IAS Target

The Airport Economic Regulatory Authority of India (amendment) bill-2018

Highlights of the Bill

  • The Act defines a major airport as a civilian airport with annual passenger traffic of over 15 lakh. The Bill increases this threshold to over 35 lakh.
  • Under the Bill, Airport Economic Regulatory Authority of India (AERA) will not determine:
    • the tariff, and tariff structures, or
    • the development fees, in cases where these amounts were a part of the bid document on the basis of which the airport operations were granted.

Important Points and Analysis

Airport Economic Regulatory Authority of India (AERA) was established to regulate the increasing competition in the airline industry, and to provide a level playing field among different classes of airports. AERA will now regulate tariffs at fewer airports. It may be asserted that instead of strengthening the role of the regulator, its purview is being alleviated. Additionally, certain objectives of the Bill could be achieved by revamping AERAís capacity.

Part A: Highlights of the Bill

Context
There were total 110 operational airports in India as of March 2018. This includes 26 international, 8 custom, and 74 domestic airports. Of these, 7 airports are run by private operators (joint ventures), and the remaining is managed by the Airports Authority of India, which is a body set up in the Ministry of Civil Aviation. Recently private players have started operating civilian airports. These private airports run the risk of becoming a monopoly of few player. This is because cities typically have one civilian airport which controls all aeronautical services in that area. To ensure that private airport operators donít abuse their monopoly, the need for an independent tariff regulator in the airport sector was realized. Consequently, the AERA Act-2008 was approved which established Airports Economic Regulatory Authority (AERA). AERA regulates tariffs and other charges (passenger service fee and development fee) for aeronautical services (landing and parking of aircraft, ground handling services, air traffic management,) at major airports. Major airports include civilian airports with annual traffic above 1.5 million or 15 lakh passengers. In 2017-18, there were 31 such airports. As of July 2018, 24 of these were being regulated by Airports Economic Regulatory Authority (AERA). For the remaining airports, tariffs are determined by AAI.

Key provision

Definition of major airports:
The Act defines a major airport as one with annual passenger traffic over 15 lakh or any other airports as informed by the union government. The Bill increases the threshold of annual passenger traffic for major airports to over 35 lakh.

Tariff determination by AERA:
Under the Act, AERA is accountable for determining:
  • the development fees, and
  • the passengers service fee. It can also amend the tariffs in the interim period
  • the tariff for aeronautical services every 5 years.

The Bill adds that AERA will not determine:

  • tariff, and tariff structures or
  • development fees, in certain cases.
These cases include those where such tariff amounts were a part of the bid document on the basis of which the airport operations were awarded. AERA will be discussed (by the concessioning authority under the Ministry of Civil Aviation) before including such tariffs in the bid document, and such tariffs must be informed.

Part B: Important Points and Analysis

  • Role of Airports Economic Regulatory Authority (AERA) as an independent regulator
  • Role of the independent regulator might be getting weakened
AERA regulates tariffs and development fees at all major airports. The Act defines a major airport as one with annual passenger traffic over 15 lakh, or any other airports as notified by the union government. There were 11 such airports, when the AERA Bill was passed in 2008. With an increase in passenger traffic across airports, presently 31 airports are above this threshold. The Bill increases the threshold of annual passenger traffic for major airports to over 35 lakh. With this increase in threshold, fourteen airports will be regulated by AERA. It may be argued that instead of strengthening the role of the regulator, its purview is being reduced.
Before AERA was established, Airport Authority of India (AAI) had fixed the aeronautical charges for the airports under its control and prescribed performance standards for all airports and monitored them. Many committees had observed that AAI performed the role of airport operator and regulator, which resulted in a conflict of interest. Further, there was a natural monopoly in air traffic control and airports. To provide a level playing field among different categories of airports and to regulate the growing competition in the airline industry, AERA was established.

During the discussions of the Standing Committee examining the AERA Bill, 2007, the Ministry of Civil Aviation had observed that AERA should regulate tariff and monitor performance standards only at major airports. Depending upon future developments in the sector, other functions could be subsequently assigned to the regulator.
Certain objectives of the Bill could be achieved by improving the capacity of AERA. The Statement of Objects and Reasons of the Bill defines that the higher growth of the sector has put huge pressure on AERA, while its resources are limited. Therefore, if too many airports come under the purview of AERA, it will not be able to perform its functions efficiently. If the challenge for AERA is the availability of limited resources, the question is whether this problem may be resolved by reducing its jurisdiction, or by increasing its capacity.
There may be frequent changes in the regulatory regime. At present, there are 31 major airports, and AERA regulates tariffs at 24 of these. Under the Bill, AERA will regulate 14 major airports. The remaining 10 airports will be regulated by AAI. Till 2030-31, air traffic in the country is expected to grow at an average annual rate of 10-11%. This means that in the next coming years, the traffic at the other 10 airports will increase to over 35 lakh and they will again fall under the purview of AERA. This may lead to constant changes in the regulatory regime at these airports.