Ahmedabad-based Adani Group today announced the buyout of 74 per cent stake of GVK and two other entities (Airport Company of South Africa and South African Bidvest) in the Mumbai International Airport Limited (MIAL). The deal also includes acquisition of Navi Mumbai International Airport Limited (NMIAL), in which MIAL owns 74 per cent equity stake.

Although the size of the deal has not been revealed, it entails the acquisition of GVK's debt by Adani Enterprises, and will help release the guarantees given by GVK Power and Infrastructure (a GVK group company) for the debt that the airport entity had taken.

"AAHL [Adani Airport Holdings Limited] intends to infuse funds into MIAL to ensure that MIAL receives much needed liquidity and also achieves financial closure of Navi Mumbai International Airport to be able to commence construction," the official statement said.

So while this development seems surprising on two counts, experts say that the logic behind the transaction is clear. The first surprise element is on account of the "exclusivity deal" signed by GVK last October to sell its stake in GVK Airport Holdings to Abu Dhabi Investment Authority (ADIA), Canada's Public Sector Pension (PSP), and National Investment and Infrastructure Fund (NIIF). Then how did Adani Group manage to sign this deal - unless ADIA and others backed off.

The other surprising part is that less than three months ago, the Adani Group had reportedly sought more time from the Airports Authority of India (AAI) to take over Lucknow, Mangalore and Ahmedabad airports citing uncertainty in the airports business following the pandemic.

So despite having to postpone its plans for three airports, why did the group acquire MIAL? Sources involved in the transaction say that the pulling off this deal was not easy, especially since the entire matter has reached the Prime Minister's Office (PMO) when ADIA and PSP asked for the government's intervention in ensuring transparency around the takeover saga.

Adani Enterprises' ambitions in the airports sector began last year when it had aggressively bid for six airports that were awarded under the first round of public-private partnership (PPP) model. Around the same time (in March), the group had reportedly shown interest in buying Bidvest's stake in MIAL but its efforts were thwarted by GVK over technical grounds.

So far, the group has been awarded three airports (Lucknow, Ahmedabad, Mangaluru) for operations and maintenance while the leasing out of the remaining three airports - Jaipur, Thiruvananthapuram and Guwahati - were recently approved by the Cabinet. But the state government in Kerala has opposed handing over the Thiruvananthapuram airport under the current PPP arrangement, and has reportedly asked to form a special purpose vehicle (SPV) where the state government would be a majority shareholder.

Experts say that acquisition of a large airport like MIAL makes sense for the Adani group since the economics of smaller airports - the ones that it had acquired in the last round - have gone for a toss. "The larger airports would see an uptick in demand prior to traffic picking up at other airports. Airlines would look to cater to demand progressively and operationalise their networks. Reaching the pre-COVID air traffic level could take almost 24 months," says Peeyush Naidu, partner at Deloitte India.

Even as the smaller airports have turned unattractive, the government seems to be going ahead with the second and third round of bidding that covers 12 more airports. "After some back and forth, some decision on the second round of bidding is likely soon. International airports with over 3 million passenger traffic have financial viability under the PPP model. Unless AAI gives subsidies, the government cannot continue to bid airports," says an industry consultant. As per official estimates, AAI manages 137 airports, including 24 international airports and 103 domestic airports at the moment.