The story so far: In the monsoon session, Parliament passed the Airports Economic Regulatory Authority of India (Amendment) Bill, 2021 . The Bill, tabled in March this year and sent to a standing committee, seeks to broaden the category of airports for which the Airports Economic Regulatory Authority (AERA) of India can determine tariff by amending the definition of major airports.
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Why has the definition of a major airport been amended?
The AERA regulates tariffs and other charges for aeronautical services rendered at ‘major’ airports. Under the AERA Act, 2008, a major airport is one which “has, or is designated to have, annual passenger throughput in excess of three-and-a-half million or any other airport as the Central Government may, by notification, specify”. However, it does not provide for determination of tariff for a group of airports. The Amendment Bill has amended the definition of a major airport to include “a group of airports” after the words “any other airport”. The government hopes the move will encourage development of smaller airports and make bidding for airports with less passenger traffic attractive. It plans to club profitable airports with non-profitable ones and offer them as a package for development in public-private partnership mode to expand connectivity.
Was there a need to amend the AERA Act?
The Airports Authority of India (AAI) awarded six airports — Lucknow, Ahmedabad, Jaipur, Mangaluru, Thiruvananthapuram and Guwahati — for operations, management and development in public private partnership mode in February 2019. Later that year, the AAI Board, in its 190th meeting held on September 5, approved leasing of another six airports — Bhubaneswar, Varanasi, Amritsar, Raipur, Indore and Tiruchi — for undertaking operations, management and development in public private partnership mode. The Ministry of Civil Aviation plans to club each of these airports with nearby smaller airports for joint development. The move follows Finance Minister Nirmala Sitharaman’s Budget Speech this year, in which she said the government planned to monetise airports in tier-2 and tier-3 cities.
How did AERA come into existence? What tariffs does it determine?
The AERA Act was enacted in 2008 and an independent economic regulator, i.e., the AERA, was established in 2009 for determining the tariff for aeronautical services rendered at major airports. The initial benchmark passenger throughput to qualify as a major airport was 1.5 million passenger per annum (mppa), which was amended in 2019 to 3.5 mppa. According to the AERA website, there are 25 major airports. For the remaining non-major airports owned by AAI, the Ministry of Civil Aviation approves the charges for aeronautical services. There are a total of 154 airports in the country. Among these, AAI owns 136 airports and provides air traffic services over the entire Indian airspace and adjoining oceanic areas.
What are the apprehensions?
“Though this Bill proposes to make changes which appear to be lucrative for the aviation sector, however, there is a lack of clarity regarding what will be the criterion for deciding which airports get clubbed together. Will it be passenger traffic of more than 3.5 million or some other factors too? This clarity needs to be brought in to achieve the objective of the Bill,” says Poonam Verma, Partner, J Sagar Associates, adding that the government will also have to ensure that a monopoly situation is not created in the airport operating business while awarding a group of airports to the same entity.
“Balancing the interests of the private sector and the government’s objective of privatising smaller airports will be a tightrope walk,” says Jagannarayan Padmanabhan, Practice leader and Director, Transport and Logistics, CRISIL Limited. “Whether the government succeeds will also depend on how the airports are packaged and if there are enough growth prospects, economic activity or tourist attractions near the non-profitable airports that will be clubbed.”
