Aai Got Request For Waiver From Contractual Curbs On Airport Airline Cross Holding Government

There is no government policy that restricts that airport operators from holding substantial equity in airlines or operating them, but there are some restrictions in specific agreements pertaining to some airports operated by private sector airport operators under the public-private partnership (PPP) model, the government informed the Rajya Sabha on Monday. It also added that the state-owned Airports Authority of India (AAI) had received a request seeking a waiver of the relevant agreement provision, but the matter has not yet been examined by the Ministry of Civil Aviation (MoCA).

The comments, which came in response to a question from CPI(M) MP John Brittas, come close on the heels of reports that the Adani Group, which operates eight airports, had sought relaxations from cross-ownership restrictions as it was evaluating participating in the airline business. On July 24, Adani group flagship Adani Enterprises had said that it was not evaluating any proposal to enter the airline business. The Adani group didn’t immediately respond to a request for comment following the government’s response in the Rajya Sabha today.

“There is no such Government Policy restricting operators of major airports from holding substantial equity in or operating scheduled airlines. However, the extant contractual agreements relating to some airports under Public Private Partnership (PPP) contain certain restrictions on scheduled airlines and their group entities/associates from holding Equity Share of the Concessionaires,” Minister of State for Civil Aviation Murlidhar Mohol said in a written response to Brittas’s question.

“Request seeking waiver of the relevant agreement provision has been received by Airports Authority of India (AAI). The matter has not yet been examined by the Ministry of Civil Aviation,” Mohol added. Mohol didn’t name the Adani group, nor did Brittas in his question.

The Adani group operates eight airports in the country and has a major presence in other segments of the aviation sector, including ground handling, maintenance, repair and overhaul (MRO), and pilot training. The conglomerate also plans to set up an aircraft manufacturing facility in India in partnership with Brazil’s Embraer. As per the Operation, Management and Development Agreement (OMDA) for Mumbai and Delhi airports, their operators are barred from holding more than 10% stake in a scheduled carrier. The Adani group has 74% stake in the Mumbai airport, while GMR has 74% in the Delhi airport.

Sources had earlier indicated that the Adani group was weighing having its own airline and MoCA was learnt to have initiated preliminary discussions internally after the conglomerate sought relaxation in June. Any change on this front will also require the approval of the Union Cabinet, sources had said.

Notably, Jeet Adani, who looks after the conglomerate’s aviation business, had said in December that the Adani group was not interested in the airline business as running a carrier didn’t fit the group’s capital discipline and philosophy, which was about investing in assets in high-margin businesses and sweating those assets. The airline business is the opposite of that, Jeet Adani had said in a televised interview in December ahead of the Navi Mumbai airport launch.

But the thought process might have changed since then, largely due to two factors — the government’s push for more airlines in a bid to increase competition and check market concentration, and Adani’s own venture to set up a final assembly line (FAL) of Embraer’s passenger jets.

The airline sector in India has seen a number of airlines fail due to a difficult operating environment, fierce competition in a highly price-sensitive market, and global supply chain woes. The government wants strong corporate groups with deep pockets to foray into the sector given the challenging operating environment in the world’s fastest-growing major aviation market.

While concerns pertaining to a growing duopoly in the Indian skies had been around for a few years, IndiGo’s network-wide operational crisis in December exhibited the adverse impact it can have. The airline, with over 65% domestic market share, had mass cancellations early December, bringing the country’s aviation sector to its knees.

Meanwhile, IndiGo’s Managing Director Rahul Bhatia had said last month that any move by the government to allow airport operators to own airlines will create a “massive conflict of interest” and will be against the interest of consumers. “We are reading news as you are. All I can say is that, if the news has any merit, one, it has no global precedent…and typically (it will create) a massive conflict of interest. Over a period of time, it would actually be against the interest of consumers,” Bhatia said in the company’s post-earnings call on Thursday, adding that IndiGo will closely watch the developments on this front.

According to industry insiders and experts, if the Adani group indeed moved ahead with a plan to run an airline, there is bound to be stiff resistance from existing airlines and other stakeholders due to potential conflict of interest situations. These could include preferential treatment and slot allocation to the airline opened by the operator. If the government does allow airport operators to own airlines, it must ensure stringent regulatory oversight as well as mandating the airline and airport operations to be run independently, experts said.

Sukalp Sharma is a Deputy Associate Editor with The Indian Express and writes on a host of subjects and sectors, notably energy and aviation. He has over 16 years of experience in journalism with a body of work spanning areas like politics, development, equity markets, corporates, trade, and economic policy. He considers himself an above-average photographer, which goes well with his love for travel. ... Read More