Harvard Case - AAI Bidding for Bhogapuram Airport: From Authority to Bidder
"AAI Bidding for Bhogapuram Airport: From Authority to Bidder" Harvard business case study is written by Ganesan Raghuram, Gopi S Gopikuttan. It deals with the challenges in the field of Strategy. The case study is 29 page(s) long and it was first published on : Dec 1, 2018
At Fern Fort University, we recommend that the Airports Authority of India (AAI) proceed with the Bhogapuram Airport project, leveraging a strategic partnership model with private sector expertise to maximize value creation and ensure long-term success. This approach will involve a carefully crafted strategic alliance with a reputable private sector partner, leveraging their core competencies in airport development, operations, and management. The AAI should retain a significant stake in the project, ensuring alignment with its mission and maximizing value creation for the Indian aviation sector.
2. Background
The case study focuses on the AAI's decision to bid for the development of the Bhogapuram Airport in Andhra Pradesh, India. The AAI, traditionally an airport operator and regulator, is venturing into the role of a developer and operator, facing competition from private players with significant experience in airport infrastructure development. The AAI's decision to bid for Bhogapuram Airport presents a unique opportunity to expand its portfolio, but also requires careful consideration of its strategic objectives, financial resources, and potential risks.
The main protagonists of the case study are the AAI, the Andhra Pradesh government, and potential private sector bidders. The AAI's strategic decision-making process, its ability to leverage its existing resources and expertise, and its ability to navigate the complexities of public-private partnerships are central to the case.
3. Analysis of the Case Study
To analyze the AAI's decision, we can apply a combination of frameworks:
1. Porter's Five Forces:
- Threat of New Entrants: High, as the Indian aviation sector is growing rapidly, attracting new players.
- Bargaining Power of Buyers: Moderate, as airlines have some leverage in negotiating landing fees and other airport charges.
- Bargaining Power of Suppliers: Moderate, as airport infrastructure and equipment suppliers have some market power.
- Threat of Substitutes: Low, as air travel is the primary mode of transportation for long distances.
- Competitive Rivalry: High, with increasing competition from private airport operators.
2. SWOT Analysis:
Strengths:
- Strong brand and reputation
- Existing infrastructure and expertise in airport operations
- Government support and funding
- Access to land and resources
Weaknesses:
- Limited experience in airport development
- Bureaucratic processes and decision-making
- Potential financial constraints
- Lack of private sector expertise
Opportunities:
- Growing demand for air travel in India
- Government's focus on infrastructure development
- Potential for public-private partnerships
- Technological advancements in airport management
Threats:
- Competition from private players
- Economic slowdown
- Environmental regulations
- Political instability
3. Value Chain Analysis:
The AAI's value chain involves activities such as:
- Infrastructure Development: Planning, designing, and constructing airport facilities.
- Airport Operations: Managing air traffic control, passenger services, and cargo handling.
- Maintenance and Repair: Ensuring the safety and functionality of airport infrastructure.
- Marketing and Promotion: Attracting airlines and passengers to the airport.
- Financial Management: Managing airport finances and investments.
4. Business Model Innovation:
The AAI's traditional business model of airport operation and regulation needs to be adapted to the new context of airport development. The AAI can consider business model innovation through:
- Public-Private Partnerships: Collaborating with private sector partners to leverage their expertise and financial resources.
- Revenue Diversification: Exploring new revenue streams beyond traditional airport charges.
- Technology Adoption: Utilizing technology to enhance efficiency and improve customer experience.
4. Recommendations
The AAI should proceed with the Bhogapuram Airport project, adopting a strategic partnership model with a reputable private sector partner. This approach will involve:
1. Strategic Alliance:
- Partner Selection: Conduct a thorough due diligence process to identify a private sector partner with strong financial resources, proven experience in airport development and operations, and a commitment to sustainable practices.
- Partnership Structure: Define a clear partnership structure that balances the AAI's control over the project with the private partner's expertise and financial contribution.
- Risk Sharing: Establish a mechanism for sharing risks and rewards between the partners.
2. Project Development and Management:
- Project Planning: Develop a comprehensive project plan that includes detailed cost estimates, timelines, and risk mitigation strategies.
- Environmental Sustainability: Incorporate environmental sustainability considerations into all aspects of the project, from design to construction and operations.
- Technology Adoption: Leverage technology to enhance efficiency, improve passenger experience, and optimize operations.
3. Financial Management:
- Funding Sources: Secure funding from a mix of sources, including government grants, private investment, and airport revenue.
- Financial Modeling: Develop a comprehensive financial model to assess the project's viability and profitability.
- Cost Control: Implement rigorous cost control measures to ensure the project remains within budget.
4. Marketing and Promotion:
- Market Segmentation: Identify target airlines and passenger segments to tailor marketing and promotional efforts.
- Brand Management: Leverage the AAI's brand reputation to attract airlines and passengers.
- Digital Marketing: Utilize digital marketing channels to reach potential customers and promote the airport.
5. Corporate Governance:
- Transparency and Accountability: Ensure transparency and accountability in all project decisions and activities.
- Stakeholder Engagement: Establish mechanisms for engaging with stakeholders, including local communities, airlines, and government agencies.
- Compliance with Regulations: Adhere to all relevant regulations and standards.
5. Basis of Recommendations
These recommendations are based on the following considerations:
- Core Competencies: The partnership model leverages the AAI's core competencies in airport operations and regulation while leveraging the private sector's expertise in airport development and management.
- External Customers and Internal Clients: The project considers the needs of airlines, passengers, and local communities while ensuring alignment with the AAI's mission.
- Competitors: The strategic alliance approach allows the AAI to compete effectively with private players in the airport development market.
- Attractiveness: The project's financial viability is assessed through comprehensive financial modeling, ensuring a positive return on investment.
6. Conclusion
The AAI's decision to bid for the Bhogapuram Airport project presents a significant opportunity to expand its portfolio, enhance its competitive position, and contribute to the growth of the Indian aviation sector. By adopting a strategic partnership model with a reputable private sector partner, the AAI can leverage the best of both worlds, maximizing value creation and ensuring long-term success.
7. Discussion
Alternatives:
- Sole Development by AAI: This option carries higher financial and operational risks, as the AAI lacks experience in airport development.
- Joint Venture with Another Government Agency: This option could limit flexibility and introduce bureaucratic complexities.
Risks:
- Partner Selection: Choosing the wrong partner could lead to conflicts and project delays.
- Financial Viability: The project's financial viability could be affected by factors such as economic slowdown and competition.
- Regulatory Challenges: Navigating regulatory hurdles and securing necessary approvals could pose challenges.
Key Assumptions:
- The Indian aviation sector will continue to grow.
- The AAI will be able to secure necessary funding.
- The AAI will be able to find a suitable private sector partner.
8. Next Steps
- Partner Selection: Conduct a thorough due diligence process to identify and select a suitable private sector partner.
- Project Planning: Develop a detailed project plan, including cost estimates, timelines, and risk mitigation strategies.
- Financial Modeling: Develop a comprehensive financial model to assess the project's viability and profitability.
- Regulatory Approvals: Secure necessary regulatory approvals and permits.
- Stakeholder Engagement: Establish mechanisms for engaging with stakeholders, including local communities, airlines, and government agencies.
The AAI should implement these steps in a timely manner to ensure the successful development and operation of the Bhogapuram Airport. The project will require careful planning, execution, and management to achieve its objectives and contribute to the growth of the Indian aviation sector.
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Case Description
Airports Authority of India (AAI) was constituted as a Statutory Authority under the Airports Authority of India Act 1994, with main functions of control and management of Indian air space. As of March 2017, AAI managed a total of 125 airports, which included 11 international airports, 08 customs airports, 81 domestic airports and 25 civil enclaves at defense airfields. Until 2005-06, AAI airports handled 100% of the passenger traffic in the country. The share dropped to slightly less than 60% in 2006-07 and further to 40% in 2008-09 due to handing over of a few airports to private players. Over the years, AAI had been concerned about its reduced market share and the possibility that more and more airports would be developed outside their control. Ministry of Civil Aviation (MoCA) was increasingly encouraging state governments to develop airports, and where possible in the public private partnership (PPP) mode. AAI participated as a bidder in the bidding for Mopa airport, Goa. It lost the bid to GMR Airport Limited (GAL), which is part of GMR Group. A bid for another airport at Bhogapuram, which would serve Visakhapatnam, in Andhra Pradesh was on the cards. This airport was to replace the existing civil enclave in the Visakhapatnam naval airport. This case focuses on whether AAI should bid for Bhogapuram or not. Lessons can be drawn from the experience of bidding process for Mopa.
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