Amid Adani interest in airline business, Government says AAI got request for cross-holding cap waiver

“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, schedule airlines and their group entities can’t hold more than 10% stake in the airport operator. This also effectively restricts the airport operator and its group entities from investing in or promoting a scheduled airline. 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.

In a letter addressed to the Airports Authority of India (AAI) Chairman in June, Adani Airport Holdings’s CEO Arun Bansal had sought a waiver or clarification in the Mumbai airport OMDA to pave the way for the group to directly or indirectly invest in, acquire, promote, or control a scheduled airline, it is learnt. Bansal also sought similar waivers, approvals, and clarifications for all existing and future airports, given that the conglomerate may in future operate more airports.

In that letter, Bansal is understood to have written that allowing the waiver would facilitate the emergence of an additional large-scale airline, thereby enhancing competition and reducing market concentration risks, apart from enhancing regional connectivity.

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.

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.

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.

In his letter to the AAI chief, Bansal wrote that airport neutrality can be preserved through existing and enhanced safeguards like International Air Transport Association (IATA)-compliant slot allocation process and oversight from the Directorate General of Civil Aviation (DGCA), and Airports Economic Regulatory Authority of India (AERA), and MoCA, it it learnt.

Additionally, safeguards like transparent and non-discriminatory airport operating procedures, information barriers and ring-fencing arrangements, independent governance structures, and regulatory monitoring and compliance mechanisms would help ensure airport neutrality and non-discriminatory access, Bansal is understood to have written.

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.