A threat to the aviation industry

[dropcap]I[/dropcap]N 2006, when the then UPA Government went ahead with the ambitious plan of privatising two of India's largest airports – Delhi and Mumbai – it unwittingly threw up a rather perplexing problem, a problem that necessitated the setting up of an expert committee to figure out a solution. All airports in India had, till then, been managed by the Airports Authority of India (AAI). But when Delhi and Mumbai were privatized, it created a situation where the AAI, which was still running most of India's airports, became both an operator and the regulator – conflict-of-interest role that could have consequences on the growth of the aviation sector. The Naresh Chandra Committee was therefore set up,  which in its 2007 report suggested the establishment of an independent regulatory authority. The idea of an independent economic regulator was born, and the country saw the establishment of the Airport Economic Regulatory Authority or AERA, a statutory body whose function it was to regulate tariffs and other aeronautical service charges at major airports in India.

Clipped wings – Amendments made by the AERA (Amendment) Act 2019

The AERA Act 2008 had classified an airport to be a major airport if the annual passenger traffic was more than 15 lakh. The Airport Regulatory Authority (Amendment) Act 2019 increases that threshold from 15 lakhs to 35 lakhs for an airport to be classified as major. The rationale given by the government in its amendment of Section 2 of the Act is that with the boost in the aviation sector several more airports are coming under the 'major' category, making it burdensome for the AERA. With the latest amendment, the number of airports under AERA's control has come down to 16 from 32.

Another important amendment relates to section 13 of the original Act which, regardless of the size of the airport, takes away from AERA the power to determine the tariff structure and amount of development fee for an airport, if the bidding document for the airport itself contained the pre-determined tariff structures. The amended Act does say, though that AERA will be consulted before determining the tariff structure which is incorporated in the bidding document and that the pre-determined tariff structure will have to be notified in the official gazette.

A threat to the aviation industry

So has the 2019 amendment thrown up a problem far greater than the one in 2006 when the privatization of airports began?

With the amendment to Section 2 mentioned above, the newly categorised non-major airports will now be managed by the Ministry of Civil Aviation (through AAI). Besides, Lucknow, Ahmedabad, Jaipur, Mangalore, Thiruvananthapuram and Guwahati which have recently been privatised, may also fall out from AERA's basket, if their bidding document contains a pre-determined tariff structure. In such a case, AERA will be left with just 10 airports. Not only does this emasculate AERA's role as a regulator but it also means that large parts of the sector are almost unregulated.

The International Air Transport Association has been of the view that airport charges should be regulated because many airports have a monopoly and they can force an airline to pay an arbitrary amount since they are in a dominant negotiating position.  According to the industry body, a total of USD 89.3 billion is spent annually worldwide on airport charges. Airports, for their part, argue that they have to work relentlessly to handle rising passenger traffic and consumer aspirations for world-class services, all of which have financial implications.

There is, without doubt, an urgent need for a robust regulatory mechanism, where airports have leeway up to a point, and any increase beyond that threshold introduces a consultation process involving all stakeholders.

Syed Tamjeed Ahmad is an associate with Sarin & Co. He holds an advanced LLM degree in Air & Space Law from Leiden University