Govt to redefine aeronautical charges

The government has initiated a study to "redefine" the aeronautical and non-aeronautical charges at airports in Mumbai and Delhi, even as private airport operators GVK and GMR continue to maintain differences with the regulator over tariff determination of airport services. Any changes in aeronautical charges will have a direct impact on the fares paid by the end fliers and cargo costs, claim analysts.

Aeronautical charges are defined as charges paid for services or facilities directly related to the aircraft and their passengers and cargos in connection with facilitating the journey. On the other hand, non-aeronautical revenues are derived from commercial activities not directly connected to the operation of the aircraft.

Insiders claim that the exercise with regards to allocation of assets into aero and non-aero warrants simultaneous consideration of multiple factors that include asset nature, its location and use, revenues derived, area occupied etc. Earlier, the levying of airport taxes by the regulator AERA had invited criticism from GVK and GMR who had called it "unsustainable".

Though the current study is specifically for Delhi and Mumbai airport, it is most likely to be extended to other airports in future, even as India looks to add 100 new airports for one billion fliers by 2035. The development seems significant as capex plans to the tune of Rs 65,000 crore have been finalised by AAI (Rs 17,500 crore for the next five years), around Rs 22,000 crore for brownfield expansion in Delhi, Mumbai, Hyderabad and Bengaluru by private operators, and about Rs 21,000 crore for greenfield airports.

According to industry insiders, the tariff determination process needs to be redefined, as significant investments are being made to expand capacity and render airports into contemporary assets meeting global standards of excellence. Further, the parameters will change every year owing to various factors viz., increased investments, utilisation patterns, nature of asset composition, asset ownership methods, life-cycle changes, all of which necessitate a review of such aero and non-aero allocation.

Another significant trend being witnessed is that airports are increasingly deploying IT assets to execute aero and non-aero activities across airside, terminal and landside not solely as a productivity improvement tool but as an operational necessity. These IT assets power both the back-end and front-end processes at all customer and consumer touch points in the airport.

Meanwhile, the regulator is also conducting another study to determine the operational efficiency at these airports. The study will help the regulator independently examine the baseline operating cost levels, cost reduction, efficiency initiatives and benchmarking exercises undertaken by the airport operator etc.

A senior executive at GVK said that development and operating an airport of the size of Mumbai or Delhi requires massive investment and therefore regulator should be considerate enough to rightly define the mode of revenues in order to make the investment attractive for the investors. "Otherwise the airport development in the country will get affected," said the source.

Prabhakara Rao, GMR Airport's executive director, earlier told DNA Money that in India, there is uncertainty over tariff, unlike in other countries such as the Philippines where it is known upfront. The uncertainty makes decision making difficult for the operator. "We need more clarity on it," Rao said. Operating income from the airport segment decreased 23% from Rs 7,100 crore in fiscal 2017 to Rs 5,418 crore in fiscal 2018, primarily due to the revision of tariff in DIAL.

However, the Comptroller and Auditor General (CAG) and Airport Economic Regulatory Authority (AERA), a regulator for airport tariff, have a different take on drop in revenues. The CAG had highlighted that "undue benefits" of thousands of crores of rupees were doled out by the civil aviation ministry to private airport builders. Similarly, AERA did not mince words when it referred the private airport development as "gold plating" with unnecessary and expensive fittings. For example, the use of Italian marbles instead of Rajasthani ones, which come at a much cheaper rate. The increased costs then get passed on to the airlines and finally to the passengers.

A 2016 policy ordered relaxation in option for non-aeronautical use of airport land by allowing more commercial exploitation by the airport operator. However, the order was not allowed for the existing PPP operators. GVK and GMR, which already operate airports in Mumbai and Delhi, were affected due to the decision and later appealed against the order. The order was overturned by the appellate.

TAKE-OFF WORRIES

• Rs 65,000 cr – capex planned by Airports Authority of India
   
• Rs 5,418 cr – GMR’s operating income from airport segment declined to in FY18
   
• 100 – new airports govt plans to add by 2035