Delhi airport eyes a future of full privatisation, with no equity left to AAI

In mid-March, reports stated that the government had plans to sell its stake in an already majorly privatised Delhi international airport, amongst others. This is a part of its asset monetisation plan, to raise Rs 2.5 lakh crore of additional resources.

While the Ministry of Civil Aviation is yet to obtain the requisite approvals for divestment of equity stake of the Airport Authority of India (AAI), when and if it does receive the nod — then the last 26% stake left of the AAI at Delhi’s Indira Gandhi International Airport will be gone.

At present, the majority shareholder is GMR Enterprises Private Limited (GEPL) with 64% total shares, followed by AAI’s 26% and lastly Fraport AG Frankfurt Airport Services Worldwide’s 10% shares. This has come into becoming Delhi International Airport Limited (DIAL), a joint venture consortium.

GMR airport annual report of 2020 shows DIAL had a turnover of Rs 3,909.42 crores giving them a profit after taxation of Rs 13.15 crores. This is not including the likes of Delhi Duty Free Services Private Limited – where it is in a joint venture – which made a profit after tax of Rs 91.94 crores; and Delhi Parking Services Private Limited – where it is the subsidiary company – which also made a profit after taxation of Rs 35.72 crores.

According to the New Delhi Airport website an “annual fee to AAI” was listed, giving the Authority a sum of Rs 1,848.67 crores in March 2020, while in the previous term Rs 1,591.25 crores was given. Furthermore, the employees benefit expense was at Rs 209.38 crores that same term.

A year since Covid lockdown, it has been a financial year of hardships for all industries, but especially travel and tourism. Companies like GMR have also felt the pinch, but being a majority stake holder in Delhi International Airport which is recognized as the Best Airport for service quality in the region by ACI and Best Airport in Central Asia by Skytrax, it’s unlikely for them to sell its equity.

In fact, the company has only planned for future growth, with its annual report citing it would want to make Delhi Airport as an international hub airport for passengers and cargo. Plus, it has expansion plans for Terminal 1 (domestic) and Terminal 3 (international plus some domestic flights).

“The Phase 3A expansion includes, among others, expansion of Terminal 1 and Terminal 3, construction of a fourth runway along with enhancement of airfields and construction of taxiways and will expand capacity to 100 million passengers annually,” it said.

To finance this expansion, DIAL has raised $350 million (Rs 2,555 crores approximately) in the form of overseas bonds and followed it up by raising additional US $ 150 Mn (Rs 1,095 crores approximately). It may however, it said, consider postponing parts of planned capital expenditure to subsequent periods, due to Covid led difficulties.

Is privatisation killing passengers’ pockets?

In the mid-1980s privatisation of airports began in the UK, now the likes of Heathrow airport in London, and Gatwick are fully privately owned.

Here in Delhi, in 2006, the then Civil Aviation Minister Praful Patel announced the management of Delhi Airport would be handed over to the DIAL consortium. They were given the contract for 30 years with the right to extend for another 30 years.

For people who work at the Delhi International airport, privatisation means it has given them fresh opportunities. Amit, who earlier worked for a hotel, says since he started working there in 2015, he has been given better perks and a better ease of living.

A supervisor in the porter service called Allways at the IGI Airport, Amit backs privatisation. Even this service that Amit and his team provides shows how the private players are able to make their cash. The service, taking your luggage till the check in counter means Rs 300, while carrying your baggage till the flight makes you lighter by Rs 2,300 – a premium service, Amit says, usually parents with infants take.

Amit was one of the lucky few who all along the Covid lockdown managed to receive salary into his bank account. But all aren’t as lucky as he is. Many porters working under him left for home he says, with an earlier count of 150 down to 75.

For someone like Pooja, a student of Open college, in her 2^nd year, not coming back was no option. She started working in the kiosk outside the departure lounge at T3, selling chips and soda just two months prior to the lockdown. Spending her time locked up in her room during the early part of the pandemic, she says despite not being paid in those months — working here is better than working at a similar shop in a Delhi market. “I used to do that, but this is more respectful and I feel a greater sense of security. I like this location.”

For Pooja, privatisation has helped her pay for herself and her younger brother as it enables them to pay for their education and eventually earn a degree.

But the arguments against privatisation of airports have been made by some, including the International Air Transport Association (IATA). Calling governments to focus on solutions “that will deliver the best economic and social benefits”, IATA has said the decision to sell off airport assets for a short-term cash injection to the treasury is “a mistake”.

One of IATA’s concerns is how passengers end up spending more, as airports can become monopolies, imposing high prices on airlines and passengers. But in India the solution has been to have tariffs, in respect of major airports like the IGI Airport, determined by the Airports Economic Regulatory Authority (AERA).

Earlier this year, the AERA permitted Delhi International Airport Ltd (DIAL) to charge additional Rs 65.98 plus taxes to outbound passengers from February 1, 2021, to March 31. This levy per passenger will be reduced over the next three years until 2024, according to a TOI report. The charges would then be Rs 53, Rs 52.56 and Rs 51.97 plus taxes in the years 2022, 2023 and 2024 respectively.

Interestingly, DIAL had wanted to charge as much as Rs 200-300 to passengers departing from IGI Airport till March 2024. Their request to offset the revenue loss caused by the pandemic, was rejected.

The extent of the financial loss was revealed in the Lok Sabha, which was informed that airports lost a total of Rs 3,000 crores between April-December of 2020.

Chief owners’ takings

How is the company with the largest chunk of the busiest airport in India doing?

Reason Foundation, a nonpartisan public policy research organisation in the US, listed GMR Airports in rank 47 in its “Largest Investor-Owned Airport Companies, By Revenue, 2018” with it citing Delhi Airport which took in a revenue of $755 million in 2018.

The GMR group has now been able to expand its strength. The Group has acquired a prominent space in the airports sector with more than 26.09% of total country’s passenger traffic being routed through the two airports i.e ‘Indira Gandhi International Airport’ in New Delhi and ‘Rajiv Gandhi International Airport’ in Hyderabad.

But it hasn’t been all good. In financial year 2019, DIAL reported Rs 111.8-crore loss for the year, due to sharp reduction in aeronautical revenues. According to the GMR’s performance highlights, Delhi Airport generated a cash profit of Rs 413 crore in financial year 2019 for them, and Rs 610 for financial year 2018. Whereas Hyderabad airport garnered Rs 885 crore in 2019 and Rs 807 crores in 2018.

Aero revenues include passenger service fee, landing and parking charges for airlines. What led to the downfall was reportedly, Delhi’s airport charges being slashed up to 90% from July 2017 onwards. DIAL’s profits then fell 93% to Rs 38.3 crore during financial year 2018 with the reduced tariffs coming to effect.

Its last annual report for 2019-20 says that the management has signed a binding term sheet with certain investors to divest equity stake in GMR Airport Limited (‘GAL’) on a fully diluted basis for a consideration of Rs 10,780 crore. “The Company has successfully completed the transaction with investors on July 7, 2020 which will enable the Company to meet its financial obligations and its cash flow requirements,” it says.

Further, the financial statements of March 31, 2020 reflected an excess of current liabilities over current assets of Rs 2,000.80 crore and loss from continuing operation after tax of Rs 1,478.97 crore.

But the company is divesting its stake which will help its financial obligations, it says. These include raising Rs 2,400 crore by selling 10-year bonds to investors, and amongst others, GMR Infrastructure Ltd getting into a strategic partnership with France’s Groupe ADP for its airports business, which is now valued at Rs 22,000 crore.

GMR refused to comment on their revenue, plans and if they would bid on another piece of equity, if AAI were to offer.

With it in continual manoeuvring, GMR has its sights set into growing. Taking into account how major airports around the world are jumping into privatisation, it’s only a natural progression for the rest.

(Cover Image: Getty)