Centre plans to cap number of airports a single bidder can win in next privatisation round

Why in the News

The Ministry of Civil Aviation plans to cap the number of airports a single private bidder can win in the third round of airport privatisation. The round covers 11 airports grouped into five bundles: Amritsar-Kangra, Varanasi-Gaya-Kushinagar, Bhubaneswar-Hubballi, Raipur-Aurangabad, and Tiruchirapalli-Tirupati. The first two privatisation rounds concentrated a large share of India’s privatised airport traffic in two private groups. The cap sets up a tension between preventing bidder concentration and keeping the auction attractive to the handful of infrastructure players with the balance sheet to run an airport.

What does the third privatisation round cover?

1. Bundled bidding across five circuits: The Airports Authority of India (AAI) (the statutory body that owns, manages and privatises Indian civil airports) has grouped the 11 airports into five bundles rather than auctioning each separately, so a bidder wins or loses an entire regional cluster in one bid.
2. Mix of trunk and regional airports: The bundles combine a higher-traffic anchor airport with smaller regional airports, so an operator absorbs a loss-making regional airport as part of winning the more viable one.
3. Continuation of the Public-Private Partnership route: The round extends the Operation, Management and Development Agreement (OMDA) (the concession contract structure under which AAI leases an airport’s operations to a private developer for a fixed term while retaining ownership) model used in the first two rounds.
4. Follows two prior privatisation rounds: Six airports were privatised in the first round and further airports in the second, before this third round was structured.

Why is the Centre capping bidder concentration?

1. Two private groups dominate the privatised airport map: One conglomerate operates several of India’s highest-traffic privatised airports won across the earlier rounds, while a second group holds a smaller cluster, leaving few large private operators outside these two.
2. Concentration weakens the Centre’s post-award leverage: Where one bidder holds most privatised capacity, AAI has fewer credible alternative operators to discipline service standards or renegotiate terms.
3. A cap widens the bidder base for smaller circuits: Limiting how many bundles a single group can win is intended to draw in operators who would otherwise not bid against an incumbent with deeper resources.
4. Precedent from other infrastructure sectors: Sector regulators in ports and telecom have used similar concentration limits to prevent a single operator from controlling bottleneck infrastructure across regions.

Challenges to the airport bidder cap

1. Fewer bidders may qualify at all: Airport concessions require large upfront capital and aviation operating experience, a pool already limited to a handful of Indian infrastructure conglomerates. Eg. Only two or three consortia bid seriously in each of the first two rounds. Fix. Allow joint ventures and foreign strategic partners to combine capital and aviation expertise so more consortia can qualify.
2. Regional airports could go unsold: A bundle pairing a loss-making regional airport with a viable one may see no bidder if the cap forces bidders away from the bundles they actually want. Eg. Kushinagar and Gaya carry limited passenger traffic and depend on the Varanasi bundle for viability. Fix. Offer viability gap funding for the weaker airport in each bundle rather than relying on cross-subsidy alone.
3. Cap design risks being circumvented through related entities: A promoter group can bid through separate subsidiaries or affiliates that appear unconnected on paper. Eg. Beneficial-ownership opacity has complicated concentration limits in the telecom spectrum auctions. Fix. Define the cap by ultimate beneficial ownership, not by the bidding entity’s name.
4. Slower privatisation pace: Restricting the largest, most capable bidders could stretch out the time needed to complete the round, delaying the capacity upgrades the smaller airports need.
5. Revenue realisation may fall: A cap that keeps the highest bidder from taking every bundle it wants could produce lower aggregate concession fees than an uncapped auction would.

Conclusion

The Ministry of Civil Aviation is finalising the bidding norms for the third privatisation round, with the airport-count cap intended to correct the concentration that followed the first two rounds. The bid documents for the five bundles are expected to be released once the cap’s exact threshold is settled.

Back2Basics: Airports Authority of India

1. Statutory body under the Ministry of Civil Aviation, constituted under the Airports Authority of India Act, 1994.
2. Owns, develops, and manages the majority of India’s civil airports, and leases select airports to private operators through the OMDA route.
3. Also provides air navigation services across Indian airspace, a function it retains even at privatised airports.
4. Earns revenue from aeronautical and non-aeronautical charges at the airports it directly operates.

Matching Previous Year Question

“[2024, GS3, 15 marks] What is the need for expanding the regional air connectivity in India? In this context, discuss the government’s UDAN Scheme and its achievements.”