New Delhi: The Adani group has expressed its inability to take over three airports it won after aggressive bidding last year, dealing a blow to the government’s privatisation plan.
The group has cited uncertainty in the aviation sector due to the coronavirus pandemic for seeking at least six months to take over Lucknow, Mangalore and Ahmedabad airports, sources told Business Standard. It has written to the Airport Authority of India (AAI) to invoke the force majeure clause to postpone the takeover and it has appointed consultants to re-evaluate the viability of the business.
Business Standard reached out to the Adani group for its comment. We will update this story as and when it responds.
Adani signed a binding concession agreement for the three airports on February 15, after winning six in February 2019. According to the agreement, the group had to formally take over the assets within 180 days by paying around Rs 1,500 crore upfront to AAI. Adani has the right to operate the airports for 50 years, but those at Jaipur, Trivandrum and Mangalore are already stuck in litigation and the group hasn’t signed any binding agreement with AAI.
“Adanis have said they want to relook at the entire business as the prospects of aviation sector has changed drastically. They have appointed a consultant in order to take a fresh look at the business and hence wants an extension by six months. The group has cited the Force Majeure clause in the agreement which allows delaying takeover in case of extraordinary situation which is beyond control of both the parties,” said a person aware of the development.
A senior AAI official said that the public sector enterprise hasn’t decided on the group’s proposal. “These things have to be agreed mutually. We haven’t yet taken a decision on the same. Force Majeure clause invocation cannot be unilateral,” the official said.
AAI would have to cancel the bids and restart the sale process if doesn’t agree to Adani’s group’s deferment proposal. Adani group will lose the performance guarantee which it had paid during signing the concession agreement, the AAI official said. The guarantee for each airport is around Rs 100 crore.
The group has formed a separate company, Adani Airport Holdings, for operating the airports. However, it has seen high churn in top management. In January this year, Adanis had appointed Ben Zandi, a top executive with German airport operator Frapport as its CEO. This was after Sidharath Kapur had quit the firm in less than a year. Kapur, who formerly headed the airport business for GMR group had quit citing personal reasons.
An executive of an infrastructure company said Adani had bid aggressively for the airports because it had a strategy to make money from non-aero sources. Non-aero sources of airport means any other revenue sources except core business like landing and parking charges.
He said that the group thinks it will be at least two years before air traffic returns to a level where it was before the pandemic.
“The plan involved extensively developing aerotropolis, malls, hotels, airport villages to cash in from non-aero sources. Now with the pandemic, there is heavy uncertainty of traffic projection for the next two years. So all calculations and projections of the business must have overturned. It’s a prudent decision to take a relook at the business rather than getting stuck with something forever,” the executive said.
Adani group’s delay in takeover hurts the government’s airport privatisation move. Finance minister Nirmala Sitharaman in May announced that AAI will start the process of sale for six more airports: Varanasi, Amritsar, Bhubaneshwar, Indore, Raipur, Trichy.
By arrangement with Business Standard.