Friday, August 17, 2012


Can the year-old Airports Economic Regulatory Authority nurse the bleeding sector and strike a balance between the price-conscious passengers & profit-hungry developers? by Steven Philip Warner

When the Naresh Chandra committee submitted its report to the Ministry of Civil Aviation six-and-a-half years back, it had boldly stated that “passenger airports are for the most parts an embarrassment.” Some still are. But, the dynamics have changed. Walk into the two brownfield airports at Delhi and Mumbai, which were handed over to private operators in 2005, and you’d realise that today, both of them appear in a much improved shape, compared to the heaps that stood in the name of airport infrastructure five years back. And from the ongoing modernisation projects in cities like Bangalore, Hyderabad, Kolkata and Chennai (apart from 35 airports in smaller locations others) and greenfield projects in locations like Cochin, Bangalore, Hyderabad, Navi Mumbai, Goa, Pune et al, it seems like the Civil Aviation authorities in the country have worked magic even in the absence of a powerful regulator. But there’s more that meets the eye, and it’s surely not as encouraging. It’s the regulation hitch.

In 2005, when the Government sidelined $10 billion for the upgradation and modernisation of airports across the country, it clearly lacked the expertise to deliver. Having roped-in private players including GMR, Fraport AG & Eraman Malaysia (DIAL - the Delhi International Airport Ltd. consortium) and GVK (MIAL - the Mumbai International Airport Ltd. consortium) and with enough funds pooled-in to provide for AAI’s airport upgradation work (which involved an estimated Rs.124.34 billion) during the current Five-Year Plan (ending March 2012), the government had apparently scored a double home run. Reality was much different.

The government forgot the first prerequisite to bring clarity amidst events for all stakeholders – investors, passengers and developers – an economic regulator, who ensures fair play. [This was something that countries like US, Australia, UK and many nations in the EU realised during the early days of privatisation of their airports.] Private participation in Indian airports started, and with it began the motive to work towards a windfall of profits. As such, the lack of guiding principles regarding revenue models of the airport operators led to much controversy. Then came May 2009, when after two years of debates, the Airport Economic Regulatory Authority (AERA) was established. Being a fledgling, it could not immediately get down to solving the revenue & pricing muddle that had so deeply been entrenched into the aviation system. Of late however, the regulator has started showing some signs of promise, as John Siddharth, Aerospace Analyst at Frost & Sullivan, tells B&E, “AERA has been effective for the air travel passengers since its establishment. The two major reasons to support the above statement would be, firstly, AERA has a regulatory control on price, and secondly, AERA is expected to bring in higher efficiency in quality of service delivered at airports.”