This article has been authored by Resham Chhabra, a fifth-year student at Himachal Pradesh National Law University, Shimla.
“Privatisation is a bitter pill but it is a pill that will cure.” -Frederick Chiluba
Privatisation, a feverishly sought-after proposition, is developing considerably despite its exorbitant cost. Aviation was a capital-intensive industry and governments could afford creation of such infrastructure and acquire wide stretches.
But today’s situation has changed, governments have become more socialistic while business magnets have grown in funds and risk management, hence over the last more than five decades, the airlines have been privatised and they have operated with success. The next step was privatisation of airports and it started about two decades back.
Privatisation saw daylight at UK airports in the mid-1980s and has since traversed across Europe. The percentage of private ownership of European airports is witnessing a notable hike since 2011, with the present count being more than 50%. The Indian airport privatisation schedule can be labelled a “stop-start process”. Commencing in 2006, with a count of dominant gateway airports being privatised, followed by an elongated standby until 2015 and an inefficacious shot at privatising more, prior to the sealing of deals in 2018.
The influence of the chosen theme in today’s dynamic era is of high weightage as this expenditure has stood out to be successful and a few major international airports like Mumbai, Delhi, Hyderabad, Bangalore have already been privatised and are operating with better efficiency in maintaining the infrastructure and ease in passenger-handling. This trend must continue successfully.
Therefore, this article shall attempt at dispensing a panoramic view of emerging legal, economic, political and social controversies engulfed in the process of privatisation of the airports in India.
Probing into the Rush towards Privatisation
One of the integral elements in airport augmentation is the financial domain, especially from an airline’s perspective. Some concerns of the airlines to ascertain the operational viability are the economic sustainability of the routes out of a certain new airport, margin of profit, fuel expenses, popularity of air travel at that destination and hence the estimation of ticket price. These aspects are the key determinants for the airlines to decide flight feasibility for that station.
Were these practical issues of the airlines taken into consideration before moving towards privatisation? Apparently not. The airlines were expected to fall in line with this “fait accompli”. It is only when an airline starts operating from this new airport, commercial activities begin to flourish.
While these factors seem to have been ignored, the emphasis has been on developing infrastructure through rapid land deals and assets with private entities, many of which are raw in the field of aviation. According to the experts, such an approach would lead to Airports Authority of India losing its vital financial resources and reducing it to a mere landowner leasing out for a long term to private business houses.
The need is to take note of global experiences on airport development and follow suit. Airports are in public hands in the United States, which is the single largest aviation market in the world, being owned by the state, local governments, municipalities or even universities. Most airports in the US are owned by the state or its agencies or utilities, though some have engaged private firms to manage airport operations or for specific services. But the ownership remains with the state or its agencies. The US Congress had floated an “Airport Privatisation Pilot Program” in 1996 which failed to take off. The Trump Government’s proposal in 2018 to privatise airports and air traffic control got a lacklustre response from a large majority.
All major airports in India’s neighbourhood, which attract a substantial number of Indian travellers, are owned by the respective governments or government-controlled entities or civil aviation authorities.
It is imperative that the government keeps these facts in mind before going in for outright sale of such critical and valuable assets for short-term cash gains or injection into its treasury.
The passenger fees are increasing; Security being handled by the government and AAI, creates dual operations by two commanders which has posed security problems in the past; Privatisation demands increased investment, implying, private airports are likely to be more expensive despite the increased efficiency; New airports coming up and old ones being renovated is causing ecological disasters.
Airport infrastructure once made cannot remain static in view of the rising passenger footfall, escalating number of airlines and their operational aircrafts. This renovation and refurbishment of airports is not happening with the matching speed, causing additional pressure on the airport service providers.
A Legal Scrutiny
Succeeding Europe and other parts of the world, India too tip-toed into following the fashion of privatising state-owned airports. In parlance with this, one ought to acknowledge the Indian experience of privatisation in reference to public international air law and the international aviation law rules.
Turning to the legality of the chosen theme, the Chicago Convention does not cater to the question of ownership of airports, leaving aside its subtle mention that sovereignty-based responsibilities regarding airports and air safety are bestowed upon States. To add to the confusion, the concept of privatisation is neither given a thumbs up nor is ruled out by the International Civil Aviation Organization (ICAO). Since any of rules or methodology for privatisation do not fall under the purview of the Chicago Convention and ICAO, the presence of domestic laws is felt in the forefront.
ICAO and the International Air Transport Association (IATA) do not criticize the idea of privatisation of airports but do observe the trends in the aviation industry that keep surfacing For instance, the hike in airport charges, the jitters that are visible res ipsa loquitor at multiple stages of policy making cannot be just brushed aside and are witnessed as repercussions of privatisation, following with it no longer remains the “miracle cure”.
Competition between airports seems the ‘in-thing’, like in the case of Love field Airport and Dallas/Fort Worth Airport in the US, on the contrary, privatisation agreements in India make competition laws ineffective. The Preamble of the Chicago Convention shouts out loud the aim of advancement of civil aviation, at the same instance, monopoly created in the airport sector shuts it down. The initial game plan of privatisation in India did not call for a transition from public monopoly to private monopoly.
Regulation of civil aviation throughout the geographical area of India is a sovereign function. The impact of the private agreement is that, in the future, exercise of any sovereign powers by Union of India will be subject to conditions of these private agreements. The monopoly clause in the concession agreements has taken away the sovereign powers of the State resulting in the statutes becoming irrelevant as they are subject to commercial contracts.
Aerodrome certification, encouraged by ICAO, is an essential tool for promised safety. It existed and was used by India even before the creation of ICAO and long before the introduction of Annex 14. Unfortunately, in the current times India uses aerodrome licensing provisions for achieving economic policies.
No provision can be seen present in Annex 14 or the Aircraft Rules 1937 of India that backs the shutting down of a licensed airport for ensuring monopoly of another airport. The only consideration the certification should advocate is the safety of civil aviation and the same should be adhered to by India.
Post privatisation, the status of the nature of private airports in India is not defined. The analysis puts forth that they are put under the purview of private entities in many public acts, including the provisions of the Right to Information Act, the public procuring process, Official Language Act and the State Affirmative Action and at the same time also qualify for the definition of a State entity or a public authority.
If viewed as public entity, legal effects such as the applicability of writ jurisdiction of the High Courts, audit by the Controller and Auditor General will prevail, implementation of State policies of social interest will play and from the eye of transparency, the provisions of the RTI Act would become applicable and thus information of the functioning of these airports would be free to the public. Also, the AAI Act would apply. Sadly, in the current scenario, the private airports keep swinging their nature between private entities and bodies coming under State for public authority to suit their comfort and to avail benefits like exemption from writ jurisdiction of High Courts, state affirmative actions, CAG audit as private entity, getting funding through taxes and exception from taxes or other state support as a state entity.
This is neither a favourable scenario nor was it the criteria of initiating privatisation in the airport sector. It is a disastrous situation that no legal skeleton was created for privatisation in the case of India. The exercise was mainly based on non-sovereign contracts (acta jure gestionis). Amendments in the AAI Act 1934, and the Aircraft Rules 1937 were made to assist the provisions of the contracts for privatisation. The private airport operators pleaded to keep out the private airports from the ambient of AAI Act, which was agreed to but in situations like levying of the Development Fee in private airports, provisions of AAI Act have been called upon. A piecemeal approach to the airport privatisation was pursued rather than a holistic approach.
The private airport operator being subjected to a regulation would be highly optimal. The Government of India should not be urged but demanded to bring forth an unambiguous and explicit legal structure for airport privatisation.
Airport Privatisation: The Great Debate
Should IATA's warning that privatisation is the wrong path for airports, be paid heed to? Airports seem to be in a rat-race for a luxurious development by expanding infrastructure and services to cope up with the indefinite quests, but the sky rocketing costs and the strain in national budget contribute to the non-achievement by the public sector. Thus, governments with cash constraints can turn to privatisation for escalating investment, without subtracting from the national treasure.
The research by IATA depicts that privatised airports are simply fleecing the passengers and fulfilling the costs from their pockets. The squabble that arises is that, airports will have a tendency to monopolise, in turn imposing high prices on airlines and passengers, unlike the airline industry where the graph of variety and competition between players lowers the prices for the travellers.
This argument was also put forward by “Airlines for Australia and New Zealand (A4ANZ)”, which released a report criticising the country’s regulation for not protecting consumers from higher charges.
Another view point at privatising was witnessed at CAPA India Airports Summit 2019. “If the government wants to look at privatising small airports, in my view that is not the right approach. The right approach would be that they look at privatising more profitable airports, which now they are doing,” said Sidharath Kapur, Executive Director and Board Member, GMR Airports.
A critical analysis of this theme would intend to encompass the below-mentioned multifarious substantial affairs:
i. The concern that should be dealt with is whether airports should be administered as a reticulated formation or as discreet optimising entities.
ii. The issues pertaining to how India has adopted the privatisation of airports as there is no a priori argument that all activities operate optimally in the private sector nor are the arguments for privatisation universally applicable.
iii. Legal issues, referring to socio-economic and political considerations, radiating due to land acquisition and creation of SEZs, as an international airport when run by a private party does not conform to the socialist patterns.
iv. The expeditious growth of globalisation and privatisation of airports has boosted up employment and thus this impact on work force and the safeguards offered to it will be thrown light upon.
Privatisation is encroaching upon the ecology of the territory, creating islands of barren land, giving birth to shopping arcades and assisting the service providers in profiteering. Hence, it should be done with proper ecological planning and political wisdom, perhaps keeping a check on the over-profiteering by service providers by creating captive markets.