The government is on a monetisation spree, offering core infrastructure assets to private entities. The recently unveiled National Monetisation Pipeline (NMP) has set the ball rolling for asset sell-offs. Privatisation was already a successful model in the airport sector and therefore, the government decided to adopt this route under its asset monetisation drive. A total of 25 brownfield airports have been shortlisted for privatisation over a period of four years. Despite the sector being among the worst hit due to the pandemic, airport assets are expected to find takers due to the short-term impact of the virus and the long-term nature of the underlying assets.
Privatisation: A successful endeavour
The privatisation of brownfield airports has been a profitable venture for the Airports Authority of India (AAI). Currently, major airports of AAI such as Delhi, Bengaluru, Mumbai, Hyderabad and Nagpur are being managed and operated by private entities under a joint venture (JV) model. AAI has earned approximately Rs 300.69 billion as of 2020-21 from its public-private partnership (PPP) airports that are being run by private entities. After a hiatus of more than a decade, the next set of airports was announced for privatisation. The Adani Group bid aggressively to win all six airports – Ahmedabad, Jaipur, Lucknow, Thiruvananthapuram, Mangaluru and Guwahati. The Adani Group went on to acquire controlling interest in Mumbai International Airport Limited (MIAL), the entity that owns and operates the Chhatrapati Shivaji International Airport. MIAL also holds a 74 per cent equity stake in Navi Mumbai International Airport Limited, which is building a greenfield airport in Navi Mumbai. With these acquisitions, the Adani Group now owns eight airports.
For the year 2021-22, the AAI board approved the privatisation of six major airports – Bhubaneswar, Varanasi, Amritsar, Trichy, Indore and Raipur – along with seven small ones in Jharsuguda, Gaya, Kushinagar, Kangra, Tirupati, Jabalpur and Jalgaon. The smaller airports will be clubbed with the six major airports for scale and size, thereby making it attractive for investors. AAI will now appoint a consultant to prepare the bid document and determine the concession period and reserve price. Bidding is expected to be completed by the end of 2021-22. AAI plans to bundle Jharsuguda airport with Bhubaneswar airport, Kushinagar and Gaya airports with Varanasi airport, Kangra airport with Amritsar airport, Jalgaon airport with Raipur airport, Jabalpur airport with Indore airport, and Salem airport with Trichy airport. While the exercise may attract attention due to the growth potential of the six profit-making airports, the model of clubbing the big and small entities may lead to a decrease in valuation. In any case, the valuations are down during the pandemic.
Asset base
One of the primary focus areas listed in the government’s National Infrastructure Pipeline (NIP) is the development of the airport industry via PPP. Over fiscal years 2022-25, 25 major AAI airports will be examined for monetisation. The overarching goal is to monetise these 25 airports. Apart from this, the bundling of smaller airports may be explored depending on market testing of transactions and investor response. The government is planning to raise Rs 208 billion over four years through the monetisation process. For the purpose of monetisation via brownfield PPP models, AAI has targeted six airports in Tier II/Tier III cities – Amritsar, Varanasi, Bhubaneswar, Indore, Raipur and Trichy – during the current fiscal. The clustering of small airports with each of the six major airports to lease them out as a package is being considered as a way to ensure that non-profitable airports are developed in a manner that is fully consistent with the advancement of lucrative airports, with the assistance of private sector investment and participation.
The airport assets for monetisation account for around 18 per cent of the total airport assets under the management of AAI. The authority is also contemplating selling its remaining holdings in four airport JVs as part of its monetisation strategy. These include private sector-operated airports in Mumbai (26 per cent stake), Delhi (26 per cent stake), Hyderabad (13 per cent stake), and Bengaluru (13 per cent stake). Of the expected monetisation proceeds, Rs 100 billion has been tentatively considered on account of divestment of AAI’s stake in private JV airports. The remaining monetisation value of Rs 108 billion will be generated from estimated capex in the identified airports.
As per the NMP, a total of eight airports, with an estimated capital expenditure of Rs 42.95 billion, are being considered for monetisation in 2022-23. These are located in Calicut, Coimbatore, Nagpur, Patna, Madurai, Ranchi, Jodhpur and Surat. With a budget of Rs 41.93 billion for 2023-24, airports in Chennai, Vijayanagar, Tirupati, Bhopal, Vadodara and Hubli would be monetised. In 2024-25, Imphal, Agartala, Udaipur, Dehradun and Rajahmundry airports, with a capex of Rs 18.57 billion, will be put up on the block.
Looking up
The latest privatisation round has seen aggressive bidding as the assets on offer were profit-making. The clubbing of non-profitable airports with profitable ones could be a drag on the privatisation exercise as the valuations may get impacted. Net, net, airport monetisation will be a win-win for all parties as it will reduce the debt of the exchequer while handing over brownfield airports to private players on long-term concessions.
The development of high quality in-house maintenance, repair and overhaul facilities to significantly reduce the operating costs of carriers and thus make air travel more affordable is also being seriously considered under the NIP vision for 2025, as India is currently reliant on Southeast Asian, Middle Eastern, or European countries for plane maintenance. The Digi Yatra biometric boarding technology will be activated in order to improve passenger traffic. Another breakthrough in the NIP’s vision is the installation of smart cameras and the use of robots for passenger check-in and luggage handling.