Clearing the air

Rules curbing airline stakes in airports should be reviewed

Plain logic suggests that placing a limit on an airline’s shareholding in an airport is valid from the point of view of competition law. But the 2006 agreement between the Airports Authority of India (AAI) and GMR Airports Ltd (GAL), capping an airline’s shareholding to 10 per cent in Delhi International Airport Ltd (DIAL), appears excessively restrictive, especially when it constrains the airport operator’s ability to attract funds for expanding and modernising the country’s busiest airport. 

This question has arisen over a Rs 8,000-crore investment by a consortium led by the Tata group in GAL, which demerged from GMR Infrastructure earlier this year. The principal problem is that the Tata group has majority stakes in two domestic airlines — Vistara and Air Asia India. If the deal between the Tata group and GAL goes through, the former will have a 20 per cent stake in GAL, and, by extension, a 12.8 per cent stake in DIAL, which conflicts with the 2006 agreement. The Competition Commission of India has approved the deal but the AAI has sought the solicitor general’s opinion. This referral may be a case of abundant caution on the state-owned airport operator’s part. Both GAL and the Tata group have given assurances that they will not breach conflict-of-interest issues. But these pledges should not be considered a sufficient condition to pass the deal; a review of the rule as a matter of principle would be a better idea for India’s rapidly expanding airports business.

The argument for minimising airline stakes in airports, especially major ones, is to avoid a conflict of interest with other user-airlines. It is possible, for instance, for an airline-owned airport to accord unfavourable slots in terms of timing and placement to competing airlines. But there are several reasons why this contingency is unlikely to arise. Consider, first, the conflict-of-interest logic. In the AAI and DIAL’s case, it operates in the reverse. The AAI owns 26 per cent in DIAL and is, in turn, wholly owned by the Union government, which is also the 100 per cent owner of Air India, the country’s third-largest airline. In effect, then, it could be argued that Air India owns 26 per cent in DIAL, so the AAI should reduce its stake in the joint-venture airport operator forthwith. 

Second, there is an institutional check and balance embedded in DIAL’s slot-allocation function. As the Competition Commission has observed, in congested airports, slots are allocated by a coordination committee, which has representatives from the government and all airlines, minimising the scope to distort the process. 

Third, though the Tata group will have a seat on the DIAL board, its shareholding is significantly below the legal threshold for blocking a board resolution on any competing issue. Finally, the presence of the Airports Economic Regulatory Authority should be enough of a deterrent to such irregularities. The fact that its power and jurisdiction have already been curtailed only underlines the urgency for strengthening its functioning. Anyone flying through Delhi airport will attest to the chronic congestion, which leads to long queues ahead of take-off and the incessant circling before landing. The deal with the Tata consortium would bring in much-needed funds to augment the airport’s runway and other tarmac infrastructure. An outmoded 13-year rule should not be a deterrent to having a better, safer airport.