Adani Gets New Wings

After achieving double hat-trick by winning concession agreements for six airports in Jaipur, Guwahati, Ahmedabad, Mangaluru, Lucknow and Thiruvananthapuram, the business magnate rose to new high from a newbie to second largest airport operator in India, all in less than 24 months, after placing in motion the procedure to grab control of Mumbai International Airport Limited. Yes, he is none other than Ahmedabad based Gautam Adani. Collectively the seven airports including Mumbai airport handled closely 80 million passengers in the financial year 2019-2020, approximately a quarter of India’s total traffic of 341 million.

On August 31, Gautam Adani said that Adani Airport Holdings will procure an impressive interest in Mumbai International Airport Limited and also take on the debt of GVK Airport Developers. As per the declaration by Adani Enterprises in a Bombay Stock Exchange statement the group will implement measures to complete the procurement of 23.5 percent equity stake from Bidvest and Airports Company of South Africa in Mumbai International Airport Limited for which it has taken the permission of Competition Commission of India. Adani group will eventually own 74 per cent stake in Mumbai International Airport Limited and around 55 per cent in the Navi Mumbai Airport project.

In Mumbai International Airport Limited, a subsidiary company of GVK Group, GVK Airport Developers holds 50.5 percent share, Bidvest and Airports Company of South Africa possess 13.5 percent and 10 percent of share respectively. The left over 26 per cent is with Airports Authority of India. Nevertheless the GMR Group is the biggest airport operator in India, its run at the top faces an intimidating struggle due to Adani’s rapid revolt. The southern city based group operates the Delhi and Hyderabad airport, which handled together around 89 million passengers in the fiscal year 2019-2020.

Earlier in the year 2020 the Ministry of Civil Aviation mentioned that dozens of airports are lined up for privatization including those situated in Raipur, Trichi, Varanasi and Bhubaneswar. Undoubtedly Adani’s group will be at the top of favorites when the government places more airports on the auction tabletop. Moreover, the deal will bring the looming Navi Mumbai Airport, which will supplement substantial statistics to Adani's cluster.

Aspiring Adani

Now it is crystal clear that Adani group has striving vision for its airport wing. It is evident from the 2019-2020 annual report of Adani Enterprises which declared that the company’s business model assures a hybrid revenue model including aero and non-aero revenue structure and with the help of non-aero revenue, the entity plans to foster Airport Villages that can tap into the non-passenger airport visitors.

The group has the right of entry to more than 226 acres and is confident about the momentous expansion potential. According to the undertaking there is a golden opportunity to enlarge collective capacity to more than 100 million travelers in the next 10 years. Adani is marching towards the mark with the Mumbai International Airport deal. Currently, 136 airports are being operated by the Airports Authority of India and the number may reach 200 by 2040.

According to the reliable sources Adani may bring in Flughafen München GmbH to run Ahmedabad, Mangaluru and Lucknow airports.  Flughafen München GmbH operates the Munich airport. Too boot, Ben Zandi, the former head of Fraport AG which operates Frankfurt airport joined the Adani group’s airports business in 2019.

Adani is also into the business of both containerized and bulk cargo. While Ruias-owned Essar group also has a presence in the port sector with eight terminals which is used for captive cargo, Adani has no equivalent rival among Indian entities. Adani’s evolution from a pure commodity player and exporter to a key investor in infrastructure began through ports and then port railways. The Gujarat Maritime Board gave permission to setup a captive jetty at Mundra in 1994. Gujarat Adani Port which is a joint sector company promoted by Adani Port and Gujarat Port Infrastructure Development Company, was established in 1998. In the year 1999 a versatile terminal with two berths was operationalized and in 2003 Adani Port merged with Gujarat Adani Port. It expanded to set up single point mooring, which permits the operator to load and unload liquid cargo in the sea, in 2005.The newest acquisition of the privately-run Krishnapatnam Port Company Limited  in Andhra Pradesh for Rs.13,500 crore by Adani Ports and Special Economic Zone Limited, is an absolute tactical fit for the Gujarat-based corporation.

Turbulence times

Regardless of the rapid upsurge, Adani's flight route will not be free of turmoil. Strong opposition was exhibited towards the re-develop of Thiruvananthapuram airport from the state government of Kerala commanded by Chief Minister Pinarayi Vijayan. The chief minister also wrote letter to the Prime Minister of India stating the government’s plan to lease out three airports including one at Thiruvananthapuram is against the wishes of the people. He is of the opinion that the central government has also ignored frequent requests from Kerala for delegating the airport to a special purpose vehicle with the State as a chief patron. 

Also Adani group has to face cutthroat or merciless competition mainly from GMR group and from Swiss firm namely Zurich Airport to win the civil liberties for the forthcoming airports. In the past, Zurich Airport killed competition from Adani and Delhi International Airport Limited, controlled by the GMR group, to win rights to develop the Jewar airport in Noida.

A confederation of overseas investors headed by the UAE’s Abu Dhabi Investment Authority Fund, India’s National Investment and Infrastructure Fund and Canada’s Public Sector Pension Investments served a lawful notice on the GVK group. They have expressed that stake sale deal in Mumbai International Airport Limited to the Adani group is void and would be a breach or violation of the contract they had authorized in 2019. They have also requested Finance Minister Nirmala Sitharaman to resolve the issue through Insolvency Bankruptcy Code. Although GVK clarified the reasons for termination of the deal with the foreign investors’ consortium in its intimations to the stock exchanges, situation may forewarn Adani group to consider the issue seriously and sincerely.

Covid-19 has locked the world and the aviation industry is not an exception to this. This has adversely influenced the financials of Mumbai Internatinal Airport Limited. According to latest report of CRISIL, the entity has Rs.8,646.74 crore rupees term loans, Rs.150 crore cash balance and Rs.110 crore unused working capital. CRISIL has also relegated the company’s projected Rs.2,000 crore non-convertible debenture issue. Considering the present state of business operations, the company is not in a position to engender handsome accruals. Also, it is not able to draw cash balance in escrow account because of undecided ruling of Delhi High Court regarding payment of Annual Fee. Besides, the company has impending debt servicing obligations of around Rs 65 crore on project loans within September 2020 and there is very limited discernibility on handling of accrued interest of approximately Rs.147 crore for period of moratorium from March to August 2020.

Why the government is in hurry?

Maximum numbers of airports in the United States of America are owned by the Government. Actually, only a few of them are controlled by private players. America which fundamentally trusts in free markets and liberalization is not keen on privatization of airports. Although privatization of airports has been supported by many, it has plenty of dark sides. Firstly, the private establishments have to shell out exorbitant funds to acquire airports and in turn to recover the investment they charge customers astronomically. Secondly, the probability of terrorist attacks is significantly high if the airport is owned by a private firm exclusively though the government offers essential security and safety provisions. Contractual personnel of airports may compromise security in exchange for money. The 911 attacks is a testimonial to this reality. Thirdly, corruption is rampant in India and politicians can manipulate the value of the Land and pocket a cool amount of cash. In abroad, usually, the land is leased instead of selling it. Fourthly, privatization of airports is hazardous for the self-reliant growth of civil aviation sector of India and against the Atmanirbhar vision of Prime Minister of India.

The government’s strategy of privatizing the airports has given birth to numerous debriefings such as why the Union government is very eager to lease out the airport to Adani Agency? What is the urgency and necessity to part with the government’s property with a private corporate conglomerate? When our parliamentarians will realize that nothing can be better done by anybody than the government? Why the central government is not following the normal parameters and consulting State governments before deciding to privatize the airports?

In sum, many questions on privatization of airports remain unanswered and unbiased citizens of India looking for valid answers. Meanwhile, hope the passengers of Mumbai airport will get fair treatment and enjoy their flying times. Despite the fact, Mumbai is the city of dreams and desires, Adani should strive hard to have safe landing on the wonderland. Anyway, for the moment he has spread his wings and flying!