Govt draft on small airports can upset Aera’s authority, say experts

The ministry of civil aviation’s draft approach paper on economic regulation of non-major airports could potentially challenge the airport regulator’s authority on many fronts, according to experts and lobby groups.

The draft suggests that non-major airports adopt the so-called hybrid till method to calculate charges. In this method, 30% of the revenue from aeronautical-related commercial activities is taken into account for determining aeronautical charges.

The Airports Economic Regulatory Authority, or Aera, has adopted the single till model, stating in a 12 January 2011 order that this is the most appropriate way to decide airport charges. Private airport operators have challenged this in an appellate tribunal, preferring the double till model. A decision is pending.

While the draft is for non-major airports, which fall under the ministry, experts point out that the proposals could interfere with the rules set for the major airports, which are governed by Aera.

The airports in Mumbai and Delhi determine tariff based on the hybrid model as their modernization in 2006 predated Aera that was constituted two years later.

Airlines the world over prefer the single till model as airport charges are lower under it. In this model, followed by the Heathrow and Gatwick airports in the UK, all principal airport activities including aeronautical and retail are taken into account to determine the airport charges, so airlines are charged lower.

In contrast, only aeronautical or flying-related activities are considered under the dual till principle, which private airport operators and their investors are keen on since it will help them increase revenue.

The hybrid model is a combination of these two principles, proving cheaper for airlines than the dual till model but slightly more expensive than the single till.

The civil aviation ministry’s draft paper adds that non-major airports can file their charges with the ministry without having a regulator. Only when they become major airports will the civil aviation ministry give a case-to-case direction to Aera.

Experts point out that “case-to-case basis” is arbitrary and does not offer any predictability in decision making or for investments.

“It is repeating the mistakes of Delhi and Mumbai airports’ privatization all over again. Also, it does not take any note of recent proceedings in Parliament on similar issues, or of the concerns expressed by CAG (Comptroller and Auditor General),” said an aviation consultant, requesting anonymity. The proposed regulatory framework suggests multiple accounting treatments to arrive at airport charges for major airports, non-major airports and the Delhi and Mumbai airports.

Airports with an annual passenger throughput greater than 1.5 million qualify as major airports and are regulated by Aera. At present, 15 major airports are under the ambit of Aera and the remaining ones are regulated by the ministry of civil aviation.

The ministry’s draft proposes that airports that handle between 500,000 and 1.5 million passengers a year be regulated under the hybrid till by the civil aviation ministry.

The paper adds that any new airport built should be covered by the “light-handed regulation”, wherein these airports will file their charges based on the investment and expenditure without the interference of Aera.

“This is going to create conflict as an airport in Navi Mumbai would begin as non-major airport with less than 1.5 million passengers a year and soon graduate into major airport,” said another aviation consultant, also requesting anonymity.

An executive with a private airport company, who also declining to be named, said that while it makes sense for non-major airports to have fewer regulations and complications, “it seems that the government is addressing the needs of private airport lobbies to negate the Aera order on single till.”

The civil aviation’s draft paper also suggests that cargo, ground handling and fuel services be treated as non-aeronautical revenue, differing with the Aera Act.

“We are not saying anything. We have come up with a draft approach paper. Let people react. This is not the final paper. After stakeholders’ reaction, it may undergo change,” said Nasim Zaidi, secretary, ministry of civil aviation.

Yashwant S. Bhave, Aera chairperson, was not available for comment.

Officials of the Association of Private Airport Operators said the body will shortly file its response.

The Federation of Indian Airlines (FIA), a lobby group for airlines, has argued for the single till approach as it treats an airport as an integrated business and sets tariff without making any distinction between aeronautical and non-aeronautical services.

“Single till is closer to maximizing welfare than the dual till approach as this approach takes all airport assets and costs into account while determining the tariff,” it said, adding “non-aeronautical revenue enhances as it can lower airline costs,” FIA paper said.

Mint reviewed the paper submitted to the civil aviation ministry.

The FIA paper also supports a single authority to deal with all airports to secure consistency. “Aera should be the appropriate authority to determine tariff for all airports... since an independent regulatory mechanism with transparency and accountability is desirable,” it said.

http://www.livemint.com/2012/06/11230454/Govt-draft-on-small-airports-c.html?h=B