In a move that seems both strategic and business-like, the Airports Authority of India (AAI) is reportedly planning to acquire 70 per cent stake in Sri Lanka's Mattala Rajapaksa International Airport, an airport situated in small fishing town of Hambantota, near the southern tip of the island nation. The $250-million international airport is struggling to operate flights - the last international flight was discontinued in May owing to safety concerns. Since then, the airport is not operating even a single flight.
That raises the questions as to why the India's national airports agency AAI is interested in acquiring this asset for 40 years which was built with the help of Chinese authorities. The decision seems strategic because airport will give India access to Chinese activities in Sri Lanka.
Since 2010, China has been investing substantially in various infrastructure projects in the country. China is already operating a seaport near the airport on a 99-year lease.
"It's clearly strategic, otherwise we would have seen participation from private operators like GMR, GVK or Reliance Airport Developers," says an aviation sector expert adding that "since the days of Prime Minister P. V. Narasimha Rao India has been trying to build a military base in Sri Lanka. India also has a maritime cooperation pact with Sri Lanka under which they do anti-piracy patrolling. Having an airport is an extension of India's efforts to build some base in that country."
Besides strategic interest, analysts argue that the price at which airport is pegged at is far lower than its worth. "$250 million for an airport that can handle one million passengers in a year is too low. With that kind of investment, you can buy just three Boeing 737s. It costs nearly half-a-billion to build that kind of asset. It's a bargain," says Mark Martin, CEO, Martin Consulting.
How AAI will utilize this airport still remains unclear. Sources in AAI say that the matter is directly dealt by the AAI leadership in coordination with the ministry of external affairs.
The growing influence of China and India in Sri Lanka has created a political ruckus with opposition leaders raising concerns over the power struggle between Delhi and Beijing. In the face of opposition, India might have to present a strong business case to the Sri Lankan authorities to turnaround the airport which could also mean that Indian airlines will be asked to start sectors to cater to this airport.
For AAI, the acquisition is likely to burn a hole in its pocket in the short-term. The national operator reported 23 per cent jump in net profits in 2016/17 to Rs 3,115 crore on account of growth in passenger traffic and rise in non-aeronautical revenues.
"Airports projects have to be looked at with a long-term view. This airport started about five years ago. Such projects take time to pick up," says an analyst.