Airport Authority of India (AAI) is all set to receive INR 2,800 crore from the Adani Group towards payments linked to the privatised airports which are currently under the control of the Adani Group. The Adani Group had acquired the rights to take over these airports during the airport privatisation drive initiated by the government. The conglomerate will be paying the mentioned sum to AAI as a part of the privatisation offer for the three airports that it bagged in 2021. The group had already paid the sum of INR 2,440 crore to the AAI for the takeover of 6 major airports of the country: Jaipur, Ahmedabad, Guwahati, Lucknow, Mangalore, and Thiruvananthapuram in November 2021. The payment of the recent dues will be able to bring an end to the controversies of Adani Investigation. It will further strengthen the Adani Group’s hold over the airport sector.
The Payment to Be Made to AAI
Adani Airports Holdings Limited (AAHL), the airport wing of the Adani Group, must pay INR 2,800 crore to the Airport Authority of India towards the acquisition of three airports it acquired as a part of the privatisation process. The payments are related to the under-recovery of revenue from the Thiruvananthapuram, Jaipur, and Guwahati airports when AAI was operating them during the COVID-19 pandemic. The operators face under-recovery when the actual revenue falls short of the guaranteed return over 5 years. So, to compensate for that, the operators have the right to adjust the tariffs in the next five-year cycle to meet the guaranteed return.
The Adani Group’s payment obligations to AAI also include reimbursing investments made by the authority between 2019 and 2021. This would involve covering airport development spending made from the time the privatisation bids were called and the handover was made to the Adani Group in November 2021. The Adani Group had already made payments worth INR 2,440 crore to the AAI for the takeover of 6 important airports in the country. This has made the Adani Group one of the biggest private airport operators in the country. In the upcoming years, the Group has plans to bring more airports under its control under the government’s privatisation drive.
The Need for the Payment
The earnings of the airport operators in India are kept at a predefined rate of return. This rate is fixed for 5 years which is also known as the control period. The tariffs are approved by the Airport Economic Regulatory Authority (AERA). The airports have the right to charge various tariffs such as land charges, parking charges, user development fees, etc. If the airport operator does not achieve the earnings for a certain control period, the tariffs for the next cycle are revised upwards. The regulator can also adjust the tariff for an over-recovery period in the previous 5-year period.
During FY 2017-21, AAI was operating the airports. They observed huge under-recovery due to the massive disruption of services during the COVID-19 pandemic. If the airports were not privatised, AAI would have been entitled to recover the revenue losses in the previous five years. As Adani Group is operating the airports now, it will have to pay the authority an amount approved by AERA to compensate for this revenue loss.
How Can the Adani Group Recover the Amount?
The Adani Group has the right to charge commensurate tariff hikes to airport users to recover the amount which it will be paying to the Airport Authority of India. The Adani Group will also be able to recover this cost with additional tariffs over the next 3 to 6 years. The company already has elaborate plans to further diversify its airport business to increase its revenue generation. It is currently focused on increasing its revenue generation from its non-aero business. It plans to construct malls, restaurants, hotels, etc. around the airports to give the passengers a better experience. This will help the global conglomerate recover the losses it suffered during the Adani Investigation. Its business profitability will also increase.
Conclusion
The Adani Group already has an extraordinary presence for itself in the global airport sector. It is responsible for running a majority of the airports in the country. In the upcoming years, it has plans to take control of other major airports in the country as well. This will help the business group build an enhanced presence across the business sector. It will also be able to rise above the controversies surrounding Adani Investigation and earn the reputation of being one of the biggest airport operators on a global scale.
