The Supreme Court will rule on AERA’s powers to regulate ground services and freight rates; may result in more expensive airport services

The court will decide whether the AERA can regulate fees for services such as ground handling and cargo operations at airports such as New Delhi and Mumbai, India’s busiest.

A three-judge bench of the Supreme Court comprising Chief Justice of India DY Chandrachud, Justice JB Pardiwala and Justice Manoj Mishra reserved its judgment on September 24. The court will issue separate rulings on the question of maintainability before addressing the main questions of law raised. .

The AERA had appealed a January 2023 ruling by the Telecommunications Disputes Settlement and Appellate Tribunal (TDSAT), which ruled that non-aeronautical services fall outside the AERA’s jurisdiction, regardless of whether they are provided by the airport operator. or a contractor. The ruling came in response to a petition by airport operators, including Delhi International Airport (DIAL) and Mumbai International Airport (MIAL).

The AERA told the Supreme Court that under the Airports Economic Regulatory Authority of India Act, 2008, its role is critical in ensuring fair competition and protecting public interest, particularly with regard to passenger fares. .

During the proceedings, AERA argued: “At least the people who created us certainly call us regulators. Create a level playing field, encourage healthy competition, encourage investment and regulate tariffs… for whom? For each of the passengers, a section that represents the public, are we going to say that they are not ‘public interest’?

If the ruling goes against AERA

Experts said if the ruling goes against the AERA, it could lose its powers to regulate ground handling and cargo services at airports. Without regulatory oversight, operators could increase prices, likely passing these increases on to passengers and making services more expensive.

“AERA was enacted by Parliament to encourage healthy competition by regulating fares and other charges for aeronautical services at airports and monitoring post-act performance standards,” said Mumtaz Bhalla, partner at Economic Laws Practice. “Any restrictions on their powers could make services more expensive, ultimately burdening passengers. If ground handling and cargo services are declared “non-aeronautical” in the pre- and post-2008 regimes , AERA would lose its right to regulate the rates for these services.”

According to Surya Sreenivasan, partner at Cyril Amarchand Mangaldas, prices for ground handling and cargo services are set freely in mature markets, depending on market competition to regulate prices.

“If the Supreme Court upholds the TDSAT order, it will mark a paradigm shift in the way the aviation industry is viewed,” Sreenivasan said. “At the time of privatization in India, the government sought to regulate prices for airports and essential aviation services due to the nascent nature of the market. Today, with the rapid growth and privatization of the sector, the industry has moved into a more competitive market space, similar to other mature markets.”

Mark Martin, chief executive of aviation consultancy Martin Consulting, said operators cannot operate effectively without regulation. AERA should be empowered to oversee pricing of services within the airport environment, including ground and airside handling services associated with DIAL and MIAL.

“It is crucial that AERA improves its enforcement and surveillance capabilities. Allowing private airport companies to set prices without oversight risks charging exorbitant and monopolistic charges that harm consumers,” Martin said. “Assistance services should not be considered non-aeronautical, as this undermines AERA’s authority. “AERA must ensure fair pricing on all airport services to encourage competition that ultimately benefits passengers and the entire aviation sector.”

In October 2023, AERA issued an advisory warning airport operators against imposing unapproved fees on passengers. This order followed AERA’s observation that operators at major airports had levied aeronautical service charges without obtaining the necessary regulatory consent.

If the ruling is pro-AERA

Experts said a ruling in favor of AERA could significantly expand its regulatory reach and potentially set a legal precedent for other sector regulators.

“A ruling in favor of AERA would expand its regulatory reach, allowing it to oversee non-aeronautical services, setting a legal precedent for other sector regulators to expand their powers,” said Aslam Ahmed, partner at Singhania & Co.

However, according to Jayesh H, co-founder of Juris Corp, a ruling in favor of AERA could make private companies feel unsure about investing in the sector.

“The underlying legislative intent of the AERA Act is to meet the high investment needs of the airport sector by bringing in private capital. “It aims to create an atmosphere where private players can safely invest in airports,” he said.

Jayesh H. compared the issue to the debate over whether rates paid by telecom companies should be based solely on their telecom revenue or cover all revenue streams.

“The central question is whether the regulator should oversee fees for aeronautical and related services, such as ground handling, or whether it should extend to all services offered at an airport, including luxury shopping and experiences. It is not simply about the government securing its share of the revenue: it is fundamentally about the scope of regulation. A pro-AERA ruling could also empower other sector regulators,” he said.

Impact on DIAL and MIAL

Both MIAL and DIAL claimed that they entered into agreements with the government and raised the issue of contractual obligations prior to the AERA Act 2008. They argued that the AERA cannot file an appeal in “public interest” and is not a regulator authorized to determine the rates. for ground handling and cargo services.

Experts said an order favoring AERA could significantly affect existing contracts between private airport operators and their service providers.

“A ruling in favor of AERA would likely require adjustments to fee structures in existing contracts,” Singhania & Co.’s Aslam Ahmed said.

He said operators and service providers may need to renegotiate their agreements to comply with the new regulatory framework. This could lead to stricter pricing regulations, altering the financial terms and flexibility of current contracts.

“Service providers may face reduced pricing autonomy and operators may have to adjust their business models to align with AERA tariffs,” he said.

Bhalla, of Economic Laws Practice, emphasized that if the ruling is pro-AERA, contracts executed in the pre-2008 regime would need to be reviewed again based on AERA-regulated tariffs.

TDSAT order

Under DIAL’s agreement with the government, New Delhi airport operator DIAL and its concessionaires can set charges for non-aeronautical services – activities and operations at airports that are not directly related to aircraft or flight operations.

These include passenger and cargo handling, retail and dining options such as shops, restaurants and lounges, advertising and marketing services, real estate development, parking facilities and rental services.

However, in 2021, AERA issued orders stating that if DIAL performs ground handling and cargo services, they would be non-aeronautical services. However, if the services were provided through contractors, they would be considered aeronautical services.

DIAL challenged these orders in the TDSAT, which ruled on January 13, 2023 that both cargo and ground handling services are non-aeronautical, irrespective of who provides them.

The TDSAT considered that the AERA lacked jurisdiction over these rates and stated that the MIAL could set its own rates. The AERA argued that its authority under the AERA Act 2008 allowed it to regulate ground handling and cargo services as aeronautical services.

However, TDSAT confirmed that the AERA Act respects existing agreements and that both services remain non-aeronautical.

The Airport Economic Regulatory Authority Appeal Tribunal was merged with the TDSAT in 2017.