Tata group investment in GMR Airports hits AAI regulatory hurdle

Rs 8,000 cr funding violates norms preventing airlines from holding 10% in facility

The plan of the Tata group and two foreign entities to invest Rs 8,000 crore in GMR Airports (GAL) might face more regulatory delays because it reportedly violates a clause that prevents airline groups from holding more than 10 per cent stake in Delhi International Airport (DIAL).

The Tatas hold majority stakes in two airlines — Vistara and Air Asia India. If the deal goes through, the Tata group will have a 20 per cent stake in GAL. This would give it a 12.8 per cent stake in DIAL.

GAL has a 64 per cent stake in DIAL, while the Airports Authority of India (AAI) and German company Fraport own 26 and 10 per cent, respectively.

The Tata group was making the investment through its arm Tata Realty Infrastructure. Its co-investors were Valkyrie Investment and Solis Capital Singapore. It has been given conditional approval by the Competition Commission of India (CCI).

Sources aware of the development said the AAI had sought the opinion of the Solicitor General of India on the legality of the transaction.

“An approval from the CCI is not final as it violates an agreement entered between GMR and the Government of India in 2006, when Delhi Airport was being privatised. The AAI has sought the opinion of the Solicitor General and will act accordingly. The deal is not final as it needs approval from the AAI by virtue of being a joint venture partner,” said a government official.

The deal, announced in March this year, has taken longer than expected and faced delays because of various regulatory issues. As a result, GMR has been forced to raise additional bonds to meet debt obligations.

“Any delay in materialisation of the deal beyond December shall be a credit negative for GMR,” rating firm CARE said last month.

The Ministry of Civil Aviation has carried out a stakeholder’s consultation over the process, which included seeking views from other airlines.

“Some concerns have been raised by other airlines that the Tata group holding such a large stake in GMR can distort the level playing field and give unfair advantage to Vistara and Air Asia India,” the official said.

Delhi Airport is the prime airport of the country. It is the base of two other airlines — IndiGo and SpiceJet. “There cannot be any conflict over ownership,” said the source.

Regulatory authorities across the globe are generally wary of airlines taking too large a share in airports for fear of their distorting competitiveness in airport access, primarily the allocation of slots. For instance, under Australian rules there is a 5 per cent limit on airline ownership of airport-operator companies.

A Tata Sons spokesperson refused to comment on the issue.

An official of the GMR group said their reading of the law suggests the transaction was legal as it has been done in the holding company (GMR Airports) and not directly in DIAL.

Sources said the three-member committee of the CCI which gave conditional approval to the deal was alerted by the AAI but they approved it as they found that the deal primarily will not have any adverse impact on the competition scenario in aviation sector.

“Beside a written law, the CCI also takes cognisance of the factor that if a particular deal will ultimately benefit the consumer. There was no such factor in this deal which could impact the competitive scenario of the sector. Already there are enough protocols which would prevent any unfair advantage to airlines owned by the Tata group. Instead, such a deal will change the competitive landscape of the airport sector,” said a person aware of the approval process of the CCI.

The CCI observed that slot allocation at congested airports such as Delhi is done by a coordination committee, which has representation from the government and all airlines.

Additionally, if an airline has used the granted slots 80 per cent of the time, it can keep these.

“India’s slot allocation guidelines are enough to prevent any distortion to competitive landscape that may originate from this deal,” the person said. “However, all CCI orders can be challenged if someone can prove that it violates provisions of other statutory laws. It is upon the parties to ensure that the approval is not taken as a licence to violate other provisions.”

A senior Tata group official said the group will not be involved in day-to-day management of airports but will act as a passive financial investor.

“The Tata group’s representation will only be at the board level of the holding company GAL and not in the board of the respective airports owned by GMR. The company will act merely as a passive financial investor. We have informed the CCI,” he said.