5% ceiling for airlines' stake in airport JVs

The central government has decided to cap the stake by airlines in Mumbai and Delhi airports, which are being privatised, to 5 per cent. Group entities of the airlines, which are already operating airports, are, however, exempted from the ceiling.

"Equity ownership in joint venture companies by scheduled airlines, cargo airlines and their group entities is restricted to 5 per cent. However, group entities of scheduled airlines and cargo airlines that are existing airport operators as on the date of issue of this document are exempted from this restriction," a clause in the document inviting expressions of interest says.

"The objective of such a clause is to ensure that no one airline has control on the operations of the airport. The idea is to give a level playing field to all the airlines," a senior government official. The government is planning to privatise the two airports through joint ventures in which the private parties will hold 74 per cent each.

The balance 26 per cent stake will be held by the Airports Authority of India (AAI) and other public sector undertakings.

The last date for submission of EoIs is June 4, 2004 and the government is planning to finalise the new owner by October 2004.

The government has also made it clear that while private parties can bid for both airports, they will be given the bid for only one airport in the interest of promoting competition.

The issue assumes significance as the two airports together accounted for 49 per cent of passenger traffic and 59 per cent of cargo traffic handled by airports in India last fiscal.

The prospective bidders must have a net worth of Rs 500 crore and, in case of a consortium the combined net worth of only the prime consortium members will be considered.

Each prospective bidder must be an airport operator or have a minimum of one airport operator in the consortium. The government will give additional weightage to those consortiums where the airport operators will hold at least a 10 per cent stake.

"We welcome the attempt to privatise these airports and are sure that this process will set the benchmarks for future airport privatisation in India," said Athar Shahab, the transport sector head with the Infrastructure Development Finance Company, which is a prospective financier to the two airports.

ABN Amro are the financial consultants, while Amarchand & Mangaldas and Suresh A Shroff are the legal consultants to AAI for the privatisation process.