Stake in Mumbai airport tightens Adanis’ grip on sector

The Adanis will now handle every fourth passenger at an Indian airport. This makes AEL the largest airport operator in the country after the Airport Authority of India (AAI)

MIAL will surely prove a jewel in Gautam Adani’s crown since the airport handles more than 45 million passengers per year. Photo: PTI

The Adani Group’s successful bid in buying a controlling stake in Mumbai International Airport (MIAL) – the country’s second busiest airport – is a sign of perceptible aggression.

The Adanis will now handle every fourth passenger at an Indian airport. This makes the Adanis the largest airport operator in the country after the Airport Authority of India (AAI).

Six airports under control and counting…

Advertisement

Some months back, Adani Enterprises Ltd (AEL) emerged as the successful bidder for all the six airports which were being leased out by the Airports Authority of India (AAI). These were the airports at Thiruvananthapuram, Guwahati, Jaipur, Lucknow, Ahmedabad and Mangaluru. 

It is quite evident that billionaire Gautam Adani wants to become the largest airport operator in India. 

In doing so, the AEL beat back competition from well-heeled desi airport operators like the GMR Group, international airport operators and infrastructure majors. Revenue share per passenger was the sole criterion for winning the bid for all six airports and AEL emerged as the clear master of the game. All other contenders were left far behind.

The Adanis offered more than double the per passenger fee proposed by the closest private airport operator for the Thiruvanathapuram airport besides beating the state government’s offer by nearly 19 per cent. In Mangalore, the Adanis offered six times the lowest bidder; for Ahmedabad, their offer was more than 10 times the lowest bidder.

Monopoly concerns

Should monopoly concerns not arise in this scenario? Specially since acquisition in Mumbai airport would also mean the Adanis operate the proposed Navi Mumbai airport in future?

It is interesting to see that unlike other instances where the government invited private participation for leasing out large infrastructure projects, there was no cap on the number of airports a single bidder could win in the last round of airport privatisation.  According to documents available with the Airports Authority Employees Union (these have not been independently verified), which they say were sourced through RTI, a cap was indeed proposed by the Department of Economic Affairs.

Can more than two airports be awarded to a single bidder?

In an appraisal note, the DEA (Ministry of Finance) had proposed in December 2018 that not more than two airports be awarded to a single bidder.  So how come Adani got the permission to handle six airports and then acquire stakes in airports like Mumbai?

Under the heading ‘Bid parameter’, the DEA had said “these six airports are highly capital intensive projects, hence it was suggested to incorporate the clause that not more than two airports will be awarded to the same bidder, duly factoring in the high financial risk and performance issues. Awarding them to different companies would also facilitate yardstick competition.  In the case of project failure, there would be capable bidders available.

It is a mystery still as to why was the proposal diluted later and the cap not applied? An Airports Authority Employee Union member alleged that there were other gaping irregularities as well in the entire process of awarding these six airports on a 50-year lease and that the union has litigated at various levels to stop this process.

Government rubbishes wrongdoing claim

On his part, MoS Civil Aviation Hardeep Puri has brushed aside charges of irregularities. In an op-ed published on Monday, he said “international competitive bidding for these airports followed an efficient and transparent process, reflected in the overwhelming response received from bidders (national and international) with a total of 86 registrations from 25 bidders and 22 additional bids received from 10 entities via e-tendering portal. In 2006, Delhi and Mumbai airports received, in contrast, only a limited five and six bids respectively”.

Puri also justified the “per passenger fee” model used as bid criterion and pointed out that user charges – what passengers pay to use an airport – are determined by the sector regulator AERA. As whispers around the airport leasing out process refuse to die down, perhaps AAI would consider revising concession agreements for future airport leases to ensure a more transparent process.

Mumbai airport, a jewel in Adani’s crown

Bloomberg reported that in the case of Mumbai, Adani Airport Holdings will acquire the debt of GVK Airport Developers in MIAL. Adani will also buy the 23.5 per cent stake in MIAL by Airports Co South Africa and Bidvest Group Ltd and then work to acquire control. GVK holds a 50.5 per cent stake in MIAL and 74 per cent stake in the proposed second airport at Navi Mumbai. After this transaction is complete, the Adani Group would likely hold 74 per cent stake in MIAL.

MIAL will surely prove a jewel in Gautam Adani’s crown since the airport handles more than 45 million passengers per year. The six airports this group bagged earlier account for nearly 10 per cent of the country’s air traffic. The Mumbai deal surely makes Adanis the largest airport operators in the country after the AAI.

The DEA had gone on to say that in the case of Delhi and Mumbai airports, though the GMR Group was the only qualified bidder originally, it was not given control of both the airports. “In the case of Delhi Power Distribution Privatisation, the city was carved into three zones and given to two companies. Therefore it is suggested to incorporate the clause that not more than two airports will be awarded to the same bidder,” the DEA said.

Sensing an opportunity in crisis

A market which was till recently the world’s fastest growing isn’t that attractive anymore. over the last five months, India’s aviation wings have been clipped by the Covid-19 pandemic as air traffic struggles to come back.

Experts are already projecting a fraction of the traffic this year compared to 2019 and travel restrictions continue to hobble airports as well as airlines.

Airports across the country are struggling with financial constraints brought on by the pandemic and what better time than this, when chips are down and operators are at the mercy of the virus, to push ahead with the dream of becoming India’s uncrowned airport king? So while sources close to developments say the Adani Group does not want to be in consumer-facing businesses and will therefore probably never look at owning an airline, the push for airports is seen to be in line with the infrastructure focus of the group.

Get breaking news and latest updates from India
and around the world on thefederal.com
FOLLOW US: