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Covid-19: Privatisation may lead to public airports being sold below fair value

The 6 airports to be privatised include those in Amritsar, Varanasi, Bhubaneshwar, Indore, Raipur and Tiruchirapalli - currently owned and operated by AAI. (Photo: HT)Premium
The 6 airports to be privatised include those in Amritsar, Varanasi, Bhubaneshwar, Indore, Raipur and Tiruchirapalli - currently owned and operated by AAI. (Photo: HT)

  • The bid process for six new airports will begin immediately, while another six will be placed on the table later
  • Indian airlines are estimated to lose 24,000-25,000 crore this fiscal because of the lockdown

MUMBAI: Finance minister Nirmala Sitharaman’s plan to auction 12 more airports and further open up the Indian airspace does little to relieve the immediate financial stress that the aviation sector is under.

Industry experts say the government’s move to raise capital through auctioning 50-year airport concessions will find few takers at a time when fliers are grounded and airlines are struggling to survive.

On day four of her five-day economic stimulus announcements, Sitharaman said the bid process for six new airports will begin immediately, while another six will be placed on the table later for round three of bidding. The six airports in the second round are likely to be those in Amritsar, Varanasi, Bhubaneshwar, Indore, Raipur and Tiruchirapalli - currently owned and operated by the Airports Authority of India.

This is essentially a repackaging of previous announcements, with no financial relief for Indian airlines that, according to some estimates, will lose 24,000-25,000 crore just this fiscal because of the lockdown.

“The privatisation push for more airports is good in terms of keeping the momentum on. We have had some interactions with private sector people and there seems to be interest for the next six airports" Jagannarayan Padmanabhan, director and practice leader - transport and logistics, Crisil Infrastructure Advisory, told Mint.

"In the medium term, India can expect to have close to 25-30 airports in the private sector. This will lead to a fairly open environment on airports and in that way it is quite a positive step. The timing of this and the value it will get is something we will have to watch out for. Considering these are long term contracts for 50 years, only serious bidders will be interested in participating."

Any auction now is likely to draw lesser responses than the first round of auction conducted in March 2019, when more than 20 prospective bidders had evinced interest in the government’s privatisation plans for Jaipur, Ahmedabad, Lucknow, Mangaluru, Guwahati and Thiruvananthapurm airports.

Gautam Adani’s Adani Enterprises Ltd (AEL) had won the 50-year concession rights to all six in the first round. So far, AEL has signed the concession agreement for Ahmedabad, Lucknow and Mangaluru, while the handover of the remaining three have been delayed.

Investment bankers, Mint spoke to, believe that if the government goes ahead with the privatisation bid immediately, it might find just 2-3 serious bidders who will be able to raise the required debt and equity in a liquidity-strapped market, lowering chances of fair price discovery.

One banker Mint spoke to said it would be difficult for buyers to conduct adequate due diligence during pandemic restrictions, especially curtailing foreign interest in Indian airports. "Since the more profitable public airports are going under the hammer first, the government will get less than fair value on many of them," he said.

A senior industry expert told Mint that airport sale prospects won't improve till airlines can right themselves. Indian airlines need cash infusion to pay salaries for the period of government-ordered grounding, subvention on airport charges, a relaxation on fuel taxes and statutory dues, and government-backed credit lines that can stave off bankruptcy till domestic demand recovers and they can rebuild their balance sheets.

"Now we can almost certainly say two or three airlines may not survive the current crisis," a senior official with a no-frills carrier, who requested anonymity, told Mint. “What has been announced is simply a case of rearranging the deck chairs on the Titanic, along with perhaps shortening the queueing time for the buffet, while the gaping hole from the iceberg continues to take in water," the official said, adding that the reforms announced were 'business as usual' steps.

(With inputs from Rhik Kundu in Delhi.)

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