The monetisation of operating public infrastructure assets to the tune of ₹2.5 lakh crore by the Narendra Modi-led government will see the Airports Authority of India (AAI) sell its stakes in the country’s top metro airports of Delhi, Mumbai, Bengaluru, and Hyderabad. Collectively, they handle more than half of the country’s overall air passenger traffic. This comes after the AAI took to a public-private model in building new airports and ramping up existing airport capacities, beginning in 2006 with the brownfield expansion of Mumbai and Delhi airports.

An aviation executive, who did not wish to be named, said the decision could have stemmed from the question “How does it benefit AAI to remain invested?” What really benefits the country’s nodal airport operator is the revenue share aspect that is encapsulated in the concession agreements with private airport operators. For example, the share of revenue (gross) to AAI is 46% in case of the Delhi airport and 39% in the case of Mumbai airport. Together, they contribute a bulk of AAI’s revenue (25% in FY18), which makes it one of the few profitable public sector enterprises.

“These two airports have generated ₹29,000 crore till December 31, 2020. Even after the stake sale, @AAI_Official [AAI] will continue to receive this share which will be used to develop aviation infrastructure,” tweeted Hardeep Singh Puri, minister of civil aviation, on March 15. “Those who are raising concerns should also know that @DelhiAirport and @CSMIA_Official [Mumbai airport] are on a 60-year lease; these and the six other airports [that were privatised last year] will be back with AAI after the lease period. So, nothing as they claim, is being ‘Sold Out!’,” the minister tweeted in response to a tweet by Congress leader Rahul Gandhi.

Image : Graphics by Rahul Sharma

Privatisation, tweeted the minister, is a means of raising resources to fulfil the aspirations of citizens without imposing new taxes. However, not many in the aviation industry see it from the lens of Puri.

Besides AAI’s stake sales, the identification of 13 more airports for privatisation is afoot. Last year, in the first round of airport privatisation, the Adani Group, led by billionaire Gautam Adani, bagged the contracts for the airports in Lucknow, Ahmedabad, Jaipur, Mangaluru, Thiruvananthapuram, and Guwahati. The Adani Group also went on to acquire controlling interest in Mumbai International Airport Limited (MIAL), the entity which owns and operates the Chhatrapati Shivaji International Airport, in Mumbai. MIAL also holds 74% equity stake in Navi Mumbai International Airport Limited, which is building a greenfield airport in Navi Mumbai.

Through these acquisitions, the Adani Group has eight airports in its kitty which, according to consultancy firm CAPA India, is a major step in the consolidation of airport operators. “This is the final step of replacing a government monopoly with a private monopoly,” argues Devesh Agarwal, editor, bangaloreaviation. com, an aviation news portal. He is of the opinion that AAI’s stakes in privatised airports, both brownfield and greenfield, are meant to safeguard the interest of passengers in the respective airport companies. As more AAI airports get privatised, going forward, up to 80% of traffic will be handled by PPP (public-private partnership) airports, estimates CAPA India.

At the moment, it looks like a two-horse race emerging in the airport sector between Adani Group and the GMR Group, which owns and operates the country’s busiest airport, Indira Gandhi International Airport, in Delhi, with a passenger traffic of 67.3 million in FY20. The GMR Group also owns and operates the Rajiv Gandhi International Airport at Hyderabad, and is developing a greenfield airport at Mopa, in Goa. It also emerged as the highest bidder to develop, operate, and manage the greenfield Bhogapuram International Airport in Andhra Pradesh.

In MIAL, the Adani Group holds 74% stake and 26% is with AAI. The latter has a similar stake in Delhi International Airport, where the GMR Group is the majority shareholder. However, in the greenfield airports of Hyderabad and Bengaluru, AAI holds a 13% stake in each, while the respective state governments own similar stakes. “AAI requires funds as it is having a lot of cash flow problems because of the pandemic,” says the aviation executive quoted earlier. Exiting from these airports, he adds, is akin to the efforts being made by the government to privatise flag carrier Air India. “However, there are roadblocks there because of the fact that the airline has so much debt.”

According to rating agency ICRA, in FY19, AAI reported a net profit of ₹2,300 crore on an operating income of ₹13,087 crore compared to a net profit of ₹2,718 crore on an operating income of ₹12,307 crore in the previous year. A report in a business daily mentioned that AAI, which is a mini-ratna category public sector enterprise, clocked a profit of over ₹3,600 crore on revenues of around ₹14,367 crore in FY20. But the Ministry of Civil Aviation has indicated that the company would end FY21 in the red, owing to the fall in passenger traffic in light of the Covid-19 pandemic. Moreover, a few of the big private airports have invoked a force majeure clause on their revenue sharing payments to AAI, which, ICRA says, “would further erode profitability and increase the reliance on external debt to meet the operational and capex requirements”.

Image : Graphics by Rahul Sharma

Of course, the bigger picture from the government’s point of view is monetising of operating public infrastructure assets to finance new infrastructure construction. To this end, the government has plans to monetise assets, including roads, electricity transmission, oil and gas pipelines, telecom towers, sports stadia, and airports, among others. The assets shortlisted come under the purview of eight ministries. Some reports peg the government’s asset monetisation drive in airport infrastructure to fetch ₹20,000 crore in FY22. The largest revenue collection, though, is expected to come from the railways, with a target of ₹90,000 crore.

Aviation analysts point out that the government’s role in building airport infrastructure should be to help with timely approvals related to land acquisition and other regulatory clearances. “And to offer tax incentives and rebates to encourage investment in the sector until airports are able to generate positive cash flow on their own,” says Sanjiv Kapoor, former chief strategy and commercial officer, Vistara, and former COO, SpiceJet. Further, the government can also help with the development of supporting infrastructure. “Airports of the future should ideally have integrated train stations for intercity trains to cover the ‘last mile’ to nearby destinations. For example, New Delhi to Chandigarh or Dehradun—to relieve pressure on airport slots and to help the environment as short flights pollute more per mile than longer flights,” adds Kapoor. Agarwal, too, concurs, adding that the government has to incentivise the right infrastructure. “As of now most Indian airports may have lavish terminals, but they are sadly lacking in airside infrastructure to handle the growth in aviation.”

(This story originally appeared in Fortune India's May 2021 issue).

Follow us on Facebook, X, YouTube, Instagram and WhatsApp to never miss an update from Fortune India. To buy a copy, visit Amazon.