Indian company’s acquisition of Chaudhry International Airport will raise passenger and business charges

India’s Adani Airport Holdings will have full discretion over how much passengers will be charged for using the airport. Jomo Kenyatta International Airport The increase in airport fees has been proposed in line with its proposal to the Kenya Airports Authority (KAA) to upgrade and operate the aviation hub.

The company has submitted a private investment proposal to KAA, which points out that KAA charges passengers much less than other hubs in the region, including Addis Ababa, resulting in revenue losses, and notes that doubling the fees could easily secure the airport’s future.

The proposal was submitted to the KAA but was not published until last week, sparking heated debate and raising concerns about the government’s plans. Introducing Private Players JFK was run without following due process.

“The proponent will be given the right to charge fees to airlines and other commercial activities without restriction,” the company said in its proposal to operate the Chaudhry International Airport for 30 years.

Adani, which operates eight airports in India, including India’s largest, Mumbai International Airport in Delhi, which it jointly owns with the government-owned Airports Authority of India, said it would invest 246 billion shillings ($1.85 billion) in three phases at K2 if it gets approval to upgrade and operate it.

The first phase of the project, expected to be completed in 2029, will involve an investment of 97.5 billion shillings (US$750 million) to build a new terminal, associated aprons and taxiway systems. Later phases of the project will include the development of an airport city with facilities such as hotels and shopping malls.

The company points to discretionary fees paid by passengers and businesses that rent airport space as one of the ways it guarantees an 18 percent return on investment.

In the proposal, the company stated that “aeronautical charges shall be framed in such a manner that Adani Airports will earn an equity IRR (internal rate of return) of 18% from the aeronautical business including all capital expenditure incurred at the airport”.

In its proposal, the company noted that doubling user fees would only result in a maximum 2% increase in fares.

“Currently, Chaudhry International Airport charges are lower than competitors in the East African region and the adjustment will help increase revenues,” Adani said. “When aeronautical charges increase by 100%, the net increase in total fares will be between 1% and 2%.”

It cited the example of Addis Ababa Bole International Airport in Ethiopia, which charges passengers higher airport fees but still falls under Africa’s leading aviation hub.

Adani said: “Airline charges at K2 are lower than those at other airports in the region…Airline charges from K2 are almost 50% to 60% lower than those from Addis Ababa Bole for similar routes.”

Even though it proposed to pay KAA “the fixed franchise fee agreed in the franchise agreement”.

“We propose a fixed royalty as consideration to the contracting authority. The fixed royalty for the base year is tentatively set at $47 million (Sh6 billion at current exchange rate),” the company said, adding that the figure will be updated once a feasibility study is conducted. However, the company said it would increase by 10 percent every five years to adjust for inflation.

Chaudhry International Airport is a key unit of the Kenya Aviation Authority, accounting for more than 80% of the authority’s revenue. According to its latest financial report, the Kenya Aviation Authority had revenue of Sh17 billion in the year to June last year. However, due to high administrative and establishment costs, the authority incurred a loss of Sh4.2 billion after tax.

The airport has been underinvested for years, causing passenger traffic to exceed capacity: the airport was designed to handle 7.5 million passengers a year, but last year it handled about 10 million. In addition, some terminals were designed as temporary facilities, but little has been done to turn them into permanent ones.

These include Terminal 2 (T2), which was built as an emergency measure after a fire in 2023. It was supposed to be used for 10 years until the government built a permanent facility.

An aviation policy recently approved by the Cabinet states that local public aviation infrastructure requires Sh260 billion for upgrading to bring it up to date and enable it to handle the expected growth in passenger and cargo traffic. Jomt Kazakhstan International Airport requires half of this amount, Sh130 billion.

However, the government noted that it could not raise this money internally and would invite private companies to inject funds through the PPP framework.

Private players will be allowed to build and operate new and existing airports under the Build, Operate and Transfer (BOT) and PPP frameworks, charging user fees that will enable them to maintain and recover their investments, and eventually hand over the facilities to KAA at the end of the contract.

It is this funding gap that Adani is seeking to fill, and in its proposal, Adani appears to have dissuaded KAA from considering other players through a competitive bidding process.

“The competitive bidding process, while important, can inadvertently lead to delays in airport construction. The complexity of the bidding process, which involves the preparation and submission of a comprehensive proposal, often prolongs the time it takes to start a project,” Adani said.

“The proponents are keen to complete the proposed project expeditiously, with the first phase scheduled for completion by FY2029. This timeline is in line with the Indian government’s objectives in the Fourth Medium Term Plan (Vision 2030) to rapidly improve aviation infrastructure.”

Besides operating eight airports in India, Adani is also responsible for one-third of India’s air cargo business and 25% of the country’s airport passengers. While this gave it the credentials to bid for the operation and management of K2 International Airport, the company has been criticized for increasing user fees after taking over, leading to higher ticket prices. Indian airlines have protested against the price hikes to the Airports Economic Regulatory Authority (AERA) in the past.