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13 airports get approval for privatisation through clubbing model

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The board of Airport Authority of India has given approval to privatise 13 airports. this is often the primary major asset monetisation exercise by the govt as a part of the National Monetisation Pipeline. the govt is aiming for personal investment of Rs 3,660 crore in airports by FY24.

The AAI board has approved privatisation of six major airports– Bhubaneshwar, Varanasi, Amritsar, Trichy, Indore, Raipur—along with seven smaller ones in Jharsuguda, Gaya, Kushinagar, Kangra, Tirupati, Jabalpur and Jalgaon, consistent with sources. The smaller airports are going to be clubbed with the six major airports for scale and size, thereby making it attractive for investors.

This is the primary time the model of clubbing major airports with smaller ones are going to be utilized in the airport privatisation exercise. “To ensure commensurate development of non-profitable airports along side the profitable airports with the assistance of personal sector investment and participation, pairing /clubbing of smaller airports with each of the six bigger airports and leasing out as a package is being explored,” the National Monetisation Pipeline document prepared by Niti Ayog had said.

While Jharsuguda airport are going to be bundled with Bhubaneswar, Kushinagar and Gaya airports are going to be clubbed with Varanasi. Kangra, Amritsar, Jalgaon and Trichy airports are going to be clubbed with Raipur Jabalpur, Indore, and Tirupati airports, respectively.

Prospective investors and consultants said airports would see good participation from bidders, though there’ll be pressure on valuation. They acknowledged that Varanasi along side Gaya and Kushinagar will attract investor interest as all three airports fall on the Buddhist circuit and typically get international visitors.

“This round of privatisation could alright be the last chance for an entity looking to enter India’s airport sector. With returns assured on aero assets, a number of the prevailing players will look to extend their scale instead of allowing fresh entrants and competition,” said Jagannarayan Padmanabhan, director and practice leader (transport and logistics) at Crisil.

Regulatory regime followed in India gives airport developers a return on investments to upgrade assets through passenger fees, landing and parking charges also as fuel charges. The return remains fairly visible and stable, consistent with analysts.

Sidharath Kapur, an infrastructure expert and former executive of GMR Airports, said while the exercise may attract interest thanks to growth potential of the six profit-making airports, the model of clubbing the large and therefore the small entities may cause a decrease in valuation. In any case, the valuations are down during the pandemic, he added.

“The smaller loss-making airports have negligible traffic and can remain a cash drain for several years. Potential bidders will factor this within the bundle and should negate the bundle value quite on a sum of parts independent basis,’’ Kapur said. While remarking that an airport needs a minimum of 2-3 million passengers to form it viable, he said it might be better to monetise the profit-making airports at higher value. Such a move would help support the loss- making airports till the time they will be monetized, consistent with Kapur.

In the last round of privatisation, Adani group bid aggressively to win all six airports- Ahmedabad, Jaipur, Lucknow, Thiruvananthapuram, Mangaluru, and Guwahati. The bid amount in some cases was double that of the second highest bid.

According to rating agency Icra, the aggressive bidding would end in a windfall for the AAI, which could earn quite Rs 600 crore per annum as concession fees from the Adani group.

However, a senior government official involved in NMP said the govt had done a study and gauged investor appetite in airport projects following the impact of Covid-19 on aviation. The study showed that despite the decline in passenger traffic and revenue of airports thanks to the pandemic, investor interest continues to stay stable.

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