India's Private Airport May Get Grounded

An Enron-like flap could make investors go sour on India

Bangalore is a prosperous manufacturing town and the center of India's software industry, but you would never know it when landing at the city's decrepit airport. Passengers stepping off planes must maneuver around ditches, wooden planks, and piles of dirt to get to the terminal building. Once inside, they have to navigate crowds and cope with mosquitoes flying in through broken windows. Jehan Sethna, a Bombay businessman with factories in South India, puts on combat boots and insect repellent when he sets off for Bangalore. "Sometimes, I feel like I'm in the Burmese jungle," he says.

Raytheon Co., based in Lexington, Mass., set out to tame this wilderness four years ago with a $750 million proposal for a modern, international, privately financed airport--the first to be built without public funds. Raytheon, along with India's Tata Industries and Singapore Group, which developed Changi International Airport for the island state, planned to operate the airport privately and reap profits from landing fees and retail operations. But now, the government wants the airport back, and unless India's new Prime Minister, I.K. Gujral, intervenes, the project may collapse. If that happens, Bangalore may become what Enron Corp.'s struggling Indian project was two years ago: a warning to steer clear of India as a place to invest.

SOCIALIST JARGON. The saga opened in 1993, when Raytheon, a $12 billion engineering, electronics, and aircraft giant, joined forces with Tata Industries to bid for the airport contract, which was put out by the government of Karnataka, the state of which Bangalore is the capital. Enthusiastic state officials adopted the Raytheon-Tata plan and promised to put in new roads for it. Everything went swimmingly--until late last year, when negotiations reached the final stage. Then, Aviation Minister C.M. Ibrahim, who had inherited the project from his predecessor, abruptly changed the rules, demanding the airport be transferred to the Indian government as soon as the investors earned their investment back.

In socialist jargon more fitting to the governments of India's past, Ibrahim said it was against the "national interest" for an airport to be privately owned. Again citing national interest, Ibrahim also halted another high-profile deal: a Tata-Singapore Airlines Ltd. joint venture to start up a domestic airline, on hold since 1995. Ibrahim's reasons are unclear, but some analysts say his ministry derives its huge clout from its tight control of the country's airports and airlines. Ibrahim, apparently, does not want anyone diminishing the ministry's turf. His office, however, had no comment.

The airport plan has languished for months, and the three companies may be forced to back out if the financing never materializes. Tata remains hopeful. "We are optimistic that the project will go through because the state's economic growth is dependent on it," says K.M. Chinappa, a director of Tata Industries. But at an investors' conference in March, Raytheon Infrastructure Services CEO Benjamin D. Redd sounded a warning note. "When the project is no longer financeable [from] private-sector sources, we will quit," he said. The debate has raised the possibility of reopening bidding for the airport, but India's own Ministry of Law says this would be illegal.

DISINCENTIVE. The government of Karnataka desperately wants to save the project, which would mean an airport capable of handling many long-haul flights daily. International travelers now must fly to New Delhi or Bombay, then take a domestic airline to Bangalore, adding hours onto the flight time. "We need this airport," says C. Gopal Reddy, chairman of Karnataka State Industrial Investment & Development Corp. "[Companies] would like their chief executives to be in a place where they can return to their home countries fast."

R.V. Deshpande, the Karnataka state minister for industries and infrastructure development, wants to meet with Gujral in May to ask him to clear the project in its original form. Gujral could also give the aviation

portfolio to someone more partial to foreign investment. "The entire world is changing--so why should we worry and have a government-controlled airport?" asks Deshpande.

Meanwhile, Bangalore officials have begun expanding the old terminal as well as allowing the two Indian airlines to land some international flights there. Still, Bangalore is not getting the airport it needs. And another major investment for India is slipping away.