Changing Hands: Airport privatisation plans gain steam

Airport privatisation plans gain steam

The initial phase of public-private partnerships (PPPs) in airport infrastructure development was a tremendous success. Beginning with Cochin airport, which was developed with equity participation from non-resident Indians and financial institutions in 1999, the Hyderabad and Bengaluru airports were awarded on a PPP basis four years later. A consortium of the GMR Group was selected for the development of Hyderabad airport while a GVK Group consortium owned Bengaluru airport, in return for a concession fee to be shared with the Airports Authority of India (AAI). An investment of Rs 40 billion was required for the development of each of the airports that were commissioned in 2008. In 2006, agreements for operations, management and modernisation of two major brownfield airports at Delhi and Mumbai were signed with the GMR Group and the GVK Group, respectively, based on a revenue-sharing mechanism. This round of privatisation initially witnessed dissent from airlines and airport staff due to cost escalations and a hike in user fees but certainly bore fruit for AAI by improving the scale and efficiency of operations. The airports marked a rapid surge in passenger traffic benefiting the authority by way of an increase in revenue. Delhi International Airport Limited, for instance, shared Rs 17.61 billion in 2017-18 with AAI (based on a revenue-sharing obligation of 45.99 per cent) as compared to just Rs 2.77 billion that AAI earned in 2006 before privatisation. Similarly, other privatised airports such as those at Hyderabad, Mumbai and Bengaluru also performed exceedingly well.

After the success of the first wave of PPPs, during 2012-17, the focus shifted towards handing over operations and management of six brownfield airports at Chennai, Kolkata, Ahmedabad, Jaipur, Lucknow and Guwahati to private players. While the plan to privatise the Chennai and Kolkata airports did not materialise, bids were invited for the operations and management of the Jaipur and Ahmedabad airports on a PPP basis. However, this too failed to generate interest among bidders due to stringent bidding conditions. Meanwhile, during 2016-18, development of two greenfield airports at Navi Mumbai and Mopa, which had been on paper for over a decade, witnessed progress. Concession agreements were signed with GMR Goa International Airport Limited for Mopa airport and with GVK Power and Infrastructure Limited for Navi Mumbai airport. Apart from this, another big-ticket PPP project, the Jewar greenfield international airport, worth Rs 157 billion, also made significant progress. In May 2019, bids were invited from eligible bidders and these are due by October 30, 2019.

In February 2019, GMR Airports Limited outbid other bidders in the fray for the development of Bhogapuram airport and the Multimodal International Cargo Hub and Airport at Nagpur on a PPP basis. Meanwhile, efforts are also being made to privatise Calicut airport.

In a fresh bid to attract private investments in the sector, in January 2019, the government reinvited bids for privatisation of the Ahmedabad, Jaipur, Lucknow, Guwahati, Thiruvananthapuram and Mangaluru airports, after modifying the bidding criteria. This time around, operators were required to quote a per-passenger fee payable to AAI. The round saw aggressive bidding with Adani Enterprises Limited emerging as the highest bidder for all six airports. In July 2019, the proposal for leasing out three airports – Ahmedabad, Lucknow and Mangaluru – to Adani Enterprises was approved by the central government while approval for the other three airports is awaited.

Reportedly, the government is also working on a proposal to privatise another 20-25 AAI-operated airports and is in the process of identifying airports that handle annual passenger traffic of 1-1.5 million.

Future holds promise 

Private participation in airport infrastructure development has been quite extensive and will certainly help overcome the capacity constraints currently faced by the sector. However, the viability of the new leasing model (with the per-passenger fee bid parameter), timely acquisition of land, employee concerns, cost escalations, and the need for thorough due diligence require attention. Further, these challenges could also impact capital raising by private operators. GVK and GMR, the two key players, are already looking to raise capital for developing airports either by selling stakes in existing airports or through bonds.

Going forward, PPPs for airport development are essential as airports with high potential might languish due to lack of investments from the central government. That said, successful operations of the three recently privatised airports will facilitate greater private participation in the future.