The Cost of L'affaire Adani on India's Airport Sector

Adani Group, a major Indian conglomerate, has been at the centre of controversy in recent years, with critics accusing the company of benefiting from its close ties to the government of India. Prime Minister Narendra Modi has been facing political salvos for his perceived support to the company.

Adani Group is a diversified conglomerate with interests in various sectors, including ports, airports, power generation, and mining. The company has been expanding rapidly in recent years.

The Rise of Adani: How it Became a Major Player in Indian Airports

The Airport Authority of India (AAI) is the organisation that controls Indian civil aviation infrastructure. It looks after both International and Domestic Airports, with a total of 137 Airports under its supervision, including 123 Domestic Airports, 35 International Airports, and 10 Customs Airports. This organisation, which is part of the Ministry of Civil Aviation, is responsible for the development, maintenance, and improvement of the airports.

The AAI has rented out eight air terminals, namely Delhi, Mumbai, Ahmedabad, Jaipur, Lucknow, Guwahati, Thiruvananthapuram, and Mangaluru, for overseeing, running, and improving under Public-Private Partnership (PPP). Of these, Adani Enterprises Limited (AEL) is responsible for the management of seven airports, including Mumbai, Ahmedabad, Jaipur, Lucknow, Guwahati, Thiruvananthapuram, and Mangalore.

Adani Group entered the airport industry in 2019. In February 2020, they signed the Concession Agreement (CA) for three airports and then started running the Mangaluru International Airport (Mangaluru) on October 31, 2020, Chaudhary Charan Singh International Airport (Lucknow) on November 2, 2020, and Sardar Vallabhbhai Patel International Airport (Ahmedabad) on November 7, 2020. The Adani Airports will be responsible for the operations, management, and development of the six airports for 50 years. The two major airports in Delhi and Mumbai have been given to AAHL to manage, run, and develop them for 30 years, with the possibility of a 30-year extension based on the Revenue Share Model. Adani Trivandrum International Airport Limited (ATIAL) started managing, functioning, and developing the airport as per the terms stated in the Concession Agreement on October 14, 2021. 

The new Navi Mumbai International Airport, scheduled to be ready by the end of 2024, will be the corporation's eighth working airport and assist in alleviating the congestion in Mumbai airport. It will have a capacity of 20 million passengers in its early phase and eventually reach its maximum capacity of 90 million.

Adani Airport Holdings now holds 33 per cent of the air cargo traffic in India. The Civil Aviation Ministry has identified 25 airports that could be leased to private entities in the second phase of airport privatisation. The ministry's present monetization plan encompasses large airports such as Chennai, Varanasi, and Kolkata and smaller ones such as Raipur, Kushinagar, Jabalpur, and Indore. 

It is in the process of concluding the regulations for the bidding process and is expecting to receive an initial payment of more than Rs 10,000 crore from this initiative.

Mumbai to Munich: Adani’s City Side Development Vision for Indian Airports

Public Private Partnership means the airports are still the property of the AAI. But the services and business are leased to private companies on a revenue-sharing model basis for 50 years. The government can end the lease contract at any time by following the terms and conditions of the contract. Since the services and business are leased to private companies, they will charge exorbitant rents for the airport premises, resulting in food prices increasing by 2.5 to 4 times the regular rate and parking fees skyrocketing to 3-10 times the usual. 

Airline docking fees could double or even increase by 2.5 times, disrupting the economy overall unless Adani thinks wisely and keeps the charges reasonable.

KPMG has stated that people in India spend two to three times lesser on travelling than those in other countries, with Mumbai Airport being the highest spender at $5.32 per passenger, a much lower amount than the $16.8 spent by people at the Munich Airport, which has the highest spending rate in the world.

Adani Group is the proprietor of seven operational airports constituting 23% of India's total air traffic and oversees over half of the prominent domestic routes. However, activities such as aircraft landing, parking, cargo, and ground handling will not be more than 15% of Adani Airport Holdings Limited’s (AAHL) total operating income. The rest of the revenue is predicted to come from non-aero activities.

AAHL is hoping to utilise the same idea of an aerotropolis as other international airports, such as Amsterdam Airport Schiphol, Incheon International Airport, and Zurich Airport. Consequently, the area near the airports will be home to a Madame Tussauds attraction which is a major tourist attraction in many cities, displaying the waxworks of famous and historical figures, as well as popular film and television characters. They will also include Rainforest Café, aquariums, multiplex theatres, eateries with a specific motif, medical facilities, lavish accommodations, and plenty of other facilities.

Adani Group declared that an airport must fulfil the needs of the local community where it is situated. They are sure that the City/Community Side Development (CSD) will start yielding benefits from 2025-26 and will be a major component of the airport business by 2030-31. CSD is characterised by a metropolitan region located far beyond the airport's boundaries. 

This area is filled with various amenities like commercial establishments, educational institutions, office complexes, entertainment venues, medical facilities, and hospitality services, forming a city-like environment centred around the airport. Airports of the AAHL -- including Lucknow, Mangaluru, Jaipur, Guwahati, and Trivandrum -- cover an area of 650 acres and have an overall customer base of 200 million people, out of which 120 million are non-travellers. 

AAHL is looking to make money through different sources such as rental fees, food and drinks, ticket sales, and a percentage of sales. It will launch its services in shopping, restaurants, movie theatres, and workspace.

The Adani Group has been more assertive regarding non-aviation-related business than other companies. During a post-earnings conference of Adani Enterprises, a senior official stated that CSD operations would make up most of their airport EBITDA -- approximately 55-60 per cent. Non-aero activities would contribute an additional 20-25 per cent, while aero activities would only account for 10-15 per cent.

Adani's Controversial Rise in Indian Airport Privatisation

AAHL has grown to be a major entity in the privatisation of Indian airports. Nevertheless, there are debates surrounding the parent company influencing the forthcoming bids for the recently-revealed regional airport privatisations.

Adani Group has focused its attention on India, acquiring concessions from eight local airports starting in 2019 and purchasing the majority share of Mumbai International and the construction project of Navi Mumbai International. Adani has declared its willingness to explore more possibilities for privatisation, with a potential for up to 11 concessions. 

Unfortunately, the Indian conglomerate has been accused of financial misconduct, which has caused its stock market price to decrease dramatically. These issues are not likely to have any effect on the company's airports segment.

Critics of the company and its relationship with the government have pointed to a number of issues, including allegations of environmental damage and labour rights violations. They argue that the company has benefited from its close ties to the government, particularly under the Modi administration, which they say has provided favourable policies and contracts to Adani.

PM Modi was a vocal advocate for Adani in the past, and the company's rise to prominence coincided with his time in office. Critics have accused him of using his position to benefit Adani, pointing to the award of contracts to the company for projects such as the construction of new airports and the development of a new port. They argue that the award of these contracts has been done without due process and that Adani has been given preferential treatment. 

Prime Minister Modi has rejected these accusations, insisting that the government's support for Adani is based on the company's merits and its contribution to the Indian economy. He has argued that the company has created jobs and invested in infrastructure and that its success is a sign of India's growing economy.

The Adani Group's decision to abandon the Follow-on Public Offering (FPO) will affect its airport improvement initiatives since a substantial portion of the proceeds were set aside specifically for airport development.

Despite the controversy, Adani Group has continued to expand its operations, and the company's success has been a point of pride for many in India. However, the ongoing scrutiny of the company's relationship with the government, particularly with PM Modi, suggests that the controversy is unlikely to go away soon.

The author is a Defence and Aerospace Analyst

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