Indian airport infrastructure has witnessed a major upgradation over the past decade. The privatisation process has played a key role in the development, operations and management of airports. The introduction of several policy and regulatory reforms, such as allowing foreign direct investment and the Airports Authority of India (Amendment) Act, 2003, opened the gates for private players to secure major airport projects. The privatisation of 25 airports under the National Monetisation Plan presents further opportunities for private players in this promising sector. While the GMR and GVK groups have been marquee names in the airport industry for some time, the Adani Group is increasingly making its presence felt, with eight airports in its portfolio. Among the major recent developments in this space, the ownership of the Mumbai International Airport and Navi Mumbai International Airport changed hands, with the Adani Group taking over both airports.
Regulations facilitating private players
Cochin airport, which opened in 1999, was the country’s first privately managed airport with equity participation from non-resident Indians and financial institutions. The establishment of a legal framework in 2003 facilitated the entry of the GMR and GVK groups in the sector, with the privatisation of greenfield airports in Hyderabad and Bengaluru in 2003 and 2005 respectively. This was followed by brownfield airport privatisation in Delhi and Mumbai in 2006. The same year, GMR won the Indira Gandhi International Airport project in Delhi, while GVK won the Chhatrapati Shivaji Maharaj International Airport project in Mumbai, under operation, management and development agreements. These agreements were instrumental in enabling joint venture companies to undertake some of the key functions of the Airports Authority of India (AAI) such as operations, maintenance, development, design, construction, upgradation, modernisation, finance and management of airports. It also allowed them to undertake aeronautical and non-aeronautical services, excluding reserved activities, at these airports.
This course of privatisation underwent a reform with the introduction of the hybrid till regime under the National Civil Aviation Policy in 2016. Until then, privatised airports had been operating on the single-till mechanism, which limited the potential for investors to a maximum of 16 per cent return on capital investments. The new mechanism allowed airport operators to include a portion of their income generated through non-aeronautical activities, alongside that from aeronautical activities in the calculation of total earnings. This was introduced to ensure uniform competition across various airport operators, along with the provision of 30 per cent non-aeronautical revenue to cross-subsidise aeronautical charges. Following this, development works for the Mopa International Airport in Goa were awarded to GMR Goa International Airport Limited in 2016 and for the Navi Mumbai International Airport to the GVK Group in 2017. By then, the two companies had acquired an almost equal number of airport projects.
This landscape was altered further when the bidding parameter for airport projects was changed in 2018, from a revenue-sharing model to a per-passenger-fee-based model. This pushed airports to perform better, with an increase in traffic. Following the introduction of the new model, GMR added the Bhogapuram International Greenfield Airport to its expanding airport portfolio, beating GVK and other bidders in the fray. In 2021, it also added the Multimodal International Cargo Hub and Airport at Nagpur to its portfolio. The Jewar International Airport in Noida was another major greenfield airport to be awarded in PPP mode to Zurich Airport International AG in 2019. Meanwhile, the new revenue model, with lower inherent investment risks, also attracted players such as the Adani Group to enter the sector.
Journey of key players so far
With high debt levels, a stretched balance sheet and dwindling revenues from its power business, the GVK Group had been attempting to bring financial investors on board for a substantial stake in its airport vertical. To this end, it signed an agreement with the Abu Dhabi Investment Authority, Canada’s Public Sector Pension Investment Board, and the National Investment and Infrastructure Fund (NIIF) to raise capital for Mumbai airport in 2020; however, the deal did not materialise. Meanwhile, the sector also faced the impact of a massive drop in passenger traffic during the Covid-19 pandemic. Consequently, GVK sold its stakes in the Mumbai and Navi Mumbai airports to the Adani Group.
During this time, the GMR Group was anchoring its position through some significant changes in its financial structure. In 2020, the company signed a deal with the airport arm of Paris-based Groupe ADP for the sale of 49 per cent of its stake to raise around Rs 107 billion, including Rs 10 billion as equity infusion. Recently, it announced the merger of GMR Airports Limited with GMR Airports Infrastructure Limited with the aim of strengthening its balance sheet and capitalising on upcoming opportunities in the domestic and international aviation markets. The merger is expected to be completed in 2024-25, subject to regulatory approvals and is expected to streamline the corporate structure of the company and enhance operational efficiency and investor confidence. Furthermore, the NIIF announced its joint investment with GMR Airports Limited for Mopa and Bhogapuram greenfield airports in December 2022. It committed to invest Rs 6.31 billion in the form of compulsory convertible debentures in the Mopa airport. Besides, the GMR Group announced plans to raise Rs 29 billion from Groupe ADP through 10-year foreign currency convertible bonds.
Meanwhile, the Adani Group won six airports – Lucknow, Ahmedabad, Jaipur, Mangaluru, Thiruvananthapuram and Guwahati – in February 2019, based on the new revenue model. It quoted the highest per passenger fee among over 25 other bidders for these airports. In fact, its bids of Rs 171 per passenger for Lucknow airport and Rs 115 for Mangaluru airport were as much as 500 per cent higher than the lowest bids received. The other key bidders included the UK’s AMP Capital Investors, Cochin International Airport Limited, the NIIF, Italy’s Autostrade, PNC Infratech and the Kerala State Industrial Corporation.
In 2021, Adani Airport Holdings Limited (AAHL) acquired Mumbai airport from the GVK Group by buying a 50.5 per cent stake in Mumbai International Airport Limited (MIAL). It also adopted the hub-and-spoke model for the development of these airports, which helped it expand in the post-pandemic phase when the sector was recovering with respect to air traffic. This model envisions a mega airport as a central hub, with flight routes organised as spokes connecting to other cities. AAHL acquired a further 23.5 per cent stake in MIAL in February 2021, increasing its total stake to 74 per cent and consequently acquiring Navi Mumbai airport (a wholly owned subsidiary of MIAL) as well.
Therefore, both the Adani and GMR groups are enjoying monopolistic positions in their respective locations, with the seven AAHL-operated airports having a share of 25-26 per cent in terms of passenger traffic and the GMR-managed Delhi and Hyderabad airports alone accounting for 26-28 per cent of the total passenger traffic. With Mopa airport being recently operationalised, and the Bhogapuram and Navi Mumbai airports still under construction, it remains to be seen who gets ahead in the race.
Airport infrastructure is expanding at a fast pace. A number of greenfield airport projects are coming up, new terminals are being constructed, and 100 airports are planned to be developed under the regional connectivity scheme. The government plans to increase the number of airports from the current 148 to 220 by 2025. The airport sector is expected to see investments of around $12 billion over the next two to three years, with the majority of it likely to come in from the private sector. Further, the recent finalisation of the Ministry of Civil Aviation’s plan to privatise 25 brownfield airports by 2025 opens up further avenues for expansion by private players. These primarily include small airports, with Chennai airport being the only large one of the lot. This could turn out to be a positive owing to the relatively lower capital requirements for the operation of these airports. These assets need to provide adequate returns for investors. Other reforms such as a moratorium on the payment of concession fees for the traffic handled by smaller airports would also be helpful.
Ishita Gupta and Shubhangi Goswami