Cochin International Airport Limited - Multi Year Tariff Proposal FY 2016-17 to FY 2020-21 - Airports Economic Regulatory ...

 
 
Cochin International
  Airport Limited

  Multi Year Tariff Proposal
 FY 2016-17 to FY 2020-21

         December 2015

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Cochin International Airport Pvt. Ltd.
                                                                                                  Multi Year Tariff Proposal FY 17-FY21

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

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Cochin International Airport Pvt. Ltd.
                                                                                               Multi Year Tariff Proposal FY 17-FY21
        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

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Cochin International Airport Pvt. Ltd.
                                                                                  Multi Year Tariff Proposal FY 17-FY21

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 proportion- existing assets .......................................................................... 22
Table 18: Aeronautical assets proportion- new assets ................................................................................ 22
Table 19: Aeronautical assets proportion- total 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 ................................................... 30

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Cochin International Airport Pvt. Ltd.
                                                                                          Multi Year Tariff Proposal FY 17-FY21
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 ..................................................................... 42

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Cochin International Airport Pvt. Ltd.
                                                                  Multi Year Tariff Proposal FY 17-FY21

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 non-
resident 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

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Cochin International Airport Pvt. Ltd.
                                                           Multi Year Tariff Proposal FY 17-FY21
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:

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Cochin International Airport Pvt. Ltd.
                                                          Multi Year Tariff Proposal FY 17-FY21
      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)

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Cochin International Airport Pvt. Ltd.
                                                                 Multi Year Tariff Proposal FY 17-FY21
(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

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Cochin International Airport Pvt. Ltd.
                                                           Multi Year Tariff Proposal FY 17-FY21
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

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Cochin International Airport Pvt. Ltd.
                                                           Multi Year Tariff Proposal FY 17-FY21
   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.

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Cochin International Airport Pvt. Ltd.
                                                           Multi Year Tariff Proposal FY 17-FY21
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%
                                                                       4.11 1
 International    2.36     2.59     2.93       3.27    3.74                               11.7%1
                                                                        4.642
                                                                        7.341
 Total            4.35     4.73     4.90       5.39    6.40                               11.0%1
                                                                        7.872
   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.

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Cochin International Airport Pvt. Ltd.
                                                          Multi Year Tariff Proposal FY 17-FY21
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              International
                                Passengers/ATM          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

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Cochin International Airport Pvt. Ltd.
                                                          Multi Year Tariff Proposal FY 17-FY21
                    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.

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Cochin International Airport Pvt. Ltd.
                                                                 Multi Year Tariff Proposal FY 17-FY21
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

                                                                                                     15
Cochin International Airport Pvt. Ltd.
                                                            Multi Year Tariff Proposal FY 17-FY21
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                 16.7        130.0    32.2      0.0       0.0      0.0      0.0
 Culverts
 Plant and Equipment                6.0        205.4    124.2     18.1     18.5      0.3      0.3
 Computers and                      3.0         13.5     4.3       0.0      0.0      0.0      0.0
 Accessories
 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,

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Cochin International Airport Pvt. Ltd.
                                                           Multi Year Tariff Proposal FY 17-FY21
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

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Cochin International Airport Pvt. Ltd.
                                                           Multi Year Tariff Proposal FY 17-FY21
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.

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Cochin International Airport Pvt. Ltd.
                                                          Multi Year Tariff Proposal FY 17-FY21
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
                                219.8      18.1       18.5         0.3      0.3      257.0
      Terminal

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Cochin International Airport Pvt. Ltd.
                                                                     Multi Year Tariff Proposal FY 17-FY21
                                      2017         2018        2019        2020      2021       Total
        Modification of
                                      54.7           0.0       0.0         0.0        0.0        54.7
        existing terminals
        Parking bays, runway,
                                      49.4           28.9     175.1       114.6     100.1       468.1
        taxiways and roads
        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
                                       0.0           0.0       0.0         0.0       74.4        74.4
        Building
        Other Capital Projects        124.8        124.8       36.8       188.0     219.8       694.2
        Maintenance Capital
                                       0.0           0.0       0.0         95.5     111.3       206.8
        expenditure
        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
                                             0.0             0.0            0.0         95.5             111.3
 expenditure
 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

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