13 airports get nod for privatisation via clubbing model

The board of Airport Authority of India has given approval to privatise 13 airports. This is the first major asset monetisation exercise by the government as part of the National Monetisation Pipeline.

The government is aiming for private investment of ~3,660 crore in airports by FY24.

The AAI board has approved privatisation of six major airports-bhubaneshwar, Varanasi, Amritsar, Trichy, Indore, Raipur—along with seven smaller ones in Jharsuguda, Gaya, Kushinagar, Kangra, Tirupati, Jabalpur and Jalgaon, according to sources. The smaller airports will be clubbed with the six major airports for scale and size, thereby making it attractive for investors.

AAI will now appoint a consultant to prepare the bid document and determine the concession period and reserve price. The bids are likely to be called by early 2022.

This is the first time the model of clubbing major airports with smaller ones will be used in the airport privatisation exercise. “To ensure commensurate development of non-profitable airports along with the profitable airports with the help of private sector investment and participation, pairing /clubbing of smaller airports with each of the six bigger airports and leasing out as a package is being explored,” the National Monetisation Pipeline document prepared by Niti Ayog had said.

While Jharsuguda airport will be bundled with Bhubaneswar, Kushinagar and Gaya airports will be clubbed with Varanasi. Kangra, Amritsar, Jalgaon and Trichy airports will be clubbed with Raipur Jabalpur, Indore, and Tirupati airports, respectively.

Prospective investors and consultants said airports would see good participation from bidders, though there will be pressure on valuation. They pointed out that Varanasi along with Gaya and Kushinagar will attract investor interest as all three airports fall on the Buddhist circuit and typically get international visitors.

"This round of privatisation could very well be the last chance for an entity looking to enter India's airport sector. With returns assured on aero assets, some of the existing players will look to increase their scale rather than allowing fresh entrants and competition," said Jagannarayan Padmanabhan, director and practice leader (transport and logistics) at Crisil.

Regulatory regime followed in India gives airport developers a return on investments to upgrade assets through passenger fees, landing and parking charges as well as fuel charges. The return remains fairly visible and stable, according to analysts.

Sidharath Kapur, an infrastructure expert and executive director of GMR Airports, said while the exercise may attract interest due to growth potential of the six profitmaking airports, the model of clubbing the big and the small entities may lead to a decrease in valuation. In any case, the valuations are down during the pandemic, he added.

“The smaller loss-making airports have negligible traffic and will remain a cash drain for many years. Potential bidders will factor this in the bundle and may negate the bundle value more than on a sum of parts independent basis,’’ Kapur said. While pointing out that an airport needs at least 2-3 million passengers to make it viable, he said it would be better to monetise the profit-making airports at higher value. Such a move would help support the loss- making airports till the time they can be monetized, according to Kapur.

In the last round of privatisation, Adani group bid aggressively to win all six airportsAhmedabad, Jaipur, Lucknow, Thiruvananthapuram, Mangaluru, and Guwahati. The bid amount in some cases was double that of the second highest bid.

According to rating agency ICRA, the aggressive bidding would result in a windfall for the AAI, which could earn more than ~600 crore per year as concession

fees from the Adani Group.

However, a senior government official involved in NMP said the government had done a study and gauged investor appetite in airport projects following the impact of Covid-19 on aviation. The study showed that despite the decline in passenger traffic and revenue of airports due to the pandemic, investor interest continues to remain stable.