Rs 1 trillion airport capex plan for 5 years: AAHL director Jeet Adani

Jeet Adani outlined his vision for the airports business that's expected to attract investments of around Rs 1 trillion over the next few years

Jeet Adani, director of Adani Airport Holdings Limited (AAHL), which runs seven major airports in the country and is building the Navi Mumbai airport, has ambitious plans. Industrialist Gautam Adani’s younger son joined the Group CFO’s office of Adani Enterprises (AEL) back in 2019 as part of the strategic finance, capital markets, risk and governance policy team and was then asked to lead the group’s airport business in 2022. The engineering graduate from the University of Pennsylvania is also in charge of the group’s digital and defence businesses. In an exclusive interview to Deepak Patel in Ahmedabad, Jeet, 27, outlined his vision for the airports business that’s expected to attract investments of around Rs 1 trillion over the next few years. Edited excerpts:

 

What is the impact of consolidation among airlines on airports?

 

There are both positives and negatives. The positive is that for a large country like ours, we have strong airlines on short haul routes as well as long haul routes. Air India, with the backing of the Tata Group, will continue being a very strong international airline and that is very important because until now, we have been losing international traffic to hubs like Singapore, Doha, Dubai and Abu Dhabi. We finally have one airline which can take back that capacity.  

Both -- Air India and IndiGo -- are here for the long term. Will two airlines be able to serve the entire market even as India is going to the level that China is today? We will definitely need more than two major airline players. (Air India and IndiGo hold more than 90 per cent share in the domestic passenger market right now). The positive for the airport is that we would now have a large throughput of Indian passengers using Indian hubs to travel to international destinations. It will also have a positive impact on non-aero revenue of airports. The negative from the airport perspective is that we could start seeing a concentration risk. However, I am talking about a theoretical negative situation because our group has very good relations with Air India and IndiGo.  

 

Can you elaborate on concentration risk from the perspective of airports?

 

I don't think there is, in reality, a concentration risk. I would say that the pros (of airline consolidation) are much higher than the cons. I am more excited by it because finally, we can sit across the table with Air India and talk about a 10-year plan. That is important for us because hypothetically speaking, if Air India wants to make Navi Mumbai airport its hub, we can start planning for it now if it has to be executed five years down the line.

 

So, the duopoly (of IndiGo and Air India) does not bother you?

 

No. 

 

The Navi Mumbai airport is going to start by March 2025. Have you already signed up airlines for it?

 

We have got soft commitments. The airlines are more than willing and they are pushing us and asking us questions about the timeline of the phase 2 construction, which will begin once the phase 1 is done by March. There is so much demand. The excess capacity will fill the Navi Mumbai airport.

 

Have you thought of speeding up the construction of phase 2 and phase 3 of the Navi Mumbai airport?

 

We are doing that. Earlier, the plan was going to start the construction of phase 2 from 2027 or 2028, but we have decided to start phase 2 from  next year itself….  Airlines, whether domestic and foreign, want to know when we are starting the phase 2 construction because they believe that the capacity established by phase 1 construction would not be enough.

 

You plan to list AAHL but you want to address  certain trigger points. What are those?

 

The trigger points include commercialisation and stabilisation of the Navi Mumbai airport in the first phase, which we will see in the next one year. Going to the first phase of our city side development around airports will also be an important factor. The leasing out of space in the city side development will start in 2028-29. So, even if pre leasing starts, it will show that our business model works. The third thing is our non-aero revenue growth. The non-aero revenues at our airports has grown by almost three times since when we started our airport business. It is not going to continue at that level because it is now maturing. For example, when the new terminal at the Lucknow airport started, there was a step jump in non-aero growth. The Navi Mumbai airport, the minute it starts, will lead to a step jump in non-aero growth…. So, over the next two years, there are going to be continuous step jumps in non-aero growth and it will reach a point where it itself is going to become a sizable revenue generator. Once these three things happen, AAHL's EBITDA, which is about $300 million today, will go up to $1-1.5 billion. At that point, everything that we have spoken about is demonstrated. So, from an investor point of view, they have the confidence that what the AAHL is doing makes sense.

 

So, when you reach the target of $1-1.5 billion EBITDA with the help of the trigger points you mentioned, will you be confident enough to list AAHL?

 

Correct. So, not all three of the triggers need to be done before we go into a demerger. But at least, one or two out of the three needs to be done so that we demonstrate a sizable part of our business plan.

 

The main thing is achieving the $1-1.5 billion EBITDA… Isn’t it?

 

Exactly. Once we are at that level of about $1 billion EBITDA, we will be comfortable to list this business and demonstrate value growth.

 

When will you be able to achieve this EBITDA level?

 

It will be two to three years from now. 

 

What are the steps you are taking to boost the growth of non-aero revenues?

 

One is increasing the space (for retail, etc). Second is recutting the entire brand and products. We are going through a very rigorous exercise now to get into a consumer level detailing. We don't have a cookie cutter approach that if KFC or Domino's is coming to us, we need to put them at each airport of ours because each city is different in terms of its consumption pattern. So, we've gone completely grounds-up. We are looking at specific consumer cohorts and their spending patterns in a city. How exactly are they travelling -- whether it is in groups versus solo, male versus female, work versus leisure, because all of that changes the spending pattern. And based on that, we're tying up with brands and food to specifically target those consumer cohorts. So, revenue growth, just from this exercise, is going to be about 15-20 per cent this year and 15-20 per cent next year.

 

What is the share of aero vs non-aero revenues in AAHL right now and what is the target that you want to achieve in the next four years?

 

In the next five years, we want the share of aero revenues to non-aero revenues to be 40 per cent and 60 per cent. Right now, the share of aero vs non-aero is 55 vs 45. We have to gain about 10-15 per cent from the other side in the next five years. In the long term, which means in 10-15 years, we think the share of aero revenues will be less than 10 per cent because once the city side development takes place, that itself will provide about 40-50 per cent of our total revenues. Our ultimate vision is to  make it free for airlines to operate at our airports. We don't want to charge airlines. We want to earn our entire return on the asset from just the city side development and non-aero sources. We then don't have to fight with regulators (AERA, which decides the aero charges for each airport).

 

In an investor presentation, the Adani Group had mentioned that it wants to start its own ground handling services. Any update?

 

In the last three years, and even when we were going into the airport business, we realised how complex the ecosystem is. As an airport operator, if we've concessioned (contracted) out everything, we have no control on any of the operations in the airport. We just create the building and then 10 different companies come and work there. But what that meant was that we had such little control over the customer experience. For instance, if a bag is coming late to the belt, then we would just tell passengers that the problem is with the ground handler. If security is taking time, then the issue is with the security staff. Then, the question came: what exactly is the airport operator doing? So, with our entire strategy regarding non aero revenues, we need to own everything from car parking, duty free, lounges, food and beverages (F&B), retail services, etc. Everything will be owned by us. We have the same strategy for the aeronautical services such as cargo, fuel farm, ground handling, etc. We want to own every single thing because we want to fully control the customer experience.  We want to make sure that at the end of the day, both from a digital as well as physical experience, it has to be the Adani experience for the customer.

 

When do you plan to start a ground handling services company?

 

We will start it in March along with the Navi Mumbai airport.

 

You have about 657 acres of land around your eight airports for city side development. What’s the plan there?

 

Today, all eight airports are in the center of the cities. We want to create full mixed use developments there, not focused only on hotels, or only convention halls, or only retail outlets, or only offices. The first four cityside development projects have already begun around terminals in Mumbai, Ahmedabad, Lucknow and Jaipur. The construction has  started in Mumbai and Ahmedabad. Everything will get ramped up in the next three to four months. Here too, the idea is to look at a city's needs. So in Ahmedabad, we saw a big need for a good quality hotel and convention centre. In Mumbai, we see a dearth of good hotels. So we are building hotels there. Just like Ahmedabad, there is a need for a large format convention centre in Mumbai too. Besides the Jio World Convention Centre (owned by Reliance Industries), there is no other convention centre in Mumbai other than one in Borivali. We are not doing anything ultra luxurious. We're bringing bridge-to-luxury or road-to-luxury kinds of brands when it comes to retail…. But ultimately, because we have so much area, we will have to do  little bit of everything. So, we will have luxury outlets too.

 

What’s AAHL's capital expenditure plan for the next five years?

 

Broadly, our internal investment plan -- the way we have done our financing and everything -- for the next five years is over Rs 1 trillion. About Rs 20,000 crore will be used to expand existing terminals and build new terminals at the airports. About Rs 20,000 crore will be used for the initial cityside development project at airports in Mumbai, Ahmedabad, Lucknow and Jaipur. About Rs 18,000 crore will be used for the phase 2 construction at the Navi Mumbai airport. We are also keeping about Rs 20,000 crore for future mergers, acquisitions and the central government's next round of airport monetisation (privatisation). There is still some gap. We are keeping those funds if any international opportunity fructifies for us.

 

How do you plan to finance this capex plan?

 

A mix of internal accruals, new equity and debt.

 

Have all your airports become profitable? 

 

All of them have either broken-even or have become profitable. One major factor has been the growth in non-aero revenues, which has been slightly higher than expected…. At these airports, the aeronautical tariffs were not reset by AERA when we took over. We then put our master plan in front of the regulator for these airports, we have been given a new tariff structure and we are now in a new tariff cycle. So, there has been some revenue growth due to that too. Once the cityside development happens, I won't have to care about the tariffs because the cityside alone will give me my returns.

 

What are your international plans for airports business?

 

We are very clear that we will not do any international expansion just for the sake of it. We will only do it if it will add to our India network, similar to what we have done in ports. Even though we have expanded to ports in Haifa, Colombo or Australia, it is the same shipment network that we are working on. We want to do the same thing here. We have the India network and we will look at Eastern Africa, South Asia, Middle East, our neighbouring countries, etc. These are the places which would have a lot of correlation with India and we want to keep playing on the India story. There are some conversations that are at an advanced stage…. I can talk about the Nairobi airport (Jomo Kenyatta International Airport). We have proposed to invest there. We are in discussions with the Kenyan government but not finalised it yet. 

 

The aviation business is quite difficult. How do you see the growth prospects?

 

The industry has a large and profitable airline in IndiGo, which gives a ray of hope to other airlines in India. The aviation industry has its own distractions. It is a very fancy industry. It is very easy to stray. The good thing is that we now have mature and seasoned operators. We are in a very exciting time. When I talk to IndiGo and Air India, I tell them they are ordering so many planes, and we don't have the space to park them. (Laughs). We need to create airports, stands, etc. We are all running. There is a huge growth prospect.

 

Are you planning to start an airline yourself?

 

No. Absolutely not.