BS Reads: 1 in 4 flyers in India to land or take off from an Adani airport

While questions may arise over the dominance of a single corporate group in running airports, it pretty much fits into the govt's plan to exit this space and earn revenue without working for it

The government has no business to be in business. This mantra of capitalism, invoked by PM Narendra Modi to US investors in 2015, was reiterated recently by his civil aviation minister Hardeep Singh Puri. With Air India’s privatisation hanging fire amid extended deadlines, Puri on August 30 said, “The government should not be running airlines and airports.”

Puri’s statement came a day before the Adani group bought majority stake in Mumbai airport from GVK. The Adani group now controls seven airports in India which makes it the biggest private operator in this space. Ahmedabad, Lucknow and Mangaluru were the first to be awarded to it after a competitive bidding in July 2019 against stiff competition from GMR, Fairfax, Flugafen Zurich AG and others. Two weeks before the Adani group bagged Mumbai, the Modi cabinet accorded approval for Guwahati, Jaipur and Thiruvananthapuram as well. While bidding for the six airports happened simultaneously, the cabinet approvals were staggered.  

These seven airports handle almost 21 million international passengers; almost a third of India’s total international passenger traffic. That’s in addition to 62 million domestic passengers; almost a fourth of all domestic air traffic in India. In effect the Adani group now has access to 26 per cent of all air passenger traffic in the country. No private entity, except GMR, which operates Delhi and Hyderabad, controls two or more airports.  

While Adani’s seven airports handle as much passenger traffic as GMR’s two airports, they have shown exponential passenger growth – much higher than the national average. They are also expected to grow faster than others. The conglomerate itself estimates that in the near future, passenger growth at the six airports (excluding Mumbai) will be 17 per cent as compared to 12 per cent for other Indian airports. These airports come with 225 acres of land that can be monetised for non-aeronautical purposes till 2070, when Adani’s 50-year lease will expire.

While questions may arise over the sheer dominance of a single corporate group in running airports in the country, it pretty much fits into the government’s plan to get out of this space and earn revenue without working for it. The Modi government was mulling not allowing a single corporate to run more than two airports. But no concrete proposal or rules have been notified yet.  

Lease revenue from Delhi and Mumbai airports accounts for almost 30 per cent of AAI’s annual Rs 14,000 crore revenues. These revenues have dipped over the past few years, from around Rs 3,800 crore in 2016-17 to Rs 3,000 crore in 2018-19. Adani’s deal for the six airports is different from AAI’s agreements for Delhi and Mumbai. For India’s biggest airports, AAI gets a share of the total revenues earned by their operators. So when revenues dip, so does the money received by AAI. While Adani’s takeover of GVK’s stake in Mumbai will not change this revenue arrangement, AAI will be hoping that the deal for other airports fetches it higher revenues every year.

Under the concession agreements signed for Ahmedabad, Lucknow and Mangaluru airports, Adani will pay AAI Rs 177, Rs 171 and Rs 115 respectively for every domestic passenger. AAI will also receive twice these amounts for every international passenger. Assuming that a similar arrangement is also made for Thiruvananthapuram, Guwahati and Jaipur, an off-hand calculation shows that Adani could end up paying Rs 750 crore for these six airports to AAI every year. With these airports expected to witness high annual passenger growth, this could well translate into better revenues for the government. A caveat to this would be the revenue loss from not running these airports for AAI.

 

A significant portion of AAI’s non-lease revenues come from the 21 international airports it operates. The 78 domestic airports, eight customs airports and the few civil enclaves in defence airfields account for a much smaller portion. Almost all of these are loss-making. After the deal with Adani, AAI would be left with 15 international airports. The six airports leased out to Adani reported revenues of Rs 1,700 crore in 2018-19. Four of these--Ahmedabad, Guwahati, Mangaluru and Thiruvananthapuram-–were profit-making. These airports, the only few which recorded profits, made Rs 200 crore in combined gains. So while AAI would have to forgo almost Rs 1,700 crore in revenues after leasing these airports to Adani, it would net an additional Rs 500 crore by not running them. Adani would also be reportedly making an upfront payment of several thousand crores to AAI for taking over the assets of these airports.

A senior official of AAI explained that the deal with Adani allows for annual increases in the per-passenger fee and that the money earned will be used to develop and upgrade airports in smaller towns that would be connected under the Modi government’s regional connectivity scheme (called UDAN).

Certain airports, such as Thiruvananthapuram, could turn out to be a landmine for the corporate group. The Communist government in Kerala led by Pinarayi Vijayan is yet to sign a state support agreement for the airport with Adani. Trade unions and the state government have challenged the privatisation of the airport in court. With elections in Kerala scheduled in the summer of 2021, the issue could well become a political hot potato in the times to come.

Adani, which has no experience in running airports, is reported to be partnering with Germany-based airport operator Flughafen München GmbH, which manages the Munich airport, to run its airports in India. Like AAI, it is owned by state authorities in Germany. An email sent to the Adani group and Flughafen München GmbH did not elicit a response till the times of publication.

“Public sector enterprises running airports is not a bad idea. It all boils down to efficiency. In India, political interference and latent inefficiencies have made AAI highly constrained. I don’t think AAI should completely get out of the business. Larger airports can be privatised. The money from them should be used efficiently by AAI to scale up civil aviation infrastructure in smaller towns across the country,” said Sanat Kaul, chairman of International Foundation for Aviation and Development.

AAI, meanwhile, has already set in motion the process to lease out six other airports in the times to come. They include Bhubaneshwar, Tiruchirapalli, Raipur, Indore, Varanasi and Amritsar. All of them except Tiruchirapalli reported losses in 2018-19. It is unclear if Adani, which is now India’s biggest private airport operator, will be in the race for these airports as well. If it does bag them, India’s biggest private ports operator and owner of India’s longest private rail network, could well and truly be the king of everything that moves on land, water, rail and air in the country.