Abstract

Over the last decade, India has witnessed a tremendous amount of growth in the aviation sector. Indian citizens now prefer travelling via aircrafts and this is because of their high propensity to spend money as well as accessibility of airports. But can the present infrastructure keep pace with this growing demand?

This blog tries to navigate through all such questions and answer them. It deals with the importance of airport infrastructure in the development of a nation with special focus on the regulatory mechanism existing in India and policy initiatives taken up by the government to improve the infrastructure in the civil aviation sector. It also delves into the challenges posed to the sector due the global pandemic and how deeply it has affected the said market.

Introduction

India being the seventh-largest economy in the world with a GDP of $2.72 trillion, major infrastructural developments have played a critical role in making India a global economy. It is apparent that the civil aviation industry has become extremely crucial for the sustainable development of international trade and tourism. [1] Therefore, it is of vital importance that the nation invests in the up-gradation and modernisation of its airports.

Airports are at the core of all economic activities and thus, hold a vital role in the development of the nation’s economy. They serve as gateways for the development of business activities and economic growth in areas they are located in. A continued boom has been experienced in both domestic and international outbound traffic in India, owing significantly to favourable demographics and rapid economic growth in the country. The quality of airport infrastructure-which is an integral part of the transportation system as a whole- directly reflects in the international market by having an impact on the flow of investment by foreign entities. [2] Airports also contribute indirectly towards the nation’s economy as 97% of the country’s international tourists travel by air and the tourism industry is the second-largest earner of foreign exchange in the country. [3]

Every airport is unique depending heavily on the activity taking place over there and the infrastructure required to support such an activity. It is important to note here that the amount of infrastructure at an airport may vary, however, its type remains similar. For example, signs used on an airfield used to guide pilots will be similar, irrespective of the size of the airport. [4] Timely completion of airport infrastructure projects, keeping pace with the projected growth as well as the demands of the travellers, is the need of the hour.

Major international airports in metro cities like Mumbai, Delhi and Bengaluru have seen consistent growth in domestic as well as international passenger capacity. [5] Bringing in private players and capital in brownfield and greenfield projects has increased competition and assisted in achieving the expansion plans. Airport Authority of India has plans to develop at least 100 airports, waterdromes and heliports by 2024 under the regional air connectivity scheme. [6]

Regulatory Mechanism

The Ministry of Civil Aviation (MoCA) is the nodal ministry responsible for devising policies and regulations regarding the civil aviation sector in India. It is mainly responsible for overseeing the proper implementation of its schemes that are aimed at the growth and expansion of the sector. The Airport Authority of India (AAI) is one of the principal regulatory authorities functioning under the MoCA and it is conferred with the responsibility to create, upgrade, maintain and manage the infrastructure in the civil aviation sector, both on the ground and in the air space of India. [7]

With the opening of the Indian economy in the 1990s, there has been a rapid growth in the infrastructure. However, at the time the state was facing a lack of necessary resources and therefore, it encouraged private players to invest in such projects. Four of the major airports, viz. – Delhi, Mumbai, Bangalore, and Hyderabad- have been developed in line with the open-skies policy introduced by the government, wherein the AAI has collaborated with private entities for operation, management, and development of airports under the Public-Private Partnership model (PPP model).

On December 5, 2008, the Parliament passed the Airport Economic Regulatory Authority of India Act, 2008 (hereinafter referred to as the ‘Act’), thus, constituting the Airports Economic Regulatory Authority (AERA, which is also one of the principal regulatory authorities operating under the MoCA) to regulate the infrastructural development in the aviation sector (prior to this the Ministry of Civil Aviation performed these functions). [8] The Act applies to all ‘major’ airports in the country which are defined as those having annual traffic of 1.5 million passengers or more, and have been designated by the government itself. [9] A Regulatory Authority was essential in order to create an investor-friendly environment, to maintain a level playing field i.e. to create a competitive market, for determination of tariffs and to protect the interest of the consumers. It also ensures that the conflicts arising between the stakeholders are settled in an efficient and transparent manner.  AERA consists of a Chairperson and 2 members. This Act is based upon the suggestions of the Planning Commission in a concept paper title ‘Approach to Regulation of Infrastructure’ (included every segment of the infrastructure sector) released in September 2008. This document mainly dealt with- Scope of the regulator’s powers; Independence and autonomy of the regulator; and the regulator’s accountability.

The main functions of AERA are:

  • Regulation of tariffs and other charges for aeronautical services: AERA is authorised to determine varying tariff structures for each airport. Further, to determine tariffs for aeronautical services, it must take into consideration the various factors such as the type and quality of the services catered to; the capital expenditure incurred; investments made for the improvement of facilities so provided; economic viability of the operations; revenue received from ancillary services and any subsidies/concession offered by the government. AERA is also required to determine the development fee and passenger service fee payable at major airports. All these tariffs are required to be determined once every 5 years, however, they may be amended in lieu of public interest.
  • Monitoring of performance standards for airports: AERA is required to stipulate performance standards in the context of quality, consistency and efficiency of services provided at airports, as per the terms and conditions specified in the concession agreements.

One of the most significant features of the AERA is the transparency in its functioning. AERA ensures transparency by consulting all the stakeholders prior to taking crucial decisions. All such stakeholders must make their submissions in written form to ensure that the decision-making process is fully documented. Moreover, the minutes of such meetings with the stakeholder must be made public and annual reports must be submitted before the Parliament. AERA has also issued ‘Guidelines for Stakeholder Consultations’ (dated December 14, 2009) which contains details such as whom to consult for services. For example, with respect to cargo facilities, the local associations of freight forwarders would be consulted; for different categories of passengers, different bodies/ agencies would be consulted i.e.- for business travellers, the chambers of commerce; for government travellers, specified officers of the ministry; and for casual travellers, certain specified consumer welfare forums- would be consulted.

To avoid conflict between the decisions of AERA and civil courts, the Airport Economic Regulatory Authority Appellate Tribunal was constituted by the Act in February 2010, consisting of high-ranking judicial officers. The Tribunal has been conferred with the jurisdiction to adjudicate disputes arising between service providers or between service providers and consumers; it can also hear appeals from any order of the regulatory authority. It has been vested with similar powers as the civil courts with respect to enforcement of attendance, administration of oaths and production of documents. The Tribunal is barred from hearing matters involving substantial issues regarding Competition law, to avoid any confusion.

Challenges

In the pre-pandemic era, capital projects focused majorly on 2 agendas:

  • Firstly, increasing the capacity of airports, in the light of looming capacity crunch. This issue became very apparent with the increase in the number of schedule-facilitated and slot-coordinated airports, especially in Asia. [10]
  • Secondly, the focus has been on improvement in the quality of service. It has been observed that multiple airports are facing the issue of congestion, which has affected the level of services offered. Therefore, investments were being made to enhance terminal facilitation, and implementation of state-of-the-art technologies, keeping in mind the interest of all the stakeholders.

However, in the year 2020, all such major expansionary projects have been either stalled or deferred as they have become unaffordable due to the huge financing gaps and dramatic financial crunch being faced by the aviation industry. Unfortunately, the road ahead is not easy as the completion of these projects will take a toll on the pockets of all the interested parties, giving rise to a chain of problems like cost overruns, disputes among the stakeholders, compromise in the quality of infrastructure etc. which will eventually delay the projects even more.

The advent of Covid-19 has had a severe impact on the aviation sector, with the airports struggling to cover even the most basic operating expenses such as costs of personnel and essential services. They are facing extreme financial crisis threatening their liquidity, solvency, and debt, because of which funding of capital projects is also facing a risk.

The present crisis also raises doubts on the short-term plans to modernize airport infrastructure in the context of SDG 9 that stands for promoting sustainable industrialization and building resilient infrastructure. It is pertinent that we find innovative solutions to mitigate development risk in this sector while remaining committed to the goal of sustainability.

In the case of public ownership of airports also access to financial aid for infrastructure development will be extremely difficult owing to the liquidity crunch and deteriorating investment credit rating of the government. Crisil has estimated that the Indian aviation sector will incur a loss of approximately Rs. 25,000 crores, as travel remains restricted during the pandemic. [11] AAI- responsible for the maintenance of civil aviation infrastructure in the country- has reported a 92% decrease in its revenue in this financial year. [12] One of the most viable solutions for this crisis is that the government must consider either partial privatization or the PPP model to ease the burden on public debts. [13]

Policy Initiatives by the Govt.

Investments in infrastructure are required now more than ever and the contribution of the government shall play a critical role in restructuring the airport infrastructure and finances related to it. The govt must ensure aid in the form of financial assistance packages so that airports continue to be able to undertake the much-needed capacity and sustainability investments in their infrastructure. The industry is also expecting the Centre to take people-friendly measures as the country enters the recovery phase after facing huge economic losses. In January 2019, the Government of India released its National Air Cargo Policy Outline 2019, which envisaged making Indian air cargo and logistics the most efficient, seamless, and cost and time effective globally by the end of next decade. NABH Nirman (NextGen Airports for Bharat) is an initiative to enhance airport capacity for handling 1 billion trips in the next 10 to 15 years. According to official sources, the government is also considering setting up a NABH Nirman Fund (NNF) with a starting corpus of around USD 2 billion to support low traffic airports in their initial phases. The concept of land pooling may be used to keep land acquisition costs low and to provide landowners with high value developed plots in the vicinity of the airports. The Civil Aviation Ministry has prepared a proposal seeking additional funds for this flagship scheme by the Centre.

As per the present FDI Policy, 100% FDI is permitted in scheduled Air Transport Service/Domestic Scheduled Passenger Airline (Automatic up to 49% and Government route beyond 49%). [14] However, for NRIs 100% FDI is permitted under automatic route in Scheduled Air Transport Service/Domestic Scheduled Passenger Airline. [15] The government permits 100% FDI under automatic route in helicopter services/seaplane services requiring Directorate General of Civil Aviation (DGCA) approval. [16] Foreign airlines are allowed to invest in the capital of Indian companies, operating scheduled and non-scheduled air transport services, up to the limit of 49% of their paid-up capital, subject to certain conditions. [17] The conditions include that inflow must be made under the government approval route and the 49% limit will subsume FDI and FII/FPI investment. [18]

Finance Minister Nirmala Sitharaman has announced in the Union Budget 2021 (FY 2021-22) that Tier II and III airports managed by the AAI will be included under the Asset Monetisation Programme. She was quoted as saying: “The next lot of airports will be monetised for operations and management concession” [19]. AAI Chairman Arvind Singh has also proposed the privatisation of airports at Amritsar, Bhubaneshwar, Indore, Raipur, Trichy and Varanasi, beginning in the first quarter of 2021. [20] The combined potential investment in these airports is expected to be approximately Rs. 4000-6000 crore. [21] Earlier in February 2019 also six AAI airports were privatised, experiencing overwhelming market response. A batch of another 6 airports is set to be privatised in the third round as well given that private airports provide a better quality of services, state-of-the-art infrastructure, and enhanced connectivity.

In the Union Budget of 2020, the government has also announced that India will be developed as a hub for maintenance, repair, and overhaul (MRO) wherein the govt aims to attract international players to establish their facilities in India. [22] Their services would include engine repair, upscaling of aircraft component repairs and airframe maintenance. 

Operation, Maintenance and Development Agreement (OMDA)

The Concession Agreement for the modernization and operation of the Delhi and Mumbai airports is referred to as the Operation, Maintenance and Development Agreement (OMDA). [23] The OMDA agreement draft was released to address issues relating to the commercial development of airport land, performance bonds and termination payments, and potential contractual and strategies conflicts. [24]

Conclusion

Airports are crucial for the economic growth of a country’s economy. They can even serve as symbols of national pride if sufficient attention is given to their maintenance. Changi Airport located in Singapore which attracts millions of tourists each year has become a tourist attraction by virtue of its world-class facilities and infrastructure. It has also won several accolades designating it as one of the world’s best airport in the world.

While the Civil Aviation Ministry is continuing its focus on developing new airports and in enhancing regional connectivity, there will be many challenges to contend with – from strengthening the infrastructure to implementing more sustainable, eco-friendly designs that include solar power systems, rainwater harvesting, and a noise-absorbing green belt, besides facilities like aircraft rescue and firefighting.

Airports also play a vital role in providing health and humanitarian aid, creating employment opportunities, and improving the overall quality of life. Thus, it is the responsibility of the industry as well as the government to help the sector recover and explore all the appropriate options for its expansion. This is an opportunity for the public and private sectors to work in partnership and contribute towards the recovery of the sector and the overall economic growth of the country.

About the Author

Vibhore Chaturvedi is a Senior Associate at Fox Mandal & Associates, Advocates & Solicitors, Mumbai and an Adjunct Advisor, IJPIEL.

Ananya Vatsa is a 4th-year law student at the Maharashtra National Law University (MNLU), Nagpur and an Associate Editor at IJPIEL.

Editorial Team

Managing Editor: Naman Anand

Editors-in-Chief: Akanksha Goel 

Senior Editor: Kanak Mishra

Associate Editor: Ananya Vatsa

Junior Editor: Adarsh Kumar

Preferred Method of Citation 

Vibhore Chaturvedi and Ananya Vatsa, “Airport Infrastructure – Yet to take off” (IJPIEL, 2 March 2021)

<https://ijpiel.com/?p=2796&et_fb=1&PageSpeed=off>

Endnotes

[1] Airports Authority of India, https://www.aai.aero/en/content/airport-policy (last visited Feb. 22, 2021).

[2] Ministry of Civil Aviation, Policy on Airport Infrastructure, https://www.civilaviation.gov.in/sites/default/files/moca_000766_1.pdf.

[3] Id. at 2.

[4] The Federal Aviation Administration, Airport Infrastructure, 138, 7 (2015), https://www.nap.edu/read/22117/chapter/4.

[5] Airports Authority of INDIA, supra note 1.

[6] Devanjana Nag, Aviation boost under UDAN scheme! AAI plans to develop 100 airports, waterdromes, heliports by 2024, Financial Express, (Oct. 22, 2020), https://www.financialexpress.com/infrastructure/airlines-aviation/aviation-boost-under-udan-scheme-aai-plans-to-develop-100-airports-waterdromes-heliports-by-2024-details/2111397/.

[7] International Comparative Legal Guides, https://iclg.com/practice-areas/aviation-laws-and-regulations/india (last visited on Feb. 20, 2021).

[8] Id.

[9] Id.

[10] Ilia Lioutov, Covid-19: Airport infrastructure development risk, ACI Insights, (Sep. 11, 2020), https://blog.aci.aero/covid-19-airport-infrastructure-development-risk/.

[11] Tanya Thomas, Covid-19 Impact: Indian aviation may incur ₹25,000-crore losses, says Crisil, LiveMint (May 7, 2020, 02:05PM), https://www.livemint.com/news/india/covid-19-impact-indian-aviation-may-incur-rs-25-000-crore-losses-says-crisil-11588838896045.html.

[12] Id.

[13] Asian Infrastructure Investment BANK, https://www.aiib.org/en/news-events/media-center/blog/2020/Airport-Infrastructure-Facing-Delays-but-Can-Recover.html (last visited Feb. 19, 2021).

[14] Cabinet approves the Foreign Direct Investment policy on Civil Aviation, Press Information Bureau (Mar. 04, 2020, 04:11PM), https://pib.gov.in/Pressreleaseshare.aspx?PRID=1605150.

[15] Id.

[16] Department for Promotion of Industry and Internal Trade, Review of Foreign Direct Investment (FDI) Policy on Civil Aviation, Ministry of Commerce, and Industry, https://dipp.gov.in/sites/default/files/pn2_2020.pdf.

[17] Foreign airlines can buy up to 49% in Air India, The Hindu, (Jan. 10, 2018), https://www.thehindu.com/business/Industry/government-eases-fdi-policy-in-single-brand-retail-civil-aviation/article22411631.ece.

[18] Id.

[19] Budget 2021: Focus on infrastructure assets, 17 new public health units, The Hindu Business Line, (Feb. 01, 2021),

https://www.thehindubusinessline.com/economy/budget/budget-2021-focus-on-infrastructure-assets-and-17-new-phu/article33716657.ece.

[20] Id.

[21] Modi government’s triad of reforms for aviation decoded – what they mean for airlines & the sector, Financial Express, (June 08, 2020), https://www.financialexpress.com/infrastructure/airlines-aviation/modi-governments-triad-of-reforms-for-aviation-decoded-what-they-mean-for-airlines-the-sector/1984244/.

[22] Id.

[23] Ministry of Civil Aviation supra note 2.

[24] Ajay Pandey, Sebastian Morris, and G. Raghuram, Structuring PPPs in Aviation Sector: Case of Delhi and Mumbai Airport Privatization, IIMA Working Papers, (2010), https://pdf4pro.com/view/structuring-ppps-in-aviation-sector-case-of-delhi-and-36174e.html.