In a recent arbitration ruling, Delhi Airport, under the ownership of GMR Group, has won a dispute with the state-owned Airport Authority of India (AAI) regarding revenue sharing during the Covid-19 period, according to a report by The Economic Times (ET). The tribunal’s decision favoured the airport, outlining specific directives that entail a refund of Rs 500 crore from AAI and a waiver of Rs 1,800 crore payment to the authority.
AAI may contest the award. Under the terms of the privatisation agreement established in 2006, Delhi Airport had committed to paying 45.99% of its annual revenue as concession fees to AAI. Delhi International Airport Limited (DIAL), the entity operating the airport, invoked a force majeure clause to suspend the revenue-sharing agreement temporarily, citing the pandemic’s impact on traffic flows and revenue.
In January 2021, the Delhi High Court provided interim relief to the airport, allowing a deferment of revenue share payments to AAI until the completion of arbitration.
Now, the tribunal award has further extended this relief by excusing DIAL from making payments for the period between March 19, 2020, and February 28, 2022, attributing this to the force majeure clause. The airport has also secured a waiver on payments from January 2021 to February 2022.
Additionally, the tribunal has ruled for an extension of the concession agreement, granting the GMR Group the right to operate the airport until 2036, with an additional duration of one year and 11 months. Following the arbitration outcome, shares of GMR Airports Infrastructure reached a multi-year high of Rs 87.55, marking a four per cent gain on the BSE during Monday’s intraday trade. This surge came after nearly three per cent of the total equity of the company changed hands on the NSE and BSE. The stock had achieved a record high of Rs 132.35 on December 6, 2007.
AAI’s response to Delhi Airport’s relief
The Airport Authority of India (AAI) is set to challenge the arbitration award against Delhi Airport over revenue sharing during the COVID-19 period, reports Economic Times. In its order, the tribunal has given an order in favor of the GMR group-owned airport. According to the report, the airport will receive a refund of Rs 500 crore from AAI and also a waiver of Rs 1800 crore payment to the authority.
“Delhi International Airports Limited (“DIAL”), a step-down subsidiary of the Company had invoked arbitration against the Airports Authority of India (“AAI”) seeking certain reliefs as eligible to it on account of the occurrence of a Force Majeure event (Covid-19 period) under the Operation, Management, and Development Agreement dated 4 April 2006 (“OMDA”),” the company said in a regulatory filing on the exchange.
What was the Delhi Airport Revenue Share Case?
Delhi airport has invoked the force majeure clause to temporarily cease its revenue-sharing accord with the Airports Authority of India (AAI). Delhi International Airport (DIAL), which manages and operates the Indira Gandhi International Airport, took the decision in the wake of low traffic flow and revenue impacted by the coronavirus pandemic, according to a report by Business Standard.
As per the agreement inked between DIAL and AAI in 2006, DIAL paid 45.99 per cent of its annual revenue as concession fee to AAI. DIAL deposits the (annual procession) fee on a quarterly basis in an escrow account, which AAI then transfers the money into its own account.
“A resolution to invoke the force majeure clause was passed by the DIAL board in November. Accordingly, we had approached AAI for a cease on revenue share till traffic was back to normal levels,” a source told the publication, adding that DIAL planned to use the money in the escrow account to carry out airport maintenance.
Delhi Airport, in early 2020, also moved the Delhi High Court (HC) to retrieve dues worth Rs 399.2 crore paid to AAI since April (2020) under a revenue-sharing agreement. Air operations were inoperative from March 24 for a span of two months as the government had imposed a nationwide lockdown to stem the spread of COVID-19.
Delhi HC had in September (2020) asked AAI to furnish a note declaring the treatment of Rs 399.2 crore transferred by Delhi Airport in the escrow account. Meanwhile, Mumbai International Airport (MIAL), too, earlier this year invoked the force majeure clause to suspend payment to AAI for the April-June period.
Delhi HC restricted AAI from collecting 38.7% of MIAL’s revenue as annual fee in the wake of adverse financial impact of the coronavirus pandemic. The court also restricted AAI from moving funds from the escrow account to itself, until an arbitral tribunal took a decision on the matter.