With Mumbai, Adani set to be largest airport operator in India
(LiveMint recently published a very insightful piece on the changing landscape of Indian airports. Deepika Anjna has sifted the piece to bring its gist for our readers).
The GVK group finally gave up its 40 days fight for the majestic Mumbai airport on August 31. Mumbai International Airport (MIAL) is now controlled by the Adani group which is fronted by Adani Airport Holding Ltd.
GVK Group will be free now of its several corporate guarantees, securities, and obligations because from now on the Adani group will handle all of its debts including the lenders, Yes Bank, HDFC, and a Goldman Sachs-led consortium. It’s believed that GVK got a ridiculously low valuation. So far neither GVK nor Adani Group is revealing numbers. Interestingly, both are public limited companies.
The GVK group's holding in MIAL was 50.5% and about 10 months ago, it had three potential investors who were ready to buy its 79.1% stake at the price of ₹7,614 crores but Gautam Adani did not want to settle for less than 100%.
Gautam Adani said to Mint that “There was no Covid then," when it was suggested to him that management control would have been more beneficial. Adani sealed the deal in his signature style by doing it himself. He also added, “I never use any banker nor a lawyer."
The rest of the 49.5% stakes of MIAL are divided between Airport Authority of India (AAI) which has 26%, Airport Company of South Africa (ACSA) and Bidvest have 23.5%. Gautam Adani wants to buy a 23.5% stake held by ACSA and Bidvest which will take Adani Group's holding to 74% in MIAL.
The economy all around the world is facing a crisis due to the pandemic and so was MIALl. It was facing a lot of difficulties in recovering from revenue shock due to the pandemic and along with this, MIAL and GVK promoters were under a lot of pressure due to the twin probe in a money-laundering case by Enforcement Directorate (ED) and CBI. A GVK official was quoted as saying, “There was huge pressure from lenders."
Adani Airport Holdings Ltd was set up on August 2, 2019, and has already won six bids for airports operated by AAI in Lucknow, Ahmedabad, Mangalore, Thiruvananthapuram, Jaipur, and Guwahati. The unlisted company seems to be emerging as the largest airport operator in India.
Due to the pandemic, Adani had asked the AAI to extend the deadline to close the deal and transfer the signing amount of ₹1,000 crore for the airports of Lucknow, Ahmedabad, and Mangalore. Adani even signed a concession agreement with AAI in February for the extension from August to December 2020 or beyond. Adani said: “We are not seeking any further extension. We have already submitted the bank guarantees."
The Adani group's net profit saw a steep fall in 2019-20 and at the end of their last financial year, they had a debt pile of ₹1.3 trillion. In such a scenario, the government's decision to give six airports to such a group has raised many doubts.
Adani said, “In the long term, when India builds 200 additional airports to handle over 1 billion passengers across its tier-1, tier-2 and tier-3 cities, a majority of them will be connected to Mumbai." He added, “We see airports as the nucleus around which we can crystalize real-estate and entertainment facilities, e-commerce and logistics capabilities, time-sensitive industrial ecosystems and aviation-linked businesses."
Adani Group: Thinking out of box
The Adani group does not want to miss a single angle of earning revenue, whether it is aero or non-aero. To generate non-aero revenues, the group is thinking out of the box by developing a concept of airport villages for the non-passenger visitors.
The government has modified the bidding parameters to make airport privatisation more profitable by junking the old revenue-sharing method that was adopted at the time of privatisation of Delhi and Mumbai airports. The newly adopted revenue-sharing method is called the 'per-passenger fee' model.
The new model also allows the successful bidder to generate revenue from passengers by charging a separate user fee. The concession period has also been extended from 30 years to 50 years under new privatisation rules.
The fact that the policy analysts are concerned about is that the revenues of AAI in privatised airports will completely depend on the number of passengers. And the operator would be able to earn substantial revenue that they don't have to share from non-aero activities like hotels, shopping centres, eateries, restaurants, among others.
Analysts have also shown their disapproval for not involving the cost minimisation element in the bidding parameters. For example, under the new rules, an operator can squeeze non-sharing revenues via aero and non-aero methods from the airlines and passengers by taking over an airport via paying an exaggerated amount to the government in the form of per passenger fee.
After that, the Airports Economic Regulatory Authority (AERA) can allow the operator to increase the per passenger fee. India already has the most expensive airports in the world and if the cost of bidding is not restricted then user charges can increase to a very high level.
Mint gets to analyse the revenues of MIAL. In its 14 years of operations, the number of Mumbai airports' to AAI was ₹1,448 crores in 2018-19 only. After the revision as directed by the court, the revenues to AAI from Delhi airport which is run by the GMR Group have declined to ₹1,591 crores in the last couple of years.
Experts point out two factors in airport business: Increasing focus on the high-value cargo and commercial development of real estate around airports.
The aerocity concept allows development of hinterland around airports to set up warehouses, hotels, restaurants and medical facilities, among others. The truth is, real estate development is an important part of the airport business. Another potential area is services of commercial aircraft, including overhaul, repair and maintenance.
Meanwhile, it was argued by MIAL that cross-subsidy would be limited if the royalty is limited and that can result in higher aeronautical charges.
In April 2018, AERA capped the royalties after a long negotiating process and consultation and it allowed 30% of the revenue/royalty to be used for ground-handling. cargo, and other services. Along with that it also allowed 5% for fuel services of the plane.
It would be interesting to see the practical implementation of the ‘per-passenger fee’ model. But it can be said for sure that private airports surely generate amazing revenues for the owners.
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