Regulator wants Delhi International Airport Ltd non-core joint ventures scrapped

AERA says airport operator must go on its own to avoid revenue-sharing.

The Airports Economic Regulatory Authority (AERA) wants Delhi International Airport Ltd (DIAL), which runs airports in the capital, to scrap its 11 joint ventures for non-aeronautical operations.

The regulator wants DIAL to directly provide non-aeronautical services. In a letter sent to the civil aviation ministry, AERA has asked the ministry to ensure DIAL runs the operations by itself. Non-aeronautical revenues at Delhi airports constitute 60 per cent of total revenues. They include revenues from food outlets, duty-free operations, parking, cargo and others.

“AERA has written to us the airport operator’s revenue has come down because of the formation of joint ventures for non-aero services, where there is a revenue share. It has said the fall would lead to an increase in airport charges,” said a senior ministry official, who did not wish to be named.

For fixing charges that airlines are required to pay (like for landing and parking), the regulator takes into consideration the total aeronautical revenue and 30 per cent of the non-aeronautical revenue earned by the airport. As DIAL has most of these operations through JVs, it has to share revenue with partners. As a result, the revenue accrued in the airport operator’s account is much lower than what would have been if it ran the operations on its own.

DIAL has formed 11 JVs to manage food outlets, duty-free shops, advertising, parking, ground handling, cargo and information technology. The equity shareholding of DIAL in the JVs ranges from 26 to 56 per cent and the revenue share agreed ranges from 10 to 61 per cent of gross revenue generated.

DIAL, in its reply, said it was a global practice for airport operators to participate in JVs with concessionaires due to certain inherent advantages such as business continuity and the desired quality. “Considering these facts, the bidding document had a provision in respect of the airport operator’s right to participate in the JVs formed for the purpose of carrying out any aeronautical, non-aeronautical or essential services,” the airport operator said in an email.

The reply explains the revenue share of 45.99 per cent, quoted by the GMR-led consortium for the privatisation of Delhi Airport, took into consideration its capability to sub-concession non-core activities. “DIAL has concessioned out non-core activities on a competitive basis and on the terms most beneficial to DIAL (and thus to AAI as well), which has resulted in a significant increase in DIAL’s revenue and AAI’s revenue share,” the reply said.

AERA, while confirming it had written a letter, said the onus was on the government to act. “We have raised the matter with the government and it should do something about it. There is nothing we can do on it,” said an AERA official.

An aviation ministry official, however, said there was nothing the ministry could do. “AERA is the regulator and it should directly issue orders to ensure revenue is not impacted,” the official said.

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