BS READS: Rs 10,000-cr hit behind govt plan to sell Delhi, Mumbai airports

With the golden geese laying golden eggs no more, the Modi government's decision to sell Delhi and Mumbai airports could well save it from flogging a dead horse in the coming years

As the central government makes it clear that it will sell Airport Authority of India’s (AAI’s) stake in Mumbai, Delhi, Bengaluru, Hyderabad and various other airports to private players, some details that are emerging paint a distressing picture of factors that may be necessitating this sale. AAI could potentially be staring at lost revenues to the tune of over Rs 10,000 crore from Delhi and Mumbai airports in the next few years due to the impact of the Covid-19 pandemic on the aviation industry. GMR-owned Delhi and Adani-owned Mumbai airport account for over 90 per cent of AAI’s lease rental earnings. AAI owns 26 per cent stake in each of these airports and a smaller share in others.
 
Documents show that Mumbai International Airport Ltd (MIAL), in which Adani recently acquired a controlling stake from GVK, would start earning pre-pandemic-level revenues only by 2022-23. A full-fledged return to buoyant revenue growth wouldn’t come before 2023-24.
 
The Mumbai airport’s own estimates show that in 2020-21 its revenues would plummet 65 per cent from the previous year to just Rs 1,225 crore. In 2021-22, revenues would be 20 per cent less than 2019-20, the last year of so-called ‘normalcy’ in the pre-pandemic aviation sector. By 2022-23, revenues would be almost the same as in 2019-20, with moderate growth. And after three ‘lost years’, revenues would climb 19 per cent in 2023-24 when compared with 2019-20. If Delhi International Airport Limited (DIAL) were to face similar declines, its revenues would fall even more precipitously in absolute terms. (See graphic)
 
This would be a doomsday scenario for the government since any decline in revenues of the Delhi and Mumbai airports would lead to a concomitant fall in the revenues of AAI. As much as 45.99 per cent of DIAL’s revenues and 38.7 per cent of MIAL’s are shared with AAI. Revenues from the Delhi and Mumbai airport account for more than a third of AAI’s total revenues. In the past decade and a half since AAI entered into contracts with GMR and GVK, lease revenues from the two airports have grown over five times – much faster than AAI’s revenue from other sources.
 
The pandemic-induced arduous decline in revenues from these cash cows becomes even more worrying for a government which is banking on such crucial money streams to finance development of aeronautical infrastructure and subsidise airlines to fly to smaller towns in the country. The New Delhi-based National Council of Applied Economic Research (NCAER) had formulated revenue projections for Delhi and Mumbai that showed both airports clocking a combined turnover of over Rs 53,000 crore from 2019-20 to 2023-24. AAI would have cornered Rs 23,330 crore from these revenues. Instead, both airports are now expected to earn Rs 30,000 crore less than what NCAER had predicted. This would mean a loss of Rs 10,345 crore for AAI during this period.
 
“Stake sale in Delhi, Mumbai and other airports would lead to a windfall since these are high-value assets for AAI. Monetising them would enable us to channel our resources to other high-priority areas and enhance connectivity to unconnected and less connected regions in India,” said a senior official in the civil aviation ministry. Asked whether AAI would continue to receive any payments even after exiting Delhi and Mumbai airports, the official said that “modalities would be worked out during the (stake sale) process.”
 
One of the options on the government’s table is to introduce the so-called ‘Adani model’ of revenue sharing. AAI has different revenue-sharing agreements for different airports. In the case of Delhi and Mumbai, it gets a fixed share of revenues earned by DIAL and MIAL. The concession agreements for Delhi and Mumbai were signed in 2006 with GMR and GVK, respectively, for a period of 30 years. With the Adani group, which was awarded contracts for operating six airports in 2020, AAI gets a fixed fee for every domestic and international passenger flying from these airports. Adani’s concession agreement is for a period of 50 years.
 
The key difference between these models is that AAI doesn’t have to rely on airport revenues, which have often been a bone of contention with the allegations of under-reporting of numbers eventually reducing AAI’s slice of the pie. Passenger numbers are relatively free from discrepancies and given India’s position as one of the world’s fastest-growing aviation markets, AAI’s earnings could steadily increase once global aviation staggers back to some semblance of normalcy.
 
When contacted, an Adani group spokesman said that the group still hadn’t taken over operations of the Mumbai airport from GVK and, therefore, wouldn’t be in a position to comment on the fall in revenues and its impact on AAI’’s revenue share. An email sent to GVK, GMR and AAI had not elicited a response till the time of publication of this report.
 

In many ways, the pandemic has upended the glorious run of Indian aviation – led by Delhi and Mumbai airports, given their status as India’s largest airports. Both airports beat NCAER’s traffic projections every year till 2018-19. Even in 2019-20, when the first three months of 2020 saw disruptions in international air travel, Delhi and Mumbai still managed to surpass projections. NCAER had forecast that 112 million passengers would fly through both airports in 2019-20. Despite the disruptions, 113 million passengers actually did.
 
However, all projections seem to have gone haywire, at least until 2023, due to the pandemic. Both airports were expected to see 120 million passengers by 2020-21. Till January 2021, only 24 million had flown through them. India is operating limited international flights through air-bubble arrangements with 27 nations. Key destinations like Saudi Arabia, China and South East Asian nations like Singapore, Thailand and Malaysia still remain unconnected to India. And as Covid cases witness a resurgence in India, with a 150 per cent increase in 70 districts, there are fears of a “second peak”, and the future of domestic air travel too is mired in uncertainty in the time to come. “Passenger demand is back to the 1998 level. Passenger revenue is back to the 1993 level. There were 30,000 unique international routes before the crisis. Now there are just 20,000. These routes were served by 43 flights a month. Now only 20 flights serve them,” said Alexandre de Juniac, CEO of International Air Transport Association (IATA), on March 17.
 
The proposed stake sale, which is part of the government’s Rs 2.5-trillion asset monetisation plan across sectors, has also become a target of the Opposition’s wrath. Congress leader Rahul Gandhi, reacting to the decision to sell Delhi, Mumbai and other airports, stated: “The Modi government only comes to sell. It doesn’t know how to make something. Privatisation hurts the public and benefits only a few cronies.” Reacting to Gandhi’s comments, Civil Aviation Minister Hardeep Puri said: “Privatisation is a means of raising resources to fulfil the aspirations of our citizens without imposing new taxes. The four airports about which concerns are being raised were privatised/constructed during Congress regime.”
 
With the golden geese no more laying golden eggs, the Modi government’s decision to sell Delhi and Mumbai airports could well save it from flogging a dead horse in the coming years.