With Six Airports, Adani Becomes Third Largest In One Single Swoop

The Adani group, which just won the mandate to run all the six government-owned airports that were put up for privatisation recently, will become the third largest private operator in passenger volume after the GMR group and GVK group.

The diversified Adani group is marking its entry into the airports space after bagging a 50-year contract for operation, management and development of the Ahmedabad, Lucknow, Jaipur, Guwahati, Thiruvanathapuram and Mangalore airports after quoting revenue share in the range of Rs 115 to Rs 177 per passenger.

"With these six airports under concession, the Adanis will become the third largest private airport operator in terms of passengers handled, after the GMR group and GVK group," Icra said in a note.

The six airports together handled 30 million passengers—23.6 million domestic and 6.4 million international—last fiscal year, a growth of 22 percent over the previous year, the report said.

The GMR group-run New Delhi airport handled 65.69 million passengers in fiscal 2018 while the GVK group-run Mumbai airport handled 48.5 million during the same period.

As per the Airports Authority of India, which currently operates these six airports, the Adanis offered Rs 177, Rs 174, Rs 171, Rs 168, Rs 115 and Rs 160 for Ahmedabad, Jaipur, Lucknow, Thiruvananthapuram, Mangaluru and Guwahati airports, respectively.

The wide range of bids received, such as from Rs 18 to Rs 160 per passenger offered in Guwahati, shows the challenges in bidding regarding estimation of variables like traffic, non-aeronautical revenues, real estate monetisation and capex for such a long concession term of 50 years, Icra said.

A total of 32 technical bids were received from 10 companies to operate these six airports.

Last November, the government had cleared the privatisation of these six AAI-run airports on public-private partnership model.

The aviation ministry announced fixed concession fee per passenger as the bidding criteria for selecting bidders as against revenue sharing basis model adopted at the time of privatisation of Mumbai and Delhi airports way back in 2006.

"Healthy participation from investors, spanning across domestic and global players, validates the new model, which brings lower regulatory intervention and provides more autonomy to the concessionaire," said Harsh Jagnani, sector head and a vice-president at Icra.

These six airports have been growing at 17 percent annually in the past five years, Icra said, adding as per the winning bids, AAI would generate around Rs 600 crore (including administrative fee) in revenue in the first year.

Going forward, this is expected to jump with growth in traffic and inflation (as the concession fee and admin fee would be indexed to 50 percent of inflation), it said.

The per passenger fee criteria adopted draws from the new concession structure that fixes aeronautical revenue on per passenger basis apart from a maximum blended aeronautical yield model, a proportion of which is shared with the AAI.

Under the new fee structure, the base maximum blended aeronautical yield is proposed at Rs 400 per passenger, which will later be indexed to 50 percent of inflation annually.

If this were to be taken as a base, net aeronautical revenue (after AAI share) of the concessionaire from these six airports will be around Rs 650 crore in first year, Icra said.

For AAI airports, over the past five years, non-aeronautical revenue constituted around 55 percent of the aeronautical revenues.

These six airports enjoy benefits of long track record of operations, making them amenable to strong growth in non-aeronautical revenue and the concessionaire is expected to focus on this. Another key revenue stream for these airports is the real estate development.