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Explained | How the AERA bill will impact the government's airport privatisation plan

In a bid to expedite its asset monetisation plan and for faster development of smaller airports in the country, the Central government on March 24 introduced the Airports Economic Regulatory Authority of India (Amendment) Bill, 2021.

March 31, 2021 / 07:31 AM IST

The Narendra Modi-led government has made privatisation of public sector undertakings (PSUs) and asset monetisation cornerstones of its economic agenda. And as part of the Rs 2.5 lakh crore asset monetisation plan, the central government is also looking to sell its residual stake in airports.

As per reports, the government is looking to raise Rs 20,000 crore in 2021-22 and is all set to sell its residual stake in Delhi, Mumbai, Bengaluru and Hyderabad airports. Furthermore, the government has identified 13 more airports run by the Airports Authority of India (AAI) for privatisation.

In a bid to expedite its assets monetisation plan and for faster development of smaller airports in the country, the Central government on March 24 introduced the Airports Economic Regulatory Authority of India (Amendment) Bill, 2021 (AERA bill).

How will the bill help the government’s asset monetisation plans?

The AERA bill intends to change the definition of ‘major airport’ in India and under the bill, the central government may designate any airport as a major airport by a notification. The bill adds that the central government may group airports and notify them as one major airport.

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The move is expected to help make smaller airports more attractive for private players to redevelop and operate under the public-private partnership model, market experts and analysts said.
“Airports like Kanpur, Gorakhpur, Agra and Aligarh are examples of airports that can be clubbed together as a ‘major airport’ and then bids can be invited for their operation and redevelopment,” a Delhi-based industry expert said.

He added that airports in Nashik, Aurangabad and Nagpur can also be grouped together to be redeveloped and operated.

If the new AERA bill is passed, smaller players can also be roped into the airport redevelopment industry, analysts observed.

As part of the current concession agreements, private companies are permitted to operate airports for a period of 50 years from the commercial operation date of airports.

Furthermore, the government can also promote the development of regional airports by clubbing regional airports as one ‘major airport’ and expedite its UDAN scheme, a Mumbai-based industry expert said.

Obstacles to asset monetisation plan

Major obstacles the government is facing while trying to privatise smaller airports in the country are the level of security, interest from the private sector and accreditation from international airport regulators.

Security and accreditation from airport regulators

Currently, the AAI handles security at most Indian airports. Even in private airports like Mumbai and Delhi, the security is handled by the AAI, which holds a nominal stake in the airports.

In case the government completely sells its stake in airports, it will have to set up an independent authority to ensure that safety standards are met, especially at smaller airports, one of the experts cited above said.

He added that smaller airports being completely privately operated means higher cases of access loading on commercial flights and overbooking of passenger flights.

Private players will also need to hire Central Reserve Police Force (CRPF) officials as part of their security teams to ensure high standards, which may be an added expense.

The government may also struggle with getting international accreditation for its smaller airports which may lead to lower interest from private players.

“Operators may ask the government for international accreditation to operate international flights before redeveloping them. While this may not be a problem for larger cities like Pune, smaller cities may struggle to get international clearances and interest from airlines to operate flights,” another industry expert noted.

Interest from private players

The government successfully managed the first round of airport privatisation, and the Adani group won the bids to operate six airports.

The group bagged contracts to redevelop and operate six airports - Lucknow, Ahmedabad, Jaipur, Mangaluru, Thiruvananthapuram, and Guwahati.

Furthermore, the government only received expressions of interest from a handful of other private players, and if the case is the same for airports in the future, the government may find it tough to achieve its goals.

“The government will have to ensure that a monopoly situation is not created in the airports operating business in the country, and if its clusters are not attractive enough, the privatisation drive will not be successful,” the Mumbai-based expert added.

Yaruqhullah Khan
first published: Mar 30, 2021 09:49 pm