Opinion Terminal sickness

First — India’s abysmal track record with local government. In the US,airports are typically owned by their city governments,and operated by a professional body. By contrast,Indian airports are usually owned by the Union government through the Airports Authority of India (AAI),which means that cities which wish to upgrade their airports need to go to the Centre with political influence,and not to banks with strong balance sheets. Bangalore and Hyderabad’s new airports are exceptions,but they too are part owned by the AAI and state governments. The state of city finances and governance makes city ownership of airports seem utopian,but this need not always be the case.

The next problem is the monolithic structure of the AAI,both owner and operator for most airports. Splitting functions into different bodies is now accepted practice in the power and telecom sectors,even the railway ministry has created dedicated corporations for project work and catering. There is no reason,then,for one single body to manage air traffic control,airport cleanliness,and airport financing and other functions.

But even when AAI monopoly has been broken,as in Delhi and Hyderabad airports,regulation has proven inadequate. There was no airport regulator until the civil aviation ministry set up the Airport Economic Regulatory Authority last year. The AERA is a severely constrained regulator — it can only examine quality of service,and allow or reject airports’ request to change the fees they charge to airlines and passengers. Until now,the ministry has not said whether the AERA can also rule on the validity of contracts that seek to restructure airport operations and the flow of funds; or whether it will make model concession agreements — financial contracts — for future private airports.

Regulating fees is fraught with difficulty,as the recent episode with the insurance regulator defending high-fee ULIPs has shown us. If the AERA focused instead on creating model concession agreements,it could inject competition into the airport market and let competition do the work of keeping fees down.

International Civil Aviation Organisation guidelines stipulate that there should not be two civilian airports within 150 kilometres of each other,but allow local authorities to make exceptions. At present,the exception is made by the civil aviation ministry. This power could be given over to the AERA and embedded into contracts. An airport concession agreement could stipulate that a firm could continue to operate an airport only as long as it maintained a minimum quality of service on parameters such as congestion,passenger amenities,and safety and maintenance facilities. The contract could also include triggers for allowing a fresh airport within the 150 kilometre radius — congestion,inability to expand,or persistently failing on quality of service measurements. Unfortunately,there is no indication that the AERA will ever be empowered to this extent.

Part of the problem is that the AAI (operator) and the AERA (regulator) are both arms of the civil aviation ministry,which will try to protect the elder sibling. The problem India faces in banking,insurance,telecom,and airlines — of a ministry controlling both player and referee — plagues airports as well. If the AAI was corporatised,and unbundled into different firms carrying out different activities that would have to compete with private sector firms for contracts at every individual airport,the AERA would not have such a difficult job.

The UPA was willing to empower cities in its first term. In its second term,it has taken politically unpopular but fiscally responsible decisions like freeing fuel prices. It has the opportunity to break up AAI,push the parts into a competitive market,and give the AERA more teeth. This could hurt AAI’s 22,000 employees,but could give thousands more job opportunities — and give millions of passengers better airports to transit through.

The writer is a former banker

express@expressindia.com