India has a successful tale of airport privatisation that started almost two decades ago. So far, the private sector has invested close to Rs 350 billion in airport infrastructure as capex. In the next five years, this investment is expected to double for upgrading old and creating new infrastructure. The government too has gained from airport privatisation. The Delhi and Mumbai airports alone have contributed revenues of Rs 300 billion to the exchequer since their privatisation. After a long hiatus, the government reinvigorated the airport privatisation programme in 2018. The aggressive bidding for the first set of six airports – Ahmedabad, Jaipur, Lucknow, Guwahati, Thiruvananthapuram and Mangaluru – is reflective of the bullish sentiment among stakeholders in the sector.
Adani leading airport privatisation
As part of its economic response to the pandemic, the government announced a Rs 20 trillion package encompassing all infrastructure sectors. For the aviation industry, six airports have been identified for the second round bidding for operation and maintenance (O&M) on a public-private partnership (PPP) basis. Additional investment by private players in 12 airports in the first and second rounds is expected to bring around Rs 130 billion. Another six airports will be put up in the third round of bidding.
In the first round, the Lucknow, Ahmedabad, Jaipur, Mangaluru, Thiruvananthapuram and Guwahati airports were cleared for O&M on a PPP basis. Adani Enterprises had won the rights to run the six airports. Quoting the highest per passenger fee, Adani made its entry into the aviation market. The company has already signed the concessionaire agreement with the Airports Authority of India (AAI) for the Ahmedabad, Mangaluru and Lucknow airports and recently took over operations of the three airports. At Rs 115 per passenger for Mangaluru and Rs 171 for Lucknow, the Adani Group’s bids were over 500 per cent more than the lowest bids received from the GMR Group and PNC Infratech respectively. Similarly, it placed a bid of Rs 177 for Ahmedabad airport, nearly 200 per cent more than the lowest bid of Rs 60 received from Autostrade Indian Infrastructure Development.
Despite disruptions due to the ongoing pandemic, the Union cabinet has approved the proposal for leasing out the other three airports – Jaipur, Guwahati and Thiruvananthapuram – to Adani Enterprises. Citing the pandemic’s adverse impact on the aviation sector, Adani invoked force majeure to seek more time for taking over the airports and AAI granted an extension till March 2021.
A political slugfest has erupted between the centre and the Kerala government over the privatisation of Thiruvananthapuram airport. The leasing out of O&M of the airport to Adani Enterprises for a period of 50 years is being vehemently opposed by the state government which approached the Kerala High Court as well as the Supreme Court. While both the high court and the apex court did not grant a stay on the privatisation process, the Supreme Court remitted the matter back to the high court. The Kerala High Court has since rejected the state government’s plea opposing privatisation of the airport.
Future plans and strategies
The Ministry of Civil Aviation (MoCA) is planning to restrict the number of airports a private operator can bid for under the PPP model. The development comes in view of Adani Airport Holdings Limited signing a deal with Mumbai International Airport Limited to acquire a controlling stake (74 per cent) from the GVK Group and other stakeholders. Following the deal, Adani Airport would become the largest private airport operator in the country.
The second round of privatisation includes the Varanasi, Amritsar, Bhubaneswar, Indore, Raipur and Tiruchi airports. Facing criticism over privatising profit-making airports and creating a monopoly, the centre is considering clubbing small and unviable airports with the six main airports and a prospective bidder may be restricted to bidding for two airports. The government is in the final stages of framing rules for privatising the six airports identified under the second round. Another six airports will be put up in the third round of bidding as part of the economic stimulus announced in May 2020. In all, the government plans to privatise 30-35 airports over the next five years.
Continuing with privatisation
Airport privatisation in the country has successfully led to the creation of world-class, efficient airport infrastructure. This has helped the airline industry grow manyfold and has benefited the economy in terms of employment generation. The significant interest in mature brownfield airport assets has nudged the government to come up with innovative strategies to raise finances for airport development. Further, the Covid-19 pandemic is straining the finances of AAI and may push it into losses in 2020-21, the first time since its formation in 1995. While the idea of bundling loss-making airports with viable ones may be a bone of contention, the overall privatisation programme is expected to be successful if the government sets liberal rules for private bidders in the next auction.