Adani Emerges Favourite To Land Air India After Mumbai Airport Acquisition

Earlier in February this year, reports had emerged that billionaire Gautam Adani promoted Adani Enterprises was evaluating a bid to takeover the beleaguered national carrier Air India.

Amid the aviation industry’s worst crisis, Indian conglomerate Adani Enterprises Ltd. is finding one opportunity after another to expand its foray into the aviation industry. As widely reported recently, the Adani Group is looking to acquire a controlling 74% stake in the Mumbai International Airport Ltd, in India’s economic hub Mumbai. While the Indian aviation sector might be comatose amid the pandemic restrictions, the country is still the fastest-growing aviation market globally.

Acquisition of the Mumbai Airport will be Adani’s biggest scalp in the sector after it had acquired rights for operations and maintenance of six smaller airports as part of the Indian government’s privatization bid. The six airline hubs – Mangaluru, Thiruvanathapuram, Guwahati, Jaipur, Lucknow and Ahmedabad catered to 30 million passengers (6.4 million international and 23.6 million domestic) in FY19 witnesses 22 percent YoY growth. Gautam Adani’s Adani Group has committed to invest ₹10,000 crore ($1.37 billion) in the sector by 2026.

Watch: Adani Group to acquire 74% stake in Mumbai International Airport

The Mumbai Airport Deal

Mumbai is India’s second busiest with 46 million annual passengers in FY20. Controlled by infrastructure major GVK, the airport had long been on the radar of the Adani Group. GVK group has been struggle to keep hold of the valuable asset with massive debt piling of $781 million as of March 2019. GVK has also been under the scanner for financial irregularities as part of multiple government investigations.

In a statement, GVK announced that the impact of the pandemic had forced their hand and demanding onboarding of a “financially strong investor in the shortest possible time”. GVK Airport Developers Ltd’s debt will be acquired by Adani Airport Holdings Ltd, as per an exchange filing on Monday. Adani Group will also acquire the stakes of Airports Co. South Africa and Bidvest Group Ltd in the Mumbai International Airport Ltd. which stands at 23.5%.

“The aviation industry has been severely impacted by Covid-19, setting it back by many years and has impacted the financials of Mumbai International Airport.”GVK Reddy, Chairman, GVK Airport Developers Ltd

GVK added it had agreed to “cooperate with Adani” and set out various steps in the transaction. They involve Adani acquiring debt from lenders including Goldman Sachs Group Inc. and HDFC Bank Ltd. Adani will be allowed to convert that debt into equity in GVK’s airport business, and will inject funds for the project.

Adani Group’s interest in Air India

Back in February, Moneycontrol reported that Adani Group was “weighing a potential bid” for Air India. As per the source quoted in the report, the Adani group had sought to “evaluate submitting an expression of interest (EoI) and had engaged advisors” to that effect. However, the evaluation and interest had been at a preliminary change. Gautam Adani, India’s fourth-richest man boasts a net worth of around $16.3 billion (Bloomberg Billionaires Index) and a reputation for finding success businesses in heavily regulated sectors like coal mining, electricity, renewables and sea ports.

Adani Group was “weighing a potential bid” for Air India back in February and had had engaged advisors to evaluate the investment.Moneycontrol Source

In Air India, Adani will be able to mark his entry already having aa lion share of the Indian aviation market under his belt. As of Q2 FY20, Air India and subsidiary Air India Express has a 50.64 percent share in India’ international traffic among Indian airlines and 18.4 percent share when including global airlines. Despite losing a significant chunk of the domestic market to private carriers, it still boasts 12.7 percent market share and a fleet that would give Adani an opportunity to expand this number in a short time. There is no official news from the Adani Group on Air India till date. In the past, the group has refused to comment on the subject, terming the reports as market speculation.”

Watch: Adani Group eyes Air India

As on November 1, 2019, Air India’s fleet included 121 aircraft and the airline flies to 98 destinations (56 domestic and 42 international) with 3162 departures per week. Air India’s revenues in FY19 stood around ₹2,550 ($349 million) crore with 22.1 million serviced passengers.

While the Mumbai Airport’s controlling stake puts Adani Airports alongside GMR Infrastructure Ltd. (controller of India’s busiest airport in New Delhi), a move to acquire Air India will have a similar effect also giving ample resource to challenge Indigo, the undisputed leader of India’s domestic skies currently.

Safest Bet for the Indian Government?

Adani Group’s diversified business interests align with the Indian government’s push towards revamping of India’s infrastructure. Struggling for funds, the government has repeatedly sought to privatize Air India but any interests have failed to materialize. While initially aiming to sell a controlling stake in the national carrier, the Modi government has now decided to attract interest by completely selling off the airline.  As per the bidding norms, a domestic entity has to retain the control of the airline as foreign investors have been capped at 49 percent. The government had extended the expression of interest (EOI) deadline till 30 October 2020 in August.

On the government’s intent of completing Air India’s proposed strategic disinvestment in 2020, Union Civil Aviation Minister Hardeep Singh Puri recently stated that while “Air India has been an asset and has a very good record, very trained professional people”, the government shouldn’t be running airlines and airports, but should be applying rules to commercial entities running them instead. CAM Puri also said that there’s a growing focus on making Air India’s divestment attractive for suitors as the government hopes for a resolution in 2020.

“It is important that as a growing concern, one that is attractive to potential bidders we should privatize it. I am hopeful that we will complete its privatization process this year.”Union Civil Aviation Minister Hardeep Singh Puri

As part of making the national carrier an attractive proposition, the bidding norms have been relaxed further. Interested parties can now qualify as bidders with a net worth of ₹3,500 crore ($411 million), from the earlier ₹5,000 crore ($685 million). Similarly, an individual consortium partner can be eligible for a stake as low as 10 percent, making larger consortiums a possibility.