenditure under Single Till Particulars 2017 2018 2019 2020 2021 Buildings & Civil Works 139.3 89.0 58.3 119.3 169.6 Golf Course Development 0.0 0.0 0.0 0.0 0.0 Runway, Roads and Culverts 76.2 28.9 138.2 113.4 98.9 Plant and Equipment 202.3 93.3 122.5 79.2 117.7 Office Equipment 13.1 0.7 0.8 0.8 0.9 Computers and Accessories 38.3 11.9 5.4 1.3 5.3 Furniture and Fixtures 6.7 1.1 1.2 1.3 1.4 Vehicles 1.8 1.1 0.6 0.4 1.2 Intangible assets 1.4 1.2 0.8 0.9 1.5 Maintenance capital expenditure 0.0 0.0 0.0 95.5 111.3 Total Capital expenditure 479.2 227.2 327.8 412.0 507.8 1.

Small differences due to rounding off Table 14: Estimated Capital expenditure under Shared Till Particulars 2017 2018 2019 2020 2021 Buildings & Civil Works 97.8 57.8 58.3 0.0 64.5 Golf Course Development 0.0 0.0 0.0 0.0 0.0 Runway, Roads and Culverts 76.2 28.9 138.2 113.4 98.9 Plant and Equipment 193.4 86.8 122.2 58.2 79.9 Office Equipment 12.1 0.3 0.3 0.3 0.3 Computers and Accessories 37.5 11.2 5.3 1.2 5.3 Furniture and Fixtures 6.4 1.0 1.1 1.2 1.2 Vehicles 1.8 1.1 0.6 0.4 1.2

Cochin International Airport Pvt. Ltd. Multi Year Tariff Proposal FY 17-FY21 21 Particulars 2017 2018 2019 2020 2021 Intangible assets 1.3 0.7 0.6 0.7 1.4 Maintenance capital expenditure 0.0 0.0 0.0 95.5 111.3 Total Capital expenditure 426.5 187.9 326.6 270.9 364.0 5. Allocation of Fixed Assets The definition of RAB in the AERA Guidelines 2011 does not require segregation of assets into aeronautical and non-aeronautical assets for the single till scenario. However, for shared till, segregation of aeronautical and nonaeronautical assets has been done. Table 15: Aeronautical and non-aeronautical assets allocation basis for existing assets Existing Assets Basis for segregation Land Existing land as on FY 2015 has been segregated based on the land usage by aeronautical and non-aeronautical activities.

The land utilization details have been mentioned in Annexure 3. Buildings and civil works Existing buildings & civil works assets as on FY 2015 have been firstly divided into terminal buildings and non-terminal buildings. Terminal building assets have been apportioned based on aeronautical and nonaeronautical area in the existing terminals. For buildings outside terminals, actual aeronautical & non-aeronautical classification has been done for each assets.

Golf course development Golf course development assets as on FY 2015 have been considered as non-aeronautical assets. Runway, roads and culverts Existing runway, roads and culverts as on FY 2015 have been considered as aeronautical assets. Plant and equipment Existing plant and equipment assets as on FY 2015 have been segregated based on aeronautical and non-aeronautical area in the existing terminals. Office equipment Existing office equipment assets as on FY 2015 have been segregated based on aeronautical and non-aeronautical area in the existing terminals.

Computers and accessories Existing computers and accessories assets as on FY 2015 have been segregated based on aeronautical and non-aeronautical area in the existing terminals.

Furniture and fixtures Existing furniture and fixtures assets as on FY 2015 have been segregated based on aeronautical and non-aeronautical area in the existing terminals. Vehicles Existing vehicles as on FY 2015 have been segregated based on aeronautical and non-aeronautical area in the existing terminals. Intangible assets Existing intangible assets as on FY 2015 have been segregated based on aeronautical and non-aeronautical area in the existing terminals.

Cochin International Airport Pvt. Ltd. Multi Year Tariff Proposal FY 17-FY21 22 Table 16: Aeronautical and non-aeronautical assets allocation basis for new assets Table 17: Aeronautical assets proportionexisting assets Existing Assets as on FY 2015 Amount Aeronautical Non-aeronautical Land 125.0 89.1% 10.9% Buildings & Civil Works 176.8 76.0% 24.0% Golf Course Development 26.6 0.0% 100.0% Runway, Roads and Culverts 213.9 100.0% 0.0% Plant and Equipment 161.6 92.4% 7.6% Office Equipment 0.5 92.4% 7.6% Computers and Accessories 6.1 92.4% 7.6% Furniture and Fixtures 6.2 92.4% 7.6% Vehicles 6.3 92.4% 7.6% Intangible assets 9.2 92.4% 7.6% Total Gross Block 732.1 86.7% 13.3% Table 18: Aeronautical assets proportionnew assets New Assets capitalized from FY 2016 to FY 2021 Amount Aeronautical Non-aeronautical Land 0.0 0.0% 0.0% Buildings & Civil Works 1073.6 67.1% 32.9% Golf Course Development 0.0 0.0% 0.0% Runway, Roads and Culverts 704.5 100.0% 0.0% Plant and Equipment 885.5 89.4% 10.6% Office Equipment 18.3 80.4% 19.6% Computers and Accessories 111.5 97.5% 2.5% Furniture and Fixtures 13.7 93.1% 6.9% Vehicles 6.6 100.0% 0.0% Intangible assets 8.0 85.8% 14.2% Total Capitalization 2821.8 83.8% 16.2% New Assets Basis for segregation New International Terminal New international terminal assets (Buildings & civil work, runway, roads & culverts, plant & equipment, office equipment, computers & accessories, furniture & fixtures, vehicles and intangible assets) have been apportioned based on average aeronautical and nonaeronautical area in the new international terminal.

Other than new international terminal assets Actual asset wise aeronautical and non-aeronautical classification has been carried out for assets other than new international terminal (Buildings & civil work, runway, roads & culverts, plant & equipment, office equipment, computers & accessories, furniture & fixtures, vehicles and intangible assets).

You can also read