Mumbai International Airport Ltd or Mial is considering terminating the duty-free retail contract awarded to the joint venture floated by Spain’s Aldeasa and state-run India Tourism Development Corp. Ltd (ITDC) because the winning bidders are insisting on renegotiating the contract for a much lower fee, that makes it unattractive for the airport developer, said a person familiar with the negotiations.
“We may terminate the contract and go for a re-bid,” said that person familiar to the development who did not want to be named because of the sensitivity of the negotiations.
The three-year contract, awarded in February this year by Mial, is expected to bring in revenue of Rs571 crore to the airport developer. Now, however, Aldeasa-ITDC has had a change of mind and requested Mial to lower the revenue sharing figure sharply, the person said. It wasn’t clear what that amount was.
A senior Mial executive, who did not want to be named because he is not authorized to speak with the media confirmed that the Aldeasa-ITDC consortium has approached the airport operator saying that it had overbid for the project and wanted to bring down the price. Since Mial is in the process of renegotiations with the winning bidder, he declined further detail.
Mial, a joint venture company owned by the Andhra Pradesh-based GVK Group led consortium (74%) and Airports Authority of India (26%), was formed in March 2006 to manage and develop Mumbai airport, called the Chhatrapati Shivaji International Airport (CSIA). In turn, it is leasing out space to retailers so it can recover the cost of developing the airport. The airport rejuvenation is part of a nationwide renewal plan as clogged runways and record arrivals force the country to upgrade the airports to international standards.
“There was some delay in forming joint venture between Aldeasa and ITDC. After forming a joint venture, they had quoted more for the project and wanted to talk to us. We had a meeting last week and more meetings are scheduled next week,” the senior Mial executive who did not want to be named, said.
Both Aldeasa and ITDC declined to comment on whether they were renegotiating. The Aldeasa-ITDC partnership has not yet started operations at the Mumbai airport, because of delays in forming the joint venture. Madrid-based Aldeasa is the fourth largest airport duty free retailer in the world with annual sales of more than $600 million or Rs2,358 crore and operates 183 shops at 40 airports in 14 countries. The duty free division of ITDC operates at 10 airports in India.
The duty free shopping area at Mumbai airport will be spread across 24,541 sq ft, selling leading international brands from an extensive product range, including liquor, tobacco, cosmetics, perfumes, clothing, hi-tech electronics, boutiques and accessories.
Last year, a 50:50 joint venture of India’s largest retailer Future Group and Alpha Airports Group Plc won bids for operating duty-free stores at New Delhi’s international airport for Rs500 crore for three years. New Delhi airport will develop 5% or 250 acres of the roughly 5,000 acres of airport land for commercial activities such as malls and hotels, according to its developers, Delhi International Airport Ltd.
Market watchers say currently an average passenger spends less than $3 per person at Indian airports, compared with the global average of $15 per person, but it is expected to go up in coming years, thanks to the upcoming global standard duty-free shopping at many of the country’s airports.
Aldeasa-ITDC, which was supposed to start operating the new duty free area from 1 June, 2007, was chosen from among five shortlisted bidders. The others included DFS Group, the Nuance Group AG-Shoppers’ Stop joint venture, the Alpha Airports-Future Group joint venture and the Dufry-Interglobe joint venture.