AAI got request for waiver from contractual curbs on airport-airline cross-holding: Government

In a response to a question posed by CPI(M) MP John Brittas in the Rajya Sabha, the government clarified that there are no regulations prohibiting major airports from holding substantial equity in or operating scheduled airlines. However, there are certain limitations in specific agreements concerning airports that are operated via public-private partnership (PPP) models.

The state-owned Airports Authority of India (AAI) has received a request for a waiver of the relevant agreement provision, but it has yet to be reviewed by the Ministry of Civil Aviation (MoCA). This development follows reports indicating that the Adani Group, which owns eight airports, has sought relaxation of the cross-ownership restrictions, as it considers participating in the airline business.

Minister of State for Civil Aviation Murlidhar Mohol stated in a written response to Brittas's query that there is no government policy restricting airport operators from holding substantial equity in or operating scheduled airlines. The restrictions, however, exist within specific contractual agreements pertaining to certain airports under PPPs, which prohibit scheduled airlines and their group entities/associates from holding equity shares of the concessionaires. Mohol did not name the Adani group nor did Brittas in his question.

Upon receiving the government's response, the Adani Group remained silent on the matter. The conglomerate operates eight airports across the country and has a significant presence in various segments of the aviation industry, including ground handling, maintenance, repair, and overhaul (MRO), and pilot training. The conglomerate is also planning to establish an aircraft manufacturing facility in India in collaboration with Brazil's Embraer.

According to the Operational, Management, and Development Agreement (OMDA) for Mumbai and Delhi airports, their operators are restricted to holding a maximum of 10% stake in a scheduled carrier. The Adani Group holds a 74% stake in Mumbai airport, while GMR owns 74% in Delhi airport.

The Adani Group's aviation business, led by Jeet Adani, was previously stated to have no interest in the airline sector due to its capital discipline and focus on high-margin assets. Nevertheless, the company's decision to set up an Embraer final assembly line (FAL) may have influenced the thought process. Factors such as the government's initiative to increase competition in the airline sector and Adani's venture to establish the FAL may have contributed to the recent change in perspective.

India's airline industry has witnessed several airlines fail due to challenging operating conditions, fierce competition in a highly price-sensitive market, and global supply chain issues. To encourage strong corporate entities with deep pockets to enter the sector, the government seeks to promote competition and mitigate market concentration.

In light of the potential adverse impact of a growing duopoly in the skies, IndiGo's Managing Director Rahul Bhatia cautioned that any government move to permit airport operators to own airlines would create a significant conflict of interest and be detrimental to consumers. Bhatia emphasized that no global precedent exists for such a move, and over time, it would likely be against the best interest of consumers.