Change of Guard

Airport privatisation gains momentum

India began its journey towards privatising airports around 15 years back. The first ones to undergo a sea change were the Delhi and Mumbai airports, in 2006. After a long hiatus, the central government revived the airport privatisation programme in 2018. The aggressive bidding for the first set of six airports under the new transactional model was reflective of the bullish sentiment in the sector.

First round of privatisation

In the first round of airport privatisation in February 2019, the central government privatised the airports at Lucknow, Ahmedabad, Jaipur, Mangaluru, Thiruvananthapuram and Guwahati, opening them up for operation, management and development in public-private partnership (PPP) mode. The Adani Group bagged the contracts for all six airports, winning the bids with huge margins. The Airports Authority of India (AAI) selected the winner on the basis of the “per passenger fee” offered by bidders. By quoting the highest per passenger fee, Adani marked its entry into the aviation market.

The company signed the concession agreement with AAI for the Ahmedabad, Mangaluru and Lucknow airports and has recently taken over the operations of these 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 Limited 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.

The union cabinet has also approved the proposal for leasing out the other three airports – Jaipur, Guwahati and Thiruvananthapuram – to Adani Enterprises. AAI will reportedly hand over the operations of these airports to Adani by end January 2021. The authority is expected to begin the process of signing concession agreements for the three airports by January 25, 2021. The takeover process for the three airports was delayed as Adani invoked force majeure in June 2020, citing the impact of the pandemic on the aviation sector. However, the Kerala Assembly recently passed a resolution against the handing over of the Thiruvananthapuram airport to the Adani Group. The leasing out of the operation and management 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 courts did not grant a stay on the privatisation process, the central government, in December 2020, gave security clearance to Adani Enterprises to facilitate the takeover of the three airports. Now, Adani will need to submit a performance bank guarantee to AAI for concluding the deal.

Second round of privatisation

While the first round of privatisation is in its final stages, AAI has recommended that the airports at Amritsar, Bhubaneswar, Tiruchirapalli, Raipur, Indore and Varanasi be privatised as well. The government is currently at the final stages of framing the rules for privatising these airports. It has also proposed to club unviable airports with these six airports in the second round of privatisation. As per a proposal by an empowered group of secretaries, these airports will be clubbed with Barmer airport in Rajasthan, Jharsuguda airport in Odisha, Salem airport in Tamil Nadu, Jagdalpur airport in Chhattisgarh, Jabalpur airport in Madhya Pradesh and Kushinagar airport in Uttar Pradesh respectively. The move to club unviable airports in the same geography is aimed at improving regional infrastructure.

Further, a cap of two airports is expected to be placed on bidders in order to avoid an Adani-like monopoly. Although the Ministry of Civil Aviation (MoCA) had in the past planned to place a cap on the number of airports a private operator could bid for, the proposal did not see the light of day. However, looking at Adani’s dominance in the first round of privatisation and its recent acquisition of the GVK airport in Mumbai, which would also give it control of the upcoming Navi Mumbai airport, the ministry has put its proposal on the table once again.

New transactional structure for PPP airports

Under the original transactional structure for airport privatisation, AAI held a minor stake in the privatised airports. The bidding was held as per the revenue sharing model, under which bidders would pay a specified share of the gross revenue to AAI as concession fee. Delhi and Mumbai airports are still using the old revenue sharing mechanism. However, after the bidding for the Delhi and Mumbai airports, the response to subsequent bidding rounds for the airports in Bhogapuram, Goa, Nagpur and Navi Mumbai was lukewarm, with the number of bidders getting limited to two or three. This was on account of apprehensions over potential revenue leakage owing to creative accounting practices adopted by private concessionaires.

After a relook, MoCA introduced a new transactional structure to attract investors to the sector. Under the new structure, bidders get to decide the fixed concession fee that they are willing to pay to AAI on a per passenger basis. The highest bidder wins the airport agreement. The concession is on a develop-build-finance-operate-transfer basis. The bidding process is designed to be simple and transparent with near-zero risk of revenue leakage. Besides, the requirement of airport operation experience for the bidder or the consortium, and the restrictions on related-party transactions have been removed to evince interest from a wider set of bidders.

The new model has been put to use for greenfield as well as brownfield airport projects, and has helped in generating investor interest, with highly competitive bids being received from various players. As mentioned above, the privatisation process for six airports in the first round of auctions under the new model has already been completed. AAI is also planning an immediate concession programme for the privatisation of another six airports in the second round.

Future plans and outlook

The PPP model has helped the government create world-class airports and deliver quality services to passengers. Further, it has helped in increasing AAI’s revenues, which will facilitate the development of new airports and air traffic infrastructure in India. The revenue received by AAI through the PPP model has aided in the development of infrastructure facilities in Tier 2 and Tier 3 cities and the upgradation of their airports to global standards. According to the report of the task force constituted by the Department of Economic Affairs, the prime minister’s vision for the airport sector by 2025 is to improve the country’s ranking in the global aviation market. By 2025, 30-35 airports owned by AAI are planned to be privatised in PPP mode.

However, the pandemic, which has disrupted air travel and dealt a blow to investor and traveller confidence, is expected to force the government to be more liberal with the rules it sets for private bidders in the next round of auctions. The International Air Transport Association has recommended that airport privatisation should be seen as a part of the long-term vision for economic development, which is even more important in the wake of the Covid-19 pandemic and potential financing gaps related to infrastructure projects. The success of privatisation must be measured by service levels, cost effectiveness and long-term economic viability.


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