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Analysis of Indian Aviation Industry: Market Dynamics, Growth and Investments by the likes of Gujarat-based Adani Group

Since the opening up of the Indian economy, public-private partnerships have enables stellar assets creations in the nation and the privatization of tier airports run by the Airports Authority of India is a new chapter in this success story

During the last three years, India’s Civil Aviation Industry emerged as one of the nation’s fastest-growing industries. It made a $72 billion contribution to Indian GDP. By 2024, the country is expected to bypass the UK as the third largest air passenger market.

Private sector players such as the Gujarat-based Adani Group, GMR Group among others would play a significant role in this changing narrative. Speaking at CAPA Live May 2021, Ben Zandi, Adani Airports CEO, said, “By summer of 2022, all of our airports will be operating on renewable, sustainable green energy”.

Unfortunately, the upward trajectory for India’s aviation sector was drawn to a halt with the COVID-19 pandemic in 2020. When various sectors were just dusting off from the first hit, the second wave pushed the country back into a downfall. Passenger traffic for the Indian aviation industry took a dip with the number of cases rising and consequent curfews. The foreseeable future for airlines rather seems disappointing with the expectations to reach the pre-covid numbers, falling in a heap as per the industry experts.

Until2020, India had 153 functional airports. The government has been striving to increase the number of airports in the nation by FY40. The country seeks to increase the number to 190-200 operational airports.

The pre-pandemic demand in the sector led to the multiplication of numbers-operational airplanes. By 2027, it is expected that the number of airplanes will increase to 1,100.

Market Dynamics

  • According to the forecasts by the International Air Transport Association (IATA), FY20 saw 341.05 million passenger traffic in India, with a 11.13% Compound Annual Growth Rate (CAGR) during FY16-FY20
  • Domestic passenger traffic~274.50 million with CAGR~12.91% from FY16
  • International passenger traffic~66.54 million with CAGR~5.01% during FY16-FY20
  • Freight traffic grew from 2.70 million tonnes (MT) to 3.33 million tonnes during FY16-FY20 with a CAGR of 5.31%. With a target of 4.41 MT in FY23, freight traffic is expected to grow at a CGPR of 7.27%

Developments & Investments in the Indian Aviation Industry

In the coming four years, the country’s aviation industry is expecting investments worth Rs 35,000 crore. Private investors like Adani of Gujarat and Tata Group have been investing in the sector to increase their controlling stake in India’s aviation traffic. The government of India plans to invest $1.83 billion for the development of airport infrastructure and aviation navigation services by FY26.

  • The Airport Authority of India released a tender on February 25, 2021 for the development of the initial phase of an international airport at Dholera, Gujarat. The new project is worth Rs 987 crore (US$ 135.07 million) and falls under the Delhi-Mumbai Industrial Corridor (DMIC) in Dholera.
  • A concession agreement was signed on January 19, 2021 for three airports – Guwahati, Jaipur & Thiruvananthapuram between the Airport Authority of India (AAI) and Gujarat-based Adani Group. The period of concession is for 50 years from the date of commercial operations.
  • To facilitate chauffeur-driven and self-driven services across sixty cities in India, Indigo announced its collaboration with Urban Drive, a car rental company, on December 20, 2020.
  • For the development of Jewar Airport on the outskirts of Delhi, Zurich Airport International signed a concession agreement which gave the airport the license to design, build and operate the Noida International Airport (NIAL) for the coming forty years.
  • In October 2020, the Airport Authority of India (AAI), set forth a plan to upgrade seven airport’s runways all over the nation by March 2022.
  • Indigo became the first airlines company in India to operate fifteen hundred flights in a day with a fleet size of two-fifty planes in January 2020.
  • An investment of Rs 25,000 crore (US$ 3.58 billion) is expected from the Airport Authority of India, for the amplification of the airports’ facilities and infrastructure, in the coming five years.
  • New airline of Turbo innovation – TruStar, will see an investment of Rs 950 crore (US$ 135.9 million).

The Airport Authority of India came into existence with the merger of former National Airports Authority and International Airports Authority of India on April 1, 1995.  With the merger came up a single organization handed over with the responsibility of developing, maintaining, upgrading & administering civil aviation infrastructure on ground & in air space in the country.

A total of 137 airports, including 24 International airports with 3 civil enclaves, 10 custom airports with 4 civil enclaves & 103 domestic airports with 23 civil enclaves fall under AAI. The statutory body facilitates air navigation services over 2.8 million square nautical miles of air space.

Government’s plan to monetize public operating infrastructure

AAI plans to make an exit from 4 metro airports in the country as the government’s agenda to monetize public assets. The Airport Authority of India will sell its shares in the top airports in the country including the ones in Hyderabad, Mumbai, Bengaluru and Delhi. This development by AAI is in accord with the government’s target of monetizing hundred public-owned assets worth Rs 2.5 lakh crore.

Apart from AAI’s share sales, thirteen more airports have been identified which are on the horizon of privatization.

Privatization of state-owned ventures will release resources for welfare expenditure, development, empower citizens and create employment opportunities, according to the Prime Minister.

Adani Group, stationed in Gujarat, led by Gautam Adani, succeeded in securing the Thiruvananthapuram, Lucknow, Jaipur, Guwahati & Mangaluru airports’ contracts in the 1st round of airport privatization last year.

Through its wholly owned subsidiary – Adani Airport Holdings (AAHL), the group, with its roots in Gujarat, went on to acquire a controlling stake in the Mumbai International Airport Limited (MIAL). Chhatrapati Shivaji International Airport is owned and operated by MIAL and the entity also holds a 74 percent stake in Navi Mumbai International Airport which has a green field airport under process in the city.

“The addition of the Mumbai International Airport and the Navi Mumbai International Airport to our existing portfolio of six airports provides us a transformational platform that will help shape and create strategic adjacencies for our other B2B businesses,” said Gujarat-based multinational conglomerate, Gautam Adani.

Reaching over a 200 million customer base in fiscal 2020, Adani Airport Holdings owned by the Gujarat-based tycoon Gautam Adani,  claims to be the largest Indian airport platform by administering at least 10% of India’s air passenger traffic.  

The Adani Group of Gujarat now caters to a non-passenger customer base of a 120 million including 80 million ‘Meet & Greeters’ and 40 million ‘City Side’ customers.

Adani Airport Holdings located in Gujarat, turned out victorious in securing bids for 6 airports. The company took over Lucknow, Mangaluru &Ahmedabad airports in Q3 FY21 along with operations of MIAL in Q4 FY21 by acquiring 23.50 percent stake from the Airports Company South Africa (ACSA) and Bidvest.

An airports analyst, BusinessLine said that the company plans to increase its non-aeronautical fee base and for that they are making sure the airports are upgraded in a way to accommodate more and more people.

Gautam Adani believes that airports serve “as a powerful engine to drive local economic development.” Airports “act as a critical lever to help converge the tier 1 cities with the tier 2 and tier 3 cities in a hub-and-spoke model.”

Referring to the hub-and-spoke model, he added, “It is fundamental to enable a greater equalization of our increasing urban–rural divide as well as take advantage of the cost arbitrage that exists between the different locations to make us more competitive as a nation”. This is pivotal for the generation of “net new jobs,” believes Gautam Adani who also recently invested in the world’s biggest solar energy park in Gujarat. “Given our deep infrastructure expertise, we are well positioned to help make this happen.”

On the other hand, country’s busiest airport – Indira Gandhi International Airport in Delhi is owned and operated by the GMR Group, with a passenger traffic of 67.3 million in FY20. The Rajiv Gandhi International Airport in Hyderabad is also owned by the enterprise which also has a greenfield airport under development in Mopa, Goa.

The GMR Group, based in New Delhi, also came up as the highest bidder for the development, operation & management of the greenfield Bhogapuram International Airport in Andhra Pradesh.

Hailing from the state of Gujarat, Adani Group holds a 74 per cent stake in MIAL and the remaining is with the Airport Authority of India (AAI). With a similar AAI’s stake in Delhi International Airport, GMR Group becomes the majority stakeholder.

Although, in the greenfield airports of Bengaluru and Hyderabad, a thirteen per cent stake is owned by AAI for each case, while the respective state governments have a similar share.

As per ICRA, a rating agency, AAI showed up a net profit of Rs 2,300 crore on an opening income of Rs 13,087 crore in comparison to net profit in FY18 for Rs 2,718 crore on an opening income of Rs 12,307 crore.

A miniratna category government enterprise, AAI clocked a net profit of over Rs 3,600 crore on revenues of around Rs 14,367 crore in fiscal 2020.

However, the Ministry of Civil Aviation pointed out that fiscal 2021 would end in red for AAI, due to the plummeting passenger traffic because of Covid-19 pandemic. 

Having said that, a few big airports in the private sector invoked a force majeure clause for their revenue sharing payments to AAI which “would further erode profitability and increase the reliance on external debt to meet the operational and capex requirements” added ICRA.

More so, the government is aiming to wrap up the sale of cash-strapped Air India till September, by commencing the process of inviting financial bids for the national carrier.  The proceedings for the privatization of Air India have entered the financial bids juncture & eligible bidders, after evaluation of preliminary bids, were provided access to Air India’s Data Virtual Room (DVR).

Tata Group and the Chairman of SpiceJet – Ajay Singh have been shortlisted as the bidders of the airlines as of now. The potential buyers will have to make their financial bids till early July and the sale of the indisposed airlines will be closed in another 3 to 4 months, as learned. The plans to sell the loss-making airlines have been postponed several times due to the COVID-19 pandemic. The government was set upon selling the national carrier before March 2021 as planned to achieve the divestment target of the fiscal. 

To the buyers’ benefit, the government has sweetened the deal by selling Air India’s hundred per cent stake. The owner will be provided with the hundred per cent low-cost arm of Air India Express and fifty per cent ownership of AISATS, which is a cargo and ground handling centre at major airports in India. Moreover, the bidder will have the freedom to decide how much debt of the airlines, they want to sign up for as a part of the deal. Earlier, the buyer had to take on the entire debt. That is not all, the chosen bidder will be controlling 4,400 domestic, 1,800 international landing & parking slots at domestic airports along with 900 slots at airports overseas.

Government’s broader perspective to raise finances for new infrastructure comes with monetizing of public operating infrastructure in the country. According to aviation analysts, the government should contribute to the nation’s aviation industry by giving out timely approvals for land acquisitions and other regulatory authorizations.

Sanjiv Kapoor, former chief strategy & commercial officer of Vistara and former COO of SpiceJet, said that the government should consider offering tax incentives and rebates to promote investments in the sector until airports start getting positive cash flow on their own.

That apart, the government can also lend a hand with the development of supporting infrastructure. “Airports of the future should ideally have integrated train stations for intercity trains to cover the ‘last mile’ to nearby destinations. For example, New Delhi to Chandigarh or Dehradun—to relieve pressure on airport slots and to help the environment as short flights pollute more per mile than longer flights,” added Sanjiv.

Devesh Agarwal, Editor of BangaloreAviation.com is of the same opinion that the government should incentivize right infrastructure. He adds that the nation’s airports may have exorbitant terminals but do lack in airside infrastructure in context of development in aviation.

Road Ahead

Indian aviation Industry stills holds a massive scope for development considering the fact- 40 per cent of the nation’s population is upwardly mobile middle class, and a majority population still finds air travel an expensive affair.

Stakeholders of the industry like Adani Group of Gujarat, Tata Group and GMR Group ought to join hands with the government and policy makers to administer effective and productive decisions towards multifold development of the country’s aviation industry.

To achieve its vision of becoming the third-largest air passenger market by 2024, India would have to implement the right policies and have unabated focus on quality, cost and passenger interest, befitting the leading spots in the global aviation domain.

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