The Government of Karnataka's goldmine operating the busy runways

Kempegowda International Airport (KIA), a bustling hub located in Bangalore, has firmly established itself as the third busiest airport in India, following the giants of Delhi and Mumbai. Operated by Bangalore International Airport Limited (BIAL), KIA has witnessed remarkable growth in passenger and cargo traffic, reflecting the dynamic expansion of the Indian aviation industry.

BIAL, under a concession agreement with the Government of India until 2068, holds exclusive rights to develop, design, finance, construct, commission, maintain, operate, and manage KIA through a public-private partnership. In simple terms, this means BIAL can exploit KIA until the year 2068.

In 2016, Fairfax India acquired a 33% stake in BIAL from the GVK Group for $330 million, implying a total equity value of approximately $1 billion for the entire company. 

Fast forward to 2023, Fairfax India acquired an additional stake of 10% in BIAL from Siemens for $250 million, bringing the company's total valuation to approximately $2.5 billion.

The impressive valuation growth of BIAL from $1 billion to $2.5 billion in less than a decade is a testament to the company's effective management and the burgeoning potential of Bangalore's aviation sector.

But why are we talking about the valuation of BIAL ?

In the fiscal year 2023-24, KIA achieved a record-breaking milestone, handling an impressive 3.75 million passengers and managing 439,524 metric tonnes of cargo. This translates to an average daily traffic of 102,740 passengers and 1,204 metric tonnes of cargo. These numbers are not just statistics; they represent the thriving heartbeat of Karnataka's aviation sector and the airport's pivotal role in connecting Bangalore to the world.

However, with such exponential growth comes the challenge of capacity. KIA is projected to reach its peak passenger handling capacity by 2033 and its maximum cargo handling capacity by 2040.

In 1999, when the project was awarded to the consortium led by Siemens, the contract term stipulated that the Union Government could not allow a second airport within a radius of 150 km till 2033

To address this impending scenario with 9 years remaining for the above clause to cease, the Karnataka Government has initiated plans for a second airport to accommodate future growth. This forward-thinking approach underscores the urgency to start planning now, given the lengthy processes involved in land acquisition and compensation.

The new airport being planned is intended to support the growing demand, not to compete with the existing airport. Consequently, KIA will continue to enjoy its current traffic, while the new airport will accommodate its own share of traffic.

Just as the Karnataka Government owns a stake in BIAL - the company managing KIA, it will similarly maintain a stake in the company that will be appointed to manage the operations of the new airport.

As of December 2023, the shareholding structure of Bangalore International Airport Limited (BIAL) is as follows: Fairfax India holds 64% ownership, Siemens Germany holds 10%, the Airports Authority of India owns 13%, and the Government of Karnataka also owns 13%.

The Karnataka Government's 13% stake in BIAL translates to a substantial $325 million, or approximately INR 2,600 Crore, at the current valuation of $2.5 Billion. This significant equity is a goldmine for  the Government of Karnataka and underscores the government's vested interest in the airport's continued success and expansion.

Hari Marar, MD & CEO of BIAL, has indicated that Fairfax India is willing to acquire the Airports Authority of India’s (AAI) 13 % stake in Bangalore Airport.

We hope that in its effort to secure funds for the promised freebies, the Government of Karnataka sensing an opportunity of raising funds does not end up selling its 13 % shareholding in BIAL.

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