India's airport privatisation plan creates a barricade for power in few hands

The government is planning to cap the number of airport bundles that a single private bidder can win in the upcoming privatisation of 11 Airports Authority of India airports, citing concerns over market concentration and excessive leverage across projects, PTI reported.

The cap is aimed at mitigating the risk that one operator taking on multiple airport projects could become over-leveraged, with financial stress at one project potentially affecting its other airport concessions, the report said, citing the Public Private Partnership Appraisal Committee (PPPAC) document.

The civil aviation ministry has proposed leasing the 11 airports in five bundles under the public-private partnership model, with each bundle to be awarded to a single concessionaire.


Also Read: 11 airports to see Rs 8,622 crore private investment under 50-year concessions

The PPPAC gave an in-principle approval to the proposal at its August 4 meeting.

The five bundles are Amritsar-Kangra (Gaggal), Varanasi-Gaya-Kushinagar, Bhubaneswar-Hubballi, Raipur-Aurangabad and Tiruchirappalli-Tirupati.

The private concessionaires taking over the 11 airports are expected to invest a total of Rs 8,622 crore.

The government has proposed a one-year joint-management period with existing Airports Authority of India employees after the airports are handed over. Concessionaires would also be required to retain 60% of AAI employees for up to three years.

Airport privatisation gathers pace

The latest move comes as India prepares another major round of airport privatisation amid rising passenger traffic and increased investment by existing airport operators.

The government had earlier awarded six AAI airports under the PPP model in 2018-19.

For the current round, AAI initially assessed 12 major airports based on passenger traffic, land availability, commercial potential and financial performance. It then evaluated 136 smaller airports for potential bundling based on factors including traffic potential, capital expenditure needs, geographical proximity and financial viability.

The proposed 11-airport package also comes as major airport operators are stepping up investments.

Adani Airport Holdings has said earlier that it plans to invest Rs 90,000 crore-Rs 1 lakh crore across its airport portfolio over the next five years. Jeet Adani, director at Adani Airport Holdings, reiterated the plan this month while announcing commercial flight operations from Mundra airport.

GMR Airports, meanwhile, plans to invest up to Rs 19,400 crore ($2 billion) over five to seven years to expand its Delhi and Hyderabad airports, according to a Bloomberg report.

Also Read: Adani rival GMR plans $2 billion expansion at two India airports

GMR is also expected to compete for upcoming Indian airport projects, its executive director for finance and strategy Saurabh Chawla said in the report.

Airport-airline ownership debate

The proposed cap on airport bundles comes against the backdrop of a separate debate over whether airport operators should be allowed to own airlines.

IndiGo co-founder and managing director Rahul Bhatia had warned in July that allowing airport operators to own airlines could create a "massive conflict of interest". He was responding to reports that the government was considering relaxing restrictions on airport operators entering the airline business.

On August 10, the Centre said there was no government policy that broadly prevents major airport operators from holding substantial equity in or operating scheduled airlines.

However, it said some existing PPP airport contracts restrict scheduled airlines and their group entities from holding equity in airport concessionaires.

Separately, the Economic Times reported in July that Adani Airports had sought a waiver from the Airports Authority of India in a June letter to remove restrictions on airport operators owning stakes in scheduled airlines. The report cited a letter reviewed by ET and senior government officials.

The issue is particularly significant as airport ownership becomes increasingly concentrated among large infrastructure groups, while IndiGo and Air India together account for nearly 90% of India's domestic airline market.

GMR, however, has said it is not interested in entering the airline business even if the rules are changed, preferring to focus on airports and related businesses.

Also Read: Centre says no policy bars airport operators from owning airlines, confirms AAI receiving waiver request

The latest airport bundling framework, therefore, reflects the government's attempt to attract private capital into smaller airports while limiting excessive concentration and financial risk among concessionaires.