ASSIGNMENT-1
AVIATION LAW
TITLE
GLOBALIZATION, LIBERALIZATION AND PRIVATIZATION OF AVIATION
INDUSTRY: EMERGING
LEGAL ISSUES.
BY
S SAI BHARADWAJ
2010-2011
Abstract
With liberalization of air travel services and the advent of low cost airlines, the Indian Civil
Aviation Sector is in for a major overhaul over the next few years. The current state of Indian
airports is inadequate to handle the resulting increase in air traffic. This paper starts with a
brief on the rationale for airport privatization and international experience with it, with a
focus on developing countries. Gaps between Indian and international airports in some
operating and financial metrics (like Non aeronautical revenue per passenger, passenger per
employee etc) are used to identify possible areas for improvement in Indian airports. Finally,
current modes of airport infrastructure provision in India are summarized.
INTRODUCTION
The new trends emerging in the aviation industry in a global scenario are the increased
globalization of economies, liberalization of aviation policies, new technological
developments in civil aviation, privatization of airlines and airports and liberal and open skies
bilateral agreements. Deregulation and intensified global competition are forcing airlines to
become responsive, competitive and efficient by focusing more closely on their customers
and operations.
Over the past few years in India, the attitude of the Government and Aviation Industry
towards the regulation of Air transport has undergone a profound change in almost all
spheres. New concepts of ownership, financing, management and operation of air transport
are the emerging trends in India. Airport owners and operators who realize this situation are
trying to improve their facilities and services to attract major airlines. Therefore, airport
owners and operators are devising the privatization of airports to solve the problem.
The objectives of airport privatization can be summed up as follows: economic efficiency,
private finance, and aggressive marketing. The researchers through this Conference will help
to examine the prospects and challenges faced by the Airport Authority of India (AAI) in the
era of dynamic growth of aviation through the following issues which will be highlighted in
this conference:
GLOBALIZATION
Globalization (or globalisation) describes the process by which regional economies,
societies, and cultures have become integrated through a global network of communication,
transportation, and trade. The term is sometimes used to refer specifically to economic
globalization: the integration of national economies into the international economy
through trade, foreign direct investment, capital flows,migration, and the spread
[1]
of technology. However, globalization is usually recognized as being driven by a
combination of economic, technological, sociocultural, political, and biological factors.[2] The
term can also refer to the transnational circulation of ideas, languages, orpopular
culture through acculturation.
GLOBALIZATION AND INTERNATIONAL AIRPORTS
While most people have elaborate definition of globalization, I have a simple one:
Globalization = Mobility. Mobility of people, capital, technology, culture, sports and music
across the country and across the globe.
Such mobility of people, their goods and services across islands, countries and continents, is
facilitated by various modes of transportation – land, sea and air. For long distances covering
hundreds or thousands of kilometers away, air transportation is the most cost effective and
time saving. For the Philippines, an archipelago and geographically detached even from its
nearest neighboring country, the presence of various airlines – both domestic and
international, is very crucial. By extension, the presence of various international airports is
equally crucial. International airlines can only come in if there are good and reliable
international airports that can handle their huge airplanes and huge volume of passengers and
cargo.
For a country with more than 7,000 islands and a population of nearly 92 million (12th
largest in the world), and an estimated 8 million to 9 million living abroad, there should be
plenty of international airports across the country. Currently there are only nine: 4 in Luzon
(NAIA, Clark, Subic and Laoag), 3 in Mindanao (Davao, Gen. Santos and Zamboanga) and 2
in the Visayas (Mactan-Cebu and Kalibo). Some of these international airports do not get
frequent international flights, like the one in Kalibo.
I think more international airports should be developed out of existing domestic airports. In
particular:
Tuguegarao airport to serve the Cagayan Valley region and neighboring provinces in
the Cordillera region.
Legaspi or Naga airport to serve the Bicol region which has a big population too and
has several island-provinces like Masbate and Catanduanes.
Iloilo airport to serve Panay Island’s four provinces plus the island-province of
Guimaras. Kalibo airport serves mostly the tourists going to Boracay island. It’s not a
big and modern airport but it has a long runway that can accommodate big airplanes,
unlike the airport in Caticlan.
Bacolod-Silay airport to serve Negros Occidental and Negros Oriental provinces. The
former is among the five biggest provinces in the country in terms of population
outside of Metro Manila.
Tacloban airport to serve the Eastern Visayas region and its six or seven provinces.
Cagayan de Oro or Butuan airport to serve the Northern Mindanao and Caraga
regions, including the island-province of Camiguin and Siargao island. Both islands
are famous for tourism.
.
By saying international airports, the above-proposed airports need not serve flights
going to and from the US, Europe and Australia. What is important is to
accommodate flights going to and from the country’s selected Asian cities like Hong
Kong, Singapore, Seoul, Tokyo, Taipei, Bangkok and Kuala Lumpur. One or two
flights a week for any or all of those Asian destinations would be enough. And if one
is going to several destinations in North America, Europe, Australia-NZ, South
America and Africa, all those Asian cities mentioned have direct flights to the big
cities of the above-mentioned continents.
Recently, the Regional Development Council of Western Visayas asked the Civil
Aviation Authority of the Philippines (CAAP), formerly the Air Transportation
Office (ATO), to open the Iloilo airport to international flights. The Council also told
CAAP that it wants to retain at least 10% of the P200 per passenger airport terminal
fee. I have been to Iloilo airport several times as my wife is from Iloilo City, and I
can say that this airport is modern enough – typical glass and steel structure of
modern architectures, and should be able to handle limited international flights. For
now, I have several points to make.
One, if a national bureaucracy like CAAP will drag its feet for long, like in deciding
whether to allow international flights at the Iloilo airport or not, then local
governments will have no way of implementing their collective plan and program.
This is another proof that decentralization of political and economic powers is not yet
fully implemented. Certain bureaucracies in Metro Manila still decide what is good
or bad for those in the provinces.
Two, CAAP gets the entire terminal fee collections of provincial airports. I did not
know this before. I thought ATO, now CAAP, gets only a certain percentage from the
terminal fee collections from those provincial airports. This is a huge collection,
actually. Last year, toll and terminal fee collection was P215 million, and is projected
to rise to P236 million.
Three, airports need not be owned and operated by governments. A consortium of
private corporations including airlines should be allowed to buy and develop existing
airports, or create a new one. Anyway, there are several government agencies that can
regulate such privately-owned airports, including the CAAP, the provincial and city
or municipal governments, and perhaps the Civil Aeronautics Board, among others.
To help encourage provincial and regional development, let the local government
units compete with each other in developing and modernizing their own
infrastructure facilities (roads, airports, seaports, etc.), improve the peace and order
situation, and even engage in tax competition when necessary. The goal is to attract
plenty of investors and visitors who will create plenty of jobs and entrepreneurial
opportunities for their people.
The continuing centralization of power in the hands of certain national government
agencies is a hindrance to the development of some local governments, a hindrance
to faster globalization and economic integration of the people in the provinces with
other cities and countries around the globe.
WHAT WILL LIBERALIZATION MEAN FOR AIRPORTS?
Airports should be participants in negotiations of new air service treaties (e.g. Europe-
U.S.) that result under liberalization—the airports are directly affected/their interests
are synonymous with those of the communities they serve
Greater exposure to fluctuations in market demand/ traffic
-shifting carrier alliances (hubs, airlines will ―come and go‖) will have facilities
(terminals) implications
-shifting industry patterns—low cost carriers may make improved use of
(underutilized) airport facilities
-stimulation of demand/increased air service to communities
-airport revenues will fluctuate with changes in traffic
Greater financial uncertainty
-revenue planning will be more difficult/revenues no longer guaranteed /may fluctuate
or fall
-investment planning will be more difficult—investing in new capacity when airline
presence no longer ―guaranteed‖ (examples are: Basel, Zurich, Brussels, Columbus
(Ohio)
To satisfy expected and stimulated traffic growth, airports will have to expand
capacity (liberalization brings growth in number of carriers/routes/pax). But, there
will be two Significant constraints:
-Environmental & political: aircraft noise responsible for greatest community
opposition to airport expansion (air quality factors catching up). The economic
benefits are no guarantee for political and environmental acceptance of
airport expansion—especially by well-off populations. So, the inability to
significantly expand airports could be a dilemna/constrain accompanying
liberalization. Aviation community needs to be very proactive
-Financial: present government restrictions in many nations do not allow airports to
use their funds as they see fit. Many Of the world’s airports still depend on
government funding for their capacity expansion
Greater flexibility and freedom would help airports to fulfilltheir role under
liberalization. (Most airports are effectively regulated by trade & competition laws,
by contractual agreements with airlines, and by effective general pressure
from large and well-organized airlines. In future, these forces must be restrained to
the bare minimum needed to protect against any abuse of pax and airlines.)
-capacity and slot management: airport operators have the right to define/declare
capacities of their facilities. They should have an important part in the slot
establishment process and in overseeing efficient allocation of slots to
airlines.
-financial mgt: ICAO’s ANSConf 2000 supported giving airports more financial
flexibility—which will be absolutely essential. Revenue diversification (commercial)/
capex prefinancing/use of economic principles in airport
pricing (without ―over recovery‖)
-autonomy and privatization: flexibility to adopt ownership
and management. structures that will allow for highest levels
of service and access to capital markets
ICAO’s Role
-more stringent noise & emission standards to help alleviate (mentioned) environmental
constraints
-implementation of airport-related recommendations of ICAO ANSConf 2000 in ICAO
policy & guidance
-help achieve recognition that airports do compete with one another/are not so-called
―natural monopolies‖ that need to be regulated more than other enterprises.
DECLARATION OF GLOBAL PRINCIPLES FOR THE
LIBERALIZATION OF INTERNATIONAL AIR TRANSPORT
The Worldwide Air Transport Conference on Challenges and Opportunities of Liberalization,
convened by the International Civil Aviation Organization (ICAO) at its Headquarters in
Montreal from 24 to 28 March 2003 and attended by 145 States and 29 organizations:
Recalling the noble goals in the Preamble to the Convention on International Civil Aviation
(the Chicago Convention); Conscious of the important role of international air transport and
its contribution to national development and the world economy; Emphasizing the critical
importance of safety and security in international air transport; Noting the changes since the
fourth Worldwide Air Transport Conference in 1994 in the regulatory and operating
environment of international air transport brought about by economic development,
globalization, liberalization and privatization; and the desirability for ongoing regulatory
evolution to facilitate commercial change in the air transport industry while ensuring the
continued safe, secure and orderly growth of civil aviation worldwide; Reaffirming that the
basic principles of sovereignty, fair and equal opportunity, non-discrimination,
interdependence, harmonization and cooperation set out in the Chicago Convention have
served international air transport well and continue to provide the basis for future
development of international civil aviation.
DECLARES that:
1. Overall principles
1.1 ICAO and its Contracting States, together with the air transport industry and other stake
holders in civil aviation, will work to ensure that international air transport continues to
develop in a way that:
a) ensures high and improving levels of safety and security;
b) promotes the effective and sustainable participation in and benefit from international air
transport by all States, respecting national sovereignty and equality of opportunity;
c) takes into consideration the differing levels of economic development amongst States
through maintenance of the principle of ―community of interest‖ and the fostering of
preferential measures for developing countries;
d) provides adequate supporting infrastructure at reasonable cost;
e) facilitates the provision of resources, particularly for developing countries;
f) allows for growth on a basis that is economically sustainable, supported by adaptation of
the regulatory and operating environment,
g) strives to limit its environmental impact;
h) meets reasonable expectations of customers and public service needs, particularly for
low traffic or otherwise uneconomical routes;
i) promotes efficiency and minimizes market distortions;
j) safeguards fair competition adequately and effectively;
k) promotes cooperation and harmonization at the sub-regional, regional and global levels;
and
l) has due regard for the interests of all stakeholders, including air carriers and other
operators, users, airports, communities, labour, and tourism and travel services
providers; with the ultimate purpose of giving international air transport as much economic
freedom as possible while respecting its specific characteristics and in particular the need to
ensure high standards of safety, security and environmental protection.
2. Safety and security
2.1 Safety and security must remain of paramount importance in the operation and
development of international air transport and States must accept their primary responsibility
for ensuring regulatory oversight of safety and security, irrespective of any change in
economic regulatory arrangements.
2.2 States should work in cooperation to ensure safety and security oversight worldwide
consistent with their obligations under the Chicago Convention.
2.3 States should consider the safety and security implications of transborder operations
involving aircraft leasing, airline codesharing and similar arrangements.
2.4 Safety and security measures should be implemented in a cost-effective way in order to
avoid imposing an undue burden on civil aviation.
2.5 Security measures should to the extent possible not disrupt or impede the flow of
passengers, freight, mail or aircraft.
2.6 Further economic liberalization must be implemented in a way so as to ensure that there
is a clear point of responsibility for each of safety and security in a clearly identified State or
other regulatory authority designated by that State for any given aircraft operation.
.
3. Participation and sustainability
3.1 All States share a fundamental objective of effective and sustained participation in and
benefit from international air transportation, respecting national sovereignty and equality of
opportunity.
3.2 States should develop and maintain safeguards to ensure safety, security, economic
stability and fair competition.
3.3 States should ensure that the necessary infrastructure of airports and air navigation
services is provided worldwide at reasonable cost and on a non-discriminatory basis.
3.4 Airport and air navigation services charges should only be applied towards defraying the
costs of providing facilities and services for civil aviation.
3.5 The interests and needs of developing countries should receive special consideration, and
preferential measures and financial support may be granted.
3.6 The global aviation community should continue to work to promote the development of
air transport in an environmentally responsible way, limiting the impact of air transport so as
to achieve maximum compatibility between safe and orderly development of civil aviation
and the quality of the environment.
4. Liberalization
4.1 The objective of ongoing regulatory evolution is to create an environment in which
international air transport may develop and flourish in a stable, efficient and economical
manner without compromising safety and security and while respecting social and labour
standards.
4.2 States which have not yet become parties to the International Air Services Transit
Agreement (IASTA) should give urgent consideration to so doing.
4.3 Liberalization should be underpinned by the worldwide application of a modern uniform
air carrier liability regime, namely the Montreal Convention of 1999.
4.4 Each State will determine its own path and own pace of change in international air
transport regulation, in a flexible way and using bilateral, sub-regional, regional, plurilateral
or global avenues according to circumstances.
4.5 States should to the extent feasible liberalize international air transport market access, air
carrier access to international capital and air carrier freedom to conduct commercial
activities.
4.6 States should give consideration to accommodating other States in their efforts to move
towards expanded transborder ownership and control of air carriers, and/or towards
designation of air carriers based on principal place of business, provided that clear
responsibility and control of regulatory safety and security oversight is maintained.
4.7 States should give consideration to liberalizing the regulatory treatment of international
air cargo services on an accelerated basis, provided that clear responsibility and control of
regulatory safety and security oversight is maintained.
4.8 Transparency is an important element in promoting economic growth, competitiveness
and financial stability at the domestic, regional and international levels, and enhances the
benefits of liberalization.
4.9 The air transport industry should continue to be encouraged to improve services to
passenger and freight customers, and to develop and implement appropriate measures to
protect consumer interests.
5. Competition and cooperation
5.1 The establishment and application of competition law represents an important safeguard
of fair competition as States progress towards a liberalized marketplace.
5.2 Cooperation between and among States facilitates liberalization and avoids conflicts,
especially in dealing with competition law/policy issues and labour conditions involving
international air transport.
5.3 States should avoid adopting unilateral measures which may affect the orderly and
harmonious development of international air transport and should ensure that domestic
policies and legislation are not applied to international air transport without taking due
account of its special characteristics.
5.4 Where State aids provided for the air transport sector are justified, States should take
transparent and effective measures to ensure that such aids do not adversely impact on
competition in the marketplace or lead to unsustainable outcomes, and that they are to the
extent possible temporary.
5.5 Subject to compliance with applicable competition law, States should continue to accept
the availability of multilateral interline systems that enable States, air carriers, passengers and
shippers to access the global air transport network on a non-discriminatory basis.
6. Role of ICAO
6.1 ICAO should continue to exert the global leadership role in facilitating and coordinating
the process of economic liberalization and ensuring the safety, security and environmental
protection of international air transport.
6.2 ICAO should continue to promote effective communication and cooperation with other
intergovernmental and non-governmental organizations with an interest in international air
transport, to harmonize and avoid duplication of effort at the global level.
6.3 States should consider using the regulatory options provided through ICAO for the
liberalization of international air transport.
6.4 States should continue to keep ICAO informed of developments in international air
transport, including liberalized arrangements introduced at various levels; and to promote, in
other fora, a full understanding of the mandate and role of ICAO.
PRIVATIZATION IN AVIATION INDUSTRY
The flurry of Privatization has shown its bright effect inIndian aviation indoustry. Definitely
in the Service , Delivery and Technology Implementation.My main focus is on the
privatization of Airports which is happening all around in India. Like the Public structire of
Coachin International Airport to the Public Private Partnership in BIAL, HIAL and so on. The
primary change that any consumer will initially identify is how efficient the service is and
how classy the looks are. This definitely helps to improve the face of any state when their air
transport services are appriciated.The New Delhi Airport is a great eample of how efficient
and technologically advanced infrastructure can be implemented through these channels. This
have become another point to present to the potential investors for the states. As their are pro's
there are con's as well. Lets see what we all share about this matter.
For decades, air travel in India was meant for the most elite and powerful in society. An
overwhelming majority of travellers who could not afford the prohibitive air travel fares,
preferred to journey on trains and buses.
The revolutionizing effects of liberalization swept India with dynamic changes in the aviation
sector. From being a service that few could afford, the sector has now graduated to being a
fiercely competitive industry with the presence of a number of private and public airlines and
several consumer-oriented offerings. In ten years of competition in the aviation sector, private
airlines have changed the rules of the game, and they now account for more than 60 % of the
domestic aviation market.
More and more middle class families in India now prefer air travel to the more traditional
travel by train. In 2003, 10 million Indians travelled by air domestically. In 2004, 25 million
took to the skies within India and 6 million Indians travelled abroad.
The Centre for Asia Pacific Aviation estimates that the domestic Indian market will add 5
million passengers every year for the next five years, growing to 45 million passengers by
2010.
Today, the relationship of domestic to international travel stands at 40:60 whereas in 1994 it
stood at only 25:75. But taking into account a growing middle class with increased and
increasing purchasing power, there are 200-210 million potential spenders. The Indian
population grows at a rate of 8% per year.
Around 100 million travellers every day on state-owned Indian Railways, If air travel bites
into even a small percentage of this huge pie, that’s still clearly a tremendous growth
opportunity.
The entry of budget airlines like Air Deccan, the introduction of cheap airfares by other
domestic carriers, combined with rising incomes and consumption of the middle class as also
their growing aspirations, have created this new paradigm: Air travel is no longer for the
elite.
INTRODUCTION: LEGAL ISSUES
1. The air transport system is an important contributor to the quality of life of people and an
essential part of world business globalization. Increasing passenger and cargo traffic places
further demands on airports to provide adequate facilities and services to ensure safety,
regularity and efficiency of aircraft operations. The average annual growth rate worldwide
measured in passenger – kilometres over the period of ten years from 1995 to 2005 is
estimated at 5 percent. To meet the ever-increasing growth of air traffic, airports need to
expand as and when needed especially for handling larger aircraft carrying more passengers
than before. The result is that airport administrations are faced with a heavy financial
investment programme for improvement and development to meet these needs in the most
efficient manner possible. The rapidly changing economic scenario has led to the view that
divestment of airports and air traffic services would bring in the much needed funds while
facilitating the State to focus on
development of other socially important sectors.
2. CURRENT SITUATION AND CHANGING SCENARIO
2.1 To start with, airports were operated by States through appropriate governmental agencies
which had the necessary human and financial resources. It was not very difficult to oversee
the operation of such government-owned airports. Over a period of time, this has
metamorphosed into the establishment of specialized airport authorities for the operation,
management and maintenance of airports. Most airports are still, as a rule, government-
owned (by a State, provincial or municipal government or a combination of any of these),
although a small number of airports are already under private ownership. Therefore, States
have been able to ensure safety of aviation even where direct control of airports has passed
on to airport authorities.
2.2 The number of such airport authorities is growing in all regions. Worldwide experience
gained from these developments indicates that where airports (and air navigation services)
have been operated by autonomous authorities, their overall financial situation and operating
efficiencies have generally tended to improve. This has been more pronounced in the case of
airports whose management has been passed on to the autonomous authorities whereas air
traffic services have been retained under governmental controls. Consequently, ICAO
generally recommends that States consider the desirability of establishing authorities to
manage airports, air navigation services, or both, where improved efficiency and financial
results would be achieved.
2.3 Autonomous airport authorities have functioned well where they have been vested with
financial independence. They vary considerably in the degree of freedom they are given to
make decisions pertaining to their activities. However, where such independence is lacking,
many such authorities continue to seek governmental funding. This places an additional
demand on the government resources either leading to scarcity in one sector or delay in the
development or maintenance activities due to lack of sufficient funds. It is in this context that
private sector participation in airport ownership, operation and management has come
into focus.
2.4 There is a growing trend of privatisation of major autonomous airport authorities as well
as government operated airports as a whole or in part. Privatisation may offer significant
benefits in certain cases. It could relieve States of the burden of heavy capital investment and
could give airport management direct access to the open market for loans or capital for
investments in new airports, expansion or rehabilitation projects. It may also offer significant
certain constraints, particularly regarding the development of non-aeronautical aspects of the
airport business. Privatisation of airports also has other advantages, from the government’s
point of view, of making the government resources available for use in other important
sectors such as health, education, agriculture and housing. Nevertheless, the need to ensure
safety of operations at all times remains as the most important objective. To this end, the
responsibilities of States for ensuring safety cannot be over emphasised.
3. RESPONSIBILITY UNDER THE CONVENTION ON INTERNATIONAL CIVIL
AVIATION
3.1 Article 15 of the Convention on International Civil Aviation requires that every
aerodromein a Contracting State open to public use by its national aircraft shall be open
under uniform conditions for the aircraft of all other Contracting States. The responsibility for
ensuring safety, regularity and efficiency of aircraft operations at aerodromes rests with
individual States. In this regard, under Article 28 of the Convention, States undertake to
provide the necessary airport and air navigation infrastructure in accordance with the
international specifications established from time to time pursuant to the Convention. Being a
signatory of the Convention, each Contracting State has the ultimate responsibility to ensure
safety of operations within its sovereign territory. Additionally, under Article 37 of the
Convention, States also agree to adopt the international specifications developed by ICAO in
an effort to harmonize regulations, standards, procedures and organization in relation to,
amongst others, airports and air navigation aids. Therefore, the States are obliged to ensure
compliance with the applicable standards and regulations in the interest of safety, efficiency
and regularity of operations. This obligation on the part of a Contracting State remains
unchanged even today.
Conclusion
Although the analysis shows that Indian airports are way behind foreign peers in terms of
infrastructure and performance, the government has taken corrective action in order to
improve their state. The sheer potential of air travel in India makes it a very lucrative market.
This has increased interest in the sector. Wherever privatisation of airports (and air navigation
services where applicable) is contemplated, the regulatory authorities should review their
own organizational structure in order to be able to ensure that even in the new environment,
safety of operations is assured. The government is still in a learning mode as far as airport
infrastructure provision is concerned. It has experimented with BOO in the past through the
Cochin Airport and recently with 30 year concessions for Delhi and Mumbai Airports. It will
be interesting to see how the government balances the expectations of its coalition partners
and at the same time ensure efficient and world class airports for its populace. The good news
is that the government realizes the opportunity and is prepared for taking decisive decisions
for the same. The future growth and performance of airports will depend to a large extent on
the political will and the ability of the government to garner support for the ongoing
initiative.
References
Working/Research Papers AND
Presentations/ Articles/ News Reports
News reports at websites of
Hindu business line
Air Finance Journal
Economic Times
Annual Reports
Airports Authority of India
Brussels Airprort
Unique Zurich Group
Vienna Airport
British Airports Authority (BAA)