Flighty decision

Topics AERA

The Cabinet decision earlier this week to shrink the ambit of the 11-year-old Airport Economic Regulatory Authority (AERA) by raising the passenger traffic threshold is an ill-considered move when seen against the expansion of airport privatisation. According to the Cabinet proposal, the AERA Act, 2008, will be amended so that the tariff-setting regulator will be responsible for airports with annual passenger traffic over 1.5 million; all other airports with passenger traffic below that cut-off will be administered by the civil aviation ministry. In one stroke, this takes 17 airports outside the AERA’s purview, leaving it to administer 13.


The government’s official explanation for this decision is to keep a lid on airport charges (parking and landing fees, ground-handling services, and so on). It is true that airlines routinely complain that the model adopted by AERA, which was set up as part of the government’s airport public-private partnership plan, sets charges far too high. But it is unclear why the government should consider AERA fit to regulate one set of airports and not another. Besides, AERA has intervened to lower tariffs in the past: For instance, it scrapped the much-maligned User Development Fee for GMR-promoted Hyderabad International Airport in 2016.


It is significant perhaps that this Cabinet decision marks the third attempt to introduce this dual regulatory structure for airports — a Bill to this effect was introduced in Parliament in 2018 but failed to pass both the monsoon and winter sessions. The latest amendment, officials say, will enable the government to award bids after setting tariffs. But this is not the model that was followed by the National Democratic Alliance government in the last few months of its earlier tenure when it invited private sector bids to upgrade six smaller airports. These bids, it should be noted, marked the first major expansion of airport PPPs under the Modi government. The bidding terms, however, appeared to violate the AERA Act because they stipulated an evaluation on the basis of tariffs and passenger charges.


One business group won all the bids — for the airports in Ahmedabad, Thiruvananthapuram, Lucknow, Mangaluru, Guwahati, and Jaipur. The anomaly in the situation flows from several facts. First, these six privately-run airports will now come under the purview of the political executive rather than an independent regulator. Second, the bids were evaluated on the basis of the highest fee the bidder would pay the Airports Authority of India, the concessionaire. How, then, will the civil aviation ministry ensure lower tariff charges? Third, it is worth noting that AERA was set up to ensure fair play in tariffs because of the inherently monopolistic nature of the airports business (there is usually just one per city). Fourth, with respect to the six airports, several government departments had pointed out that a single bidder precludes the possibility of comparing competitive tariffs across operators, which in themselves would ensure optimum outcomes for users. The government needs to explain why it thinks the civil aviation ministry would be in a stronger position to deliver superior tariff decisions for smaller airports than a specialised body set up for the purpose.

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