✈️ Adani-Aviation Saga Intensifies
The Adani Group's latest interest is the aviation sector. Here's why this space has caught the eye of Asia's richest man.
After becoming Asia's richest man, Gautam Adani is understandably on Cloud 9.
And while floating on this cloud, he has hatched a plan to conquer the skies: through the aviation business.
No, he isn't launching an airline (yet), he is bullish on airports.
But why? ReadOn!
🎲 Adani's Airport Bet
Adani Enterprises Ltd. is fast getting hold of a lot of our airports. Huh? Our government is privatising a lot of airports (allowing private players to control operations for 50 years) because it believes that privatisation can help increase their revenue potential.
And Adani, whose motto seems to be go big or go home, has managed to gain control over every single one of the airports that the government has privatised till date.
Regulators like NITI Aayog protested this decision as it could expose the company to a huge financial risk because airports are a risky business. But Adani eats risk for breakfast, lunch and dinner.
So, AEL now controls 7 airports (it had already taken control of the Mumbai airport from the GVK Group in 2020).
And the government is going to privatise more airports, which could also come under Adani's control soon.
But are airports really that lucrative? Does this investment make sense for Adani?
Yes, because India's aviation sector is set to grow at the fastest pace in Asia over the next few years.
That's because with more budget airlines coming into the picture, a lot more Indians are going to take to the skies.
And all of these Indians will have to pass through the airport, where they will buy books, clothes, gifts, etc for themselves and the people waiting for them on the other end.
That's what Adani is banking on.
Now, a lot of you may be thinking, "How many people buy stuff from airports? Isn't it more expensive?"
That's what we thought. But we guess traveller's guilt is real and people buy an insane amount of things from the airport.
In fact the retail shops in Delhi and Mumbai airports make 2-2.5x more revenue than regular retail shops in the city.
And the airport retail industry is set to grow to be worth $9.3 bn in 2030, up from $1.4 bn in 2019.
To make sure that this happens, the Adani Group is investing Rs. 10,000 crores in the Ahmedabad airport. They are planning it on making it a regional hub, which connects to all the other smaller airports in Gujarat.
It is making such a huge bet on Ahmedabad airport because the city is fast emerging as a financial capital where a number of industries are booming. Plus, there is a huge influx of tourists into the city, which can be measured by the fact that Ahmedabad's hotel rooms are growing at a CAGR of 8.59%!
But Adani Group is not happy having just one slice of the aviation pie. It wants it all.
🍰 The Whole Aviation Pie
So, Adani Defense Systems and Technology Ltd.(an arm of Adani Enterprise) is also getting into the airline maintenance, repair and overhaul (MRO) business. And it is going about it in the most Adani way possible: through acquisition.
It has acquired Air Works, one of India's oldest, biggest and most diversified MRO companies for Rs. 400 crores.
But why invest in MRO now?
The Indian MRO space is very scattered at the moment. There are a few players in this space, but most of them are small-scale and don't get enough traction to make profits.
Because 85% of Indian airlines are still choosing foreign MRO companies for repairs.
If a big player like Adani enters and consolidates the existing players then we can ensure that our airlines get the best MRO facilities right here at home.
And this will also help Adani's defense ambitions. You see, Adani is also trying to get into the defense space through joint ventures with drone companies. But an MRO business would also help the company enter this space because military aircrafts also need repair and maintenance.
To ensure this happens, Adani is also planning to buy stake in other MRO companies.
And it also eventually wants to handle all the ground operations at the airport.
Looking at this pattern, Adani will also probably enter the retail space and open his stores in the airport, controlling every aspect of the airport business. This way, even if Adani loses the lease to control the airport after 50 years, he will still be making money off the airport.
Genius, right?
Now, our only question is that is the Adani Group spreading itself too thin, with its hand in too many pies at once?
⚡ In a line: Adani Group is getting even more interested in the aviation space because of its growing potential and how it can help it segue into the defense business.
💡 Quick question: Do you think Adani Group could launch its own airline soon?
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