Government approves JV between NACIL and SATS

The Government yesterday gave post-facto approval to the formation of following Joint Venture Companies between the National Aviation Company of India Limited (NACIL) and M/s. Singapore Air Terminal Services (SATS) :

(i) For Cargo Handling at Bangalore International Airport Limited (BIAL), Bangalore with 50:50 shareholding.

The new Greenfield Airport at Bangalore commenced operations in 2008. Tenders were floated by BIAL for granting Service Provider Rights to professional Cargo handling entities for Build, Operate & Transfer (BOT) cargo handling facilities at the Airport. One of the terms of the tender was to create and provide cargo-handling facility of world-class standards. It was felt that the technical knowledge, experience and market standing of JV partner would enable erstwhile Air India to gain sufficient expertise in this field. Accordingly, erstwhile Air India and SATS submitted a combined bid to BIAL. The project cost is estimated to be Rs.99.10 crores. The debt-equity ratio will be 50:50 and NACIL’s equity contribution would be Rs.30 crores in the total share capital of Rs.60 crores. The balance would be borrowed from Banks and Financial Institutions. The JV is estimated to be profitable during its operation and expected to yield an IRR of 17% over a period 15-year. The profit margin is likely to be in the range of 10 to 28%.

(ii) To undertake the Ground Handling activities at Bangalore International Airport Limited (BIAL), Bangalore with 50:50 shareholding.

The erstwhile Air India (AI) had submitted its pre-qualification bid for provision of ground handling services at BIAL. Since international experience in ground handling was one of the criteria, AI decided to join hands with an international Ground Handler and submit the final bid. Thus AI submitted the ground handling bid jointly with SATS. AI shall subscribe for 50% of the shares and SATS for 50% of the shares and the same proportion of shares is required to be maintained throughout the term of agreement. This JVC would involve investment of around Rs.72.78 crores, out of which Rs.50 crores would be share capital and the balance capital would be raised from banks as commercial borrowings. As per estimates, it is expected to yield an IRR of 35% over a period of 10 years.

(iii) To undertake the Ground Handling activities at GMR Hyderabad International Airport (GHIAL), Hyderabad with 50:50 shareholding.

Greenfield Airport at Hyderabad has also come up and became operational from March, 2008. The GMR Hyderabad International Airport Limited (GHIAL) had invited selective tenders from ground handlers. In view of the ensuing merger of the erstwhile AI and IA, it was decided that they would jointly submit the tender along with a JV Partner for the Ground Handling contract at GHIAL. AI-IA decided to tie up with SATS as Joint Venture Partner. The JVC for Ground Handling Services at GHIAL would involve investment of approximately Rs.80 crores, out of which Rs.60 crores would be share capital and the balance capital would be raised from banks as commercial borrowings. The equity share holding of AI and SATS would be in the ratio of 50:50. As per estimates, it is expected to yield an IRR of approx. 41% per annum over a period of 7 years.

(iv) To undertake Ground Handling at Mumbai, Delhi and other Indian Airports excluding Bangalore, Hyderabad and Cochin with 50:50 shareholding.

NACIL as a National Carrier had the option of either undertaking the ground handling services at all metro airports under its subsidiary company or through a Joint Venture partnership company in terms new ground handling policy. After following the due process, NACIL has selected M/s. Singapore Airport Terminal Services (SATS) as JV partner for providing comprehensive ground handling services at Indian Airports. This Agreement is for all airports other than Bangalore/Hyderabad (for both these separate JVs are to be formed) and Cochin where there is a contractual agreement between the airport operator and Air India. In the proposed Joint Venture Company, both AI and SATS shall subscribe 50% of the shares each. The terms and conditions will be firmed-up after negotiations with SATS and accordingly the MOU for a particular station would be signed by the partners.
NACIL holds majority market share of the ground handling business at the Indian Airports, primarily as there is very little competition. Further, a large component of the third party ground handling contracts of NACIL are based on the mandated commercial agreements, which would cease to be in existence w.e.f. 1st January, 2010, as per the Government Policy.
18/02/09 Press Information Bureau

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Categories: Foreign Feb 2009, NACIL Feb 2009, New Feb 2009