Lending to greenfield airport projects involves many risks like operational, political, completion, financial risk etc. Lenders before lending huge amounts to these projects need to do proper analysis of all risks. Banks should also check whether proper risk mitigation techniques are in place or not.

Conceived in 1991, the delay-battered Bangalore International Airport project has finally reached financial closure in June 2005, with a cost escalation of Rs. 3.1 bn spanning 3800 acres, the ambitious first-of-its-kind joint venture in the Public-Private-Partnership (PPP) mode, now expected to cost Rs. 14.12 bn, will have a 4000-metre runway (the country's longest) and will be completed in 30 months.

At financial closure, the debt component of the project, including the interest free loan from the local government (guaranteed by State Bank of India), stands at a whopping 77%. Of this, Rs. 7.36 bn (52%) will be project financed by the ICICI Bank. The 23% equity component is shared by multiple contributors-Siemens (40%), Unique Zurich and Larsen and Toubro with 17% apiece, and the local and central governments investing 13% each-a typical feature of project financed transactions.

However, in retail projects, cash flows could change if market demand changes. In other words, if the actual demand by airlines for the airport and related services turned out to be substantially different from expected demand, the project viability would be affected.

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