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Adani and the Lucknow airport controversy: Who decides the charges, how are they fixed and other questions answered

If you are wondering how airport charges are decided and what is the controversy about, here is a primer to bring you up to speed.

June 07, 2021 / 11:46 AM IST
(Representational image)

(Representational image)

Chaudhry Charan Singh airport in Lucknow recently increased rates that private jets, or non-scheduled operators, had to pay. The Adani Group, which had taken over the operations and management of Lucknow airport in November 2020, later revoked the increased charges that were levied by the ground-handling company. The matter led to questions over how and when airport charges are decided. If you are wondering how airport charges are decided and what is the controversy about, here is a primer to bring you up to speed.

WHO DECIDES CHARGES AT AIRPORTS?

Charges for services provided at airports are decided by the Airports Economic Regulatory Authority (AERA). In 2009, the then Manmohan Singh government, which had handed over New Delhi and Mumbai airports to GMR and GVK, respectively, set up AERA.

Functioning out of New Delhi, AERA consists of a chairperson and two members. Until now, AERA chairpersons have been former bureaucrats. Currently, Mr B S Bhullar, who served as joint secretary in the Ministry of Civil Aviation and as Director General of the Directorate General of Civil Aviation, is its chairperson.

When it was established, AERA’s mandate was to regulate tariffs for aeronautical services, determine charges for services rendered at major airports and monitor the performance standards of airports. It had to oversee major airports, defined as those that handled 35 lakh or more passengers annually.

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The Modi government recently proposed to widen AERA’s role to include smaller airports, which are also being offered to the private sector to operate and manage. This was done through the introduction of the Airports Economic Regulatory Authority of India (Amendment) Bill, 2021. The bill proposes to allow the Central government to club airports together and notify the group as a major airport.

The Adani Group is now the largest private airport operator in the country with six operational airports and one greenfield airport (Navi Mumbai).

HOW DO AIRPORTS RECOVER THEIR COSTS?

Globally, airports recover costs that they’ve incurred through aeronautical and non-aeronautical charges. Aeronautical charges consist of aircraft landing and parking charges, baggage handling and the use of check-in facilities, while non-aeronautical charges relate to contracts that airport operators sign with retailers such as food and beverage outlets and car parking concessionaires.

Normally, at big airports such as New Delhi, aeronautical charges comprise about 40 per cent of the total earnings, with non-aeronautical charges contributing the remainder.

In tier-II cities, aeronautical charges make up about 70 per cent of airport earnings, while in smaller towns, such charges comprise 85 per cent of an airport’s revenue.

HOW ARE THESE RATES DECIDED?

AERA’s job is to examine the costs incurred by every company in the airport ecosystem and allow fees to be levied for services. The idea behind this is to ensure that no single entity in the airport ecosystem should pay too little or too much.

AERA decides on a rate for every service at the airport after going through the costs that every company in the airport ecosystem incurs. Before deciding these rates, public consultations are held so that a larger perspective can be taken before finalising the figures.

Once AERA decides on a rate for a service at an airport, it is set for a five-year duration, which is called the control period. Normally, these rates cannot be changed unless approved by AERA.

WHAT IS THE CONTROVERSY OVER LUCKNOW AIRPORT ABOUT?

A few days ago, charges for non-scheduled operators at Lucknow airport were reportedly increased as much as 10-fold. However, the Adani Group subsequently withdrew the increased charges.

“Bird Worldwide Flight Services (BWFS), the GH (Ground Handling) agency at Lucknow airport, revised the charges without informing Adani Airports. The call was taken without our consent and without adhering to the required approval process. Considering this process breach, we have directed them to drop the increased charges and refund the collections with immediate effect. We have also advised them to consult AERA for advice on future charges,” the Adani Group said in a statement shared with a leading English business news daily.

Bird Worldwide Flight Services was said to have fought aggressively to win the contract and had agreed to pay a large royalty to Adani for being allowed to provide ground-handling services at the airport.

The Airports Authority of India awarded the contract for the operation, management and development of Lucknow airport to the Adani Group in July 2019. Adani Enterprise Limited was incorporated in September 2020 to operate, maintain, develop, design, construct, upgrade, modernise and manage the airport in Lucknow.
Ashwini Phadnis Senior journalist based in New Delhi
first published: Jun 7, 2021 11:46 am

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