Director Policy & Statistics, Date: 13/07/2021 Airports Economic Regulatory Authority of India, AERA Building, Administrative Complex, Safdarjung Airport, New Delhi – 110003,

I ndia Email: [email protected] cc [email protected] [email protected]

To whom it may concern:

IATA RESPONSE TO AERA’S CONSULTATION PAPER FOR THE DETERMINATION OF AERONAUTICAL TARIFF FOR COCHIN INTERNATIONAL AIRPORT (COK) FOR THE THIRD CONTROL PERIOD (04/2021-03/2026)

The International Air Transport Association (IATA) is the trade association for the world’s airlines, representing some 290 airlines or 82% of total air traffic. We support many areas of aviation activity and help formulate industry policy on critical aviation issues.

The aviation industry is facing the biggest challenge of its history; restarting an industry that has essentially ceased to operate across borders while ensuring it does not become a vector for the spread of COVID-19. All while taking an unprecedented economic hit that has crippled the industry and threatening its survival. Although we expect airline losses to shrink in 2021 compared to 2020, financial performance will be worse than what we expected in our December 2020 forecast (2021 net post-tax losses forecast at $47.7bn1 vs $38.7bn in the December 2020 forecast).

Contrary to the misconception by some; airlines have not been bailed out by governments but in reality, they have accumulated more debts in addition to capital injection from shareholders to help them tide through this period of great uncertainty. However, airport operators are generally demanding/expecting to recover their losses from their users which further substantiate the notion that they possess market power as there is no such ‘loss recovery’ in normal/competitive markets. Hence, the role of AERA as the economic regulator is critical to bring the necessary balance and protection for airport users.

IATA is cognizant that existing frameworks are not intended to cover this exceptional circumstance brought about by the COVID-19 crisis. For this reason, we will provide a number of recommendations in this submission to deliver a balanced outcome for both the airport operator and users over the long term, on top of the good work already done by AERA so far to address this unprecedented situation.

1. Capital Investments

Freeze of Non-Essential Capital Investments: Given the extreme cost pressures on our industry collectively, minimizing all unnecessary costs is of utmost priority. It is necessary to reduce financial exposure by stopping all non-essential projects and in particular capacity enhancing projects in control period 3, particularly given the large-scale investment in capacity made in CP2.

Regarding CP2 true-up, we note AERA’s comments most of the projects were completed within estimated costs and about 80% have progressed well. This is positive, however does not automatically mean investments are efficient. We request AERA scrutinizes projects for their capital efficiency versus normative costs and accounts

1 April 2021 Forecast by IATA for this in its determination reference 4.4.40 Table 19. Only when projects have been deemed as efficient should they enter the RAB and not only based on their final accounts i.e. benefits delivered to program, cost, quality and benchmarked, even if these projects have come in under budget that could be attributable to scope changes rather than efficiency.

We propose a freeze of the CAPEX portfolio across all projects pending a review of project investment files and their associated Business Cases, as these have not been re-assessed since April 2018 AUCC, including those that are under construction to ensure they are viable to proceed considering Covid-19 impacts.

We note CIAL’s comments and AERA’s replies regarding partially completed projects proposed to be carried forward to CP3 - such as additional parking bays. We request the requirement for the remaining 145 crores project is determined by the need for additional parking bays linked to traffic forecasts and recovery reflected in a Business Case.

For clarity, we request the following discipline is applied in advance of CP3 projects proceeding: - More detailed AUCC consultation in accordance with AERA’s Consultation Protocol requiring project investment files (Business Case) with sufficient details for users to clearly understand costs, benefits, return on investment, depreciation, impact on user charges and other project dependencies. Part of this assessment should be a “do nothing” option as a basis to help consider the case for investment. - A re-assessment of capital cost estimates and final accounts to assess their capital efficiency and ensure users receive best value in any investments, benchmarked against AERA’s normative costs. - Any pre-funding / charging for assets under construction should be immediately stopped. Alternatively, they can be redirected to cover any shortfall and maintain or lower other fees.

CAPEX for CP3:

A) Cargo Facilities Regarding Capex proposals we note the construction of import warehouse and mechanisation of the existing warehouse are well under way. Regarding the modification of the existing warehouse we would like to review the Business Case to justify the investment, noting the following points: - What will be the total capacity of CIAL’s cargo facilities on completion of these projects when compared to demand? - A phasing strategy could spread costs for modification of the existing warehouse (35.94) across CP3 and beyond, rather than construct capacity to 2031 in CP3. Has this been considered by CIAL? While we do not have the minutes of the AUCC meeting in April 2018 to present plans to the airlines, it is unlikely that a Business Case with robust financial data and qualitative explanations were reviewed in detail.

B) Construction of Parking Bays Phase II and Development of Northern side of T3 Pier The impact of Covid following the AUCC meeting held in April 2018 requires a review of the project investment files and Business case to justify these investments now, in advance of them being included in the CP3 determination. The traffic forecasts, mix of aircraft types and airport planning assumptions should also be validated with the airline community.

It is concerning to read statements that are inaccurate from an airport planning perspective, resulting in the need for a review of these investments - as set-out here:

Construction of Parking Bays Phase 2: • PIF requires reassessment – not the case that contact gates deliver faster turnaround especially for Code C aircraft. Many airlines would disagree with a walk in walk out process.

2 • What is the overall number of stands required across the airport, terminal and by type considering post- Covid traffic forecasts / design day schedule? • What level % of pier service and pax experience has been agreed with the airline community to determine the number of contact stands required within the overall stands count? This determines if contact gates are needed. • Capex costs - base cost in addition to inflation should be reviewed and benchmarked versus the market for cost efficiency purposes. The construction market has potential for greater competition during current times.

Development of Northern side of T3 Pier: • Reference is made to ADRM 7 and ADRM 10th edition as the latest version, which is not correct. The latest version is 11th Edition and provides updated guidance that may make a material difference (IATA can advise as required on latest best practices while noting all airports are different). • There is a need to be convinced that width of the pier needs to be extended from 35m to 55m to accommodate peak hour demand – 35m width for operational purposes should be more than sufficient. Where is the bottleneck and why? Is this just the entrance or the pier itself? What planning and operational assumptions have been made regarding sub-systems, seating arrangements and integration with retail areas?

Further analysis is required before these projects are approved to test the need for investment now, consider Covid impacts and user impacts / costs.

C) CISF quarters We agree with the Authority’s proposals until the case is proven for investment.

D) IT Requirements There are a broad range of projects with basic scope details - from efficiency to security to regulatory. However little information is available regarding the return on investment or PIF. We request these details are shared for review and re-assessment before being considered for inclusion.

E) Fire and Safety Measures Fire Tenders: We agree with the Authority’s assessment of Fire Tenders to adjust the price and account for efficiency.

F) Construction of parking bays 37 to 40, extension of taxiway J up to H, construction of taxiway K and taxiway west of A to isolation parking bay: We agree with the Authority to consider this project in CP4 subject to a re-assessment of the PIF and business case.

G) PCA and GPU: We request an overview of the PIF and Business Case. While in principle these are positive green investment, an understanding of the investment case is welcome taking users needs into account. We request the total costs including power supply are accounted for in the PIF.

H) Other major capital expenditures We agree with the Authority’s assessment following it’s normative costs benchmarking exercise.

In summary, we request additional PIF details to assess the return on investment for users funding investments per our comments. We do not have the assurance at this point that all projects are justified, requiring further dialogue and consultation with the airline community.

3 We also reiterate that projects shared in a single session in April 2018 have not been reviewed and assessed in sufficient detail to warrant their approval. We would suggest an additional AUCC meeting is called to review subsequent to detailed PIF’s being shared. A clear link to specific project outcomes, benefits and service quality would be ideal.

We thank the Authority for its consideration in these matters.

2. Traffic

This seems to be in alignment with our overall forecast of recovery by 2024 for international traffic. Domestic should recover faster by 2023. (Table 72). IATA broadly agrees with AERA’s validation of CIAL’s traffic forecast projections referenced in 5.2.18 ,Table 72, within the context that due to pandemic uncertainties, variants and related government policies there remains considerable uncertainty regarding what will actually materialise, much more so now than in pre-Covid times.

As such and to ensure we avoid unnecessary and unwarranted investments related to these forecasts: • Scenarios are developed including a Low, Base and High growth scenario linked to government policy (and major airlines) scenarios whilst also taking account of valid industry forecasts. • Identify clear “demand triggers” for any future investments in capacity, linked directly to existing capacity of facilities and traffic forecasts to determine when additional facilities are required. This is a well-established airport planning tool that involves overlaying infrastructure triggers on traffic scenario’s to balance capacity and demand, while taking account of construction lead times, levels of service and minimising impacts to existing operations. • As said, detailed consultation with the airline community via AUCC. All capacity enhancing project proposals for CP3 should be excluded as will not be required in CP3, or feasibly for the following period given the large- scale investments in capacity in CP2.

3. Operating Costs

Deep and sustainable cost reductions are the necessary starting point for the industry’s economic recovery. Airlines have managed to dramatically reduce their operating costs by 45%, including a 39% reduction in employment costs and a 54% reduction in maintenance cost.

Globally, most airport costs are associated with operating expenses. We have seen positive examples of cost reductions among airports so the argument that most airport costs are fixed is not correct. Some have been able to reduce their operating expenses by 30%. The majority of these savings are a result of third-party expenses, linked to traffic volume being reduced, as well as receipt of government aid in the form of wage subsidies. Operating expenses reductions in 2020 for some large European Airports in the range of -28% - 48%: AMS group -28%; AdP group -43%; AENA -20%; DAA group -47%; Fraport group -40%; CPH -43%; VIE -48%; ZRH group - 35%; and Malaysia Airports -36.3%.

6.3.3: We also noted that despite the much lower traffic during the pandemic, CIAL has maintained its cost level at pre-COVID level. With staff costs representing a major element of an airport’s cost base (34% according to ACI), additional sustainable cost reduction measures are required moving forward. This may include elements linked to outsourcing or re-evaluation of function as demonstrated by some airports restructuring programs. Ensuring operating costs are efficiently incurred (and in line with the current levels of traffic).

Airport infrastructure also needs to be re-thought and optimized after this crisis as well as the deferral or cancellation of unwarranted investments to increase capacity, until demand returns. A lack of focus on efficiency

4 over the past several years has led to airports that are not fit for purpose, costly and larger than they need to be. Instead, airports need to double down and focus on maximizing the capacity of their existing infrastructure.

We would query on how much OPEX has been adjusted on account of the downturn? Greater scrutiny of contracted services from suppliers e.g. CUTE operating expenses which is being assumed to escalate 10% annually. Given the challenges brought by the COVID-19 crisis, it is imperative that CIAL re-negotiates the best deal and seek for lower costs from its suppliers (e.g. the contract with Glidepath valid up to FY2026).

IATA would expect CIAL to rationalize its expenses (including staffing level) to correspond to its operation in degraded capacity mode during the pandemic and the subsequent recovery period. There is a need for airport to optimize its operation and reduce costs (without compromising safety) in light of the crisis. A year-to-year projected increase is simply not justifiable under current environment. IATA is keen to learn more about any cost optimization measures by CIAL in response to the pandemic as practiced by other major airport operators in the region and the reduction in OPEX. AERA should then determine a level of efficient OPEX that is aligned with the current level of traffic. A number of airports around the world have been taking measures to minimize costs and CIAL should be no exception.

7.2.2 O&M expense per pax comparison with comparable airports such as Goa Airport which has a similar traffic level (9.75m vs 8.32m) shows a significant difference (INR169 vs INR46). It was noted in the consultation paper that when a similar comparison is done based on terminal area, the employee expense per sqm of terminal area is higher for CIAL only when compared with Goa Airport but is lower when compared to other airports in Table 18. 7.2.6.2 “On overall basis, CIAL airport is seen to have a lowest O&M expenses per sqm of terminal area when compared with remaining airports”

However, this could also reflect overprovision which resulted in large terminal area, low passenger numbers and high O&M costs per pax or ATM overall.

7.4.2. “However, due to the variability in factors between different airports, regulation of expenses based on external benchmarking does not seem appropriate.”

This could be true to a degree but still is useful to trigger reviews of areas of concern and opportunity for improvement. IATA recommends that a baseline based on past expenses levels is set and an expectation of a reduction in expenses per pax (and per ATM) is built-in going forward to better reflect the efficiency opportunities resulting from increasing traffic and economies of scale. The baseline should also take into consideration the corresponding reductions in expenses expected as a result of the pandemic and lower traffic.

4. Introduction of Aviation Security Fee (ASF) and removal of PSF(SC)

IATA would like to have more clarity on the funding aspect for costs relating to security function and the obligation of CIAL given that a separate charge is now collected through the Aviation Security Fee (ASF) ) from passengers following the removal of the PSF(SC), administered by the central authority. We also noted the significant increase in the ASF rates effective July 2019 (international passengers from USD3.25 to USD4.84 or 49% and domestic passengers INR130 to INR150 or 15.4% plus GST) and again from 1 September 2020. These two rounds of increases represent a significant increase in the ASF rates of 60% and 23% for international passengers and domestic passengers respectively in a short span of time. Rightfully, all cost items relating to provision of security functions should now be excluded from the calculation of the targeted revenue of CIAL and provisioned for by the authority managing the ASF fund. We also noted that this approach is being applied to Raipur Airport in the 1st Control Period whereby security costs have been excluded in the determination of ARR.

5 6.2.26. Therefore, the Authority proposes to not consider the capital expenditure towards CISF quarters at this stage, till additional inputs as discussed above are available.

IATA supports AERA’s proposal to exclude the capital expenditure towards the CISF quarters at this stage but a firmer and more conclusive position is needed to ensure funding for security function is made available through the ASF going forward following the removal of the PSF (SC).

5. Fair Rate of Return

The continuation of the true-up approach by AERA for all tariff determinations in effect means that there is No significant risk for the airport operator. The WACC needs to reflect the same. We recommend a lowering of the WACC in recognition of the fact that truing up demand by AERA eliminates the risks faced by the airport operator to a significant extent.

6. Treatment of Refundable Security Deposit (RSD)

As with the second control period, IATA notes that CIAL has considered RSD of INR 150 crores received from the Fuel farm operator as equivalent to debt for calculation of Fair Rate of Return. IATA’s position is that RSD is essentially finance at zero cost (if utilized for project) to CIAL i.e. what is received without any cost by CIAL cannot be used by CIAL to earn a return for its own benefit. Any such benefits of the ‘temporary’ utilization of the fund should be to the benefit of the aviation community rather than to prop up CIAL’s profit. However, we understand that this issue came out from a recommendation by TDSAT and some stakeholders had taken the matter to courts for adjudication, and that the Tariff Order would be subject to the final outcome of the adjudication.

7. Return on Land IATA supports the Authority’s proposal in this regard to provide return on the cost of land earmarked for future use, when the same is put to use.

8. Depreciation

The building block depreciation is derived from the asset base and thus directly linked to investments. As such, rationalizing new investments would minimize increases in depreciation. Since the rate of depreciation of an asset is related to its useful life, it is recommended to pursue the lowering of the level of depreciation by extending the life of assets (where possible). Depreciation timelines could be reviewed again to ensure alignment to global recommendations as outlined in ICAO’s DOC 9562, 9161, and the IATA Airport Development Reference Manual (ADRM).

In certain cases, depreciation also covers complete write-offs of existing infrastructure, e.g., with the aim to replace. Such write-offs require a full review with regards to the immediate need in order to identify the possibilities of avoiding them and to postpone such write offs into the future.

IATA supports the approach taken by AERA to revise the useful life of assets in Table 111 but would encourage CIAL to seek opportunities to extend the life of these assets where possible in the most cost efficient manner by closely monitoring their performance and maintaining them properly.

9. Recovery of losses / shortfall

Airport operators need to also adjust to the new market realities and be mindful that increased charges will hinder the industry recovery and prevent us from realizing the full potential of aviation and its overall benefits to the wider economy. Shareholders of airport have the obligations (as you would expect for any other commercial entities) to provide the necessary capital injection to sustain the business. In a competitive environment,

6 shareholders of an efficient company can benefit from dividends, but are also expected to invest into the company during off years. The concept of revenue loss recovery does not exist, and any potential financing risk should be a subject addressed by the airport shareholder, not the consumer.

In addition, given that airport operators have better access to more economical financing options, we would expect that this is considered more earnestly, to minimize the short- and medium-term cost impact to users.

According to our analysis of key airport groups, the majority managed to access private sector financing and especially regulated airports have no difficulties accessing capital markets. There are various examples of airports funding their cash shortfalls through debt provided by bank loans or bonds in the market. Key examples: • Fraport has issued a bond worth 1.15bn € at an annual yield below 2%. • Schiphol issued a 750m € green bond with a 2% yield. • Aeroporti di Roma issued a 500m € sustainability linked bond with a yield of 1.8%

This demonstrates that airports can finance short-term losses without increasing costs to the customer. For those airports analysed, the average cost of debt actually decreased, which confirms that airports are perceived as safe investments for the market.

This is further expressed in the yield evolution of airport bonds (e.g. the implied interest rate an investor would earn from a bond given the purchase value and the established “coupon”) as shown in the graph for the example of the Aeroports de Paris (AdP) bond.

7 Airlines A+ Airports While some minor adjustments were A A A A- made in airport credit ratings, airports BBB+ are clearly still perceived as safe BBB BBB BBB- BBB- investments BB+ BB BB BB-

B B B- B- SAS ABSAS daaPLC Avinor AS easyJet PLC Air Baltic Corp AS Corp Air Baltic British Airways PLC British FlughafenZurich AG FlughafenZurich Ryanair Holdings PLC Holdings Ryanair Turk Hava Yollari A.O. HavaTurk Yollari Aeroportsde Paris S.A. Aeroportsde Paris Aeroporti di Roma diSpA Aeroporti Deutsche Lufthansa AG Royal Schiphol Group B.V. Schiphol Group Royal Gatwick Funding Ltd. Class A Gatwick Funding Ltd. Class Heathrow Funding Ltd. Class Ltd. B Heathrow Funding Heathrow Funding Ltd. Class Ltd. A Heathrow Funding Transportes Aereos Portugueses, SGPS, Portugueses, S.A. Aereos Transportes

International Consolidated Airlines Group, S.A. Airlines International Consolidated Source: S&P

We would urge AERA to consider the merit of postponing the recovery of losses or shortfall to the 4th Control Period – similar to the decision taken for the 1st Control Period (4/2020-3/2025) of Tiruchirappalli International Airport (TRZ) in December 2020. Alternatively, spreading it over multiple control periods will also help to minimize the impact on users and aid the recovery of traffic. It is essential that charges are maintained at current level in the next 2-3 years if there is no scope for reductions in the 3rd Control Period.

10. UDF Introduction by CIAL

We understand that CIAL has requested that a UDF (with annual increases) be introduced for domestic and international passengers respectively in a process parallel to the 3rd Control Period charges setting process. In addition, CIAL is requesting that the PSF (FC) is eliminated by merging it with the UDF. This approach to introduce the UDF and remove the PSF (FC) is acceptable but IATA would like to request that the gap between international and domestic rates be minimized where possible from the very start; or to be done in phases over the control period while still delivering the targeted revenue for CIAL.

11. Discriminatory Tariffs Structure for CP3

IATA notes that the Telecom Disputes Settlement and Appellate Tribunal (TDSAT)’s Order No 18/2018-19 issued on 16th December 2020 found that “The practice approved by AERA permitting different treatment to Airlines in respect of landing and taking-off charges and parking charges is discriminatory and impermissible.” Given that there is now a clear direction to address this discriminatory practice, IATA respectfully request AERA to equalize these aeronautical charges for international and domestic flights.

12. Service Level Framework

IATA has highlighted in our past submissions on the need for improvements to the existing framework that is predominantly driven by ASQ standards, which is qualitative and perception based; while completely overlooking quantitative, objective measurement of CIAL’s actual performance and the customer (airline users) – supplier relationship.

8 IATA provides industry guidance regarding Airport Service Level Agreements 2 broadly used across best practice airports, and we strongly encourage adoption of our policy in users and consumers interests. This will also assist AERA in conducting a more objective assessment of the service level performance of the airport operator.

In summary • We welcome AERA’s thorough review of CIAL’s proposals and propose a more realistic and justified ARR. These proposals will lead to a charges reduction that would certainly help to stimulate the recovery. • We believe that there are further elements for AERA to consider that would help it improve its assumptions: o A capital investment freeze is essential now for all but essential projects given the crippling impacts of COVID-19 on airline finances and traffic demand. o A further review of opex assumptions to better take into account the efficiencies needed to face the effects of COVID, as well as disallowing certain expenses. o A reconsideration (i.e. lowering) of the WACC in recognition that truing up demand substantially reduces the risks faced by the operator • Deferring any increases in charges to the 4th control period, similar to the decision taken for Tiruchirappalli International Airport (TRZ) in December 2020 or spreading the recovery of shortfall over multiple control periods. • Equalizing the landing and parking charges for international and domestic flights as directed by TDSAT.

We thank AERA for its consideration of these points in order to provide a balanced determination taking into account the needs of users and ultimately consumers.

IATA is also available for any further clarifications that AERA may require during the review process of the stakeholder submissions, to the AERA Consultation paper for COK airport for the 3rd Control Period.

Yours Sincerely,

Allan Young Cesar Raffo Head Airport Infrastructure Head Airport Charges APCS-Airport, Infrastructure and Fuel APCS-Airport, Infrastructure and Fuel

Tel: +41227702558 Tel: +41227702778 [email protected] [email protected]

International Air Transport Association International Air Transport Association IATA Center, 33 Route de l'Aéroport, PO Box 416, IATA Center, 33 Route de l'Aéroport, PO Box 416, 1215, Geneva, Switzerland 1215, Geneva, Switzerland iata.org iata.org

2 https://www.iata.org/contentassets/4eae6e82b7b948b58370eb6413bd8d88/airport-service-level-agreement.pdf

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To: Dated: - 14th July- 2021 Secretary. Airports Economic Regulat ~ Authority ~y ~~~ AERA Building, Administrative Complex, Safdarjung Airport, New Delhi - 11000

Dear Sir. Greetings from-DACAAI

Sub. Written submissions in respect of Consultation Paper no. 8/2021-22 ­ CIALTariffPro.posals for Control 3rd Period 1A.2021-31.3.2.026.

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Office: M1 Frist Floor, DC5C Cargo Terminal, Air Cargo Complex, IGI, Airport-Gate No.-6, New Delhi-37 Office: 5-9-5-16, 2nd Floor, Plot No.-24, 5ector-20,Dwarka, Manish Highway Plaza, Above HDFC Bank, New Delhi-75 Registered office: 5C/105 - Mittallndustrial Estate, Andheri Kurla Road Andheri (East) Mumbai - 400056 E-mail: [email protected] Website : www.dacaai.com Domestic Ai r Cargo Agents Association Registration No. : 808 Dated 17-04·09 'IO(j'E'I'JfE!Ji.. ?I'£ ?I'I!Il..

1. Domestic Air Cargo has stiff competition from Road transport, Domestic Air Cargo faces much competition from Road/Rail. Since the terminal charges are very high and when air freight, first- and last- mile cost- is added to it-, t-he domestic consignments- including the agri-horti and perishable products- become unviable for air carriage. Besides; the- average total terminal- charges per- kg- on domestic cargo come to Rs. 10 per kg. In this price. the shippers can get their cargo by road at their door or warehouse. The air loses its premium product position.

These results in domestic air cargo moving away from air to Road/Rail since road infrastructure have become much better with express highways- which are preferred for next day (24 hours) delivery timelines. But adverse effect is coming upon the aviation sector especially when a huge flight capacity has been created.

Since the last decade number of aircraft has risen from 250 to 640 and more are on order. As you are aware. number of freighters in domestic sector now has increased

from 7 five years ago to 26~ Indigo, Spicejet, Blue Dart and others are ordering more aircraft to- be operated as freighters. Even- pax aircraft were- used as freighters during pandemic.

Z. Different Cargo Terminals Operators. Different Charges We have observed that there is a vast-difference in the terminal charges at different cargo terminals operated by JV.-Private and AAICLAS. _As a principle, for the same

service of domestic carg-o handling by air, one can expect a 5~ 10% variation. but as an example here between Ahmedabad" and ]V operated Bengaluru there is a difference of 67 .88% for outbound cargo charges (Ahmedabad o/b is Rs.7.37 per kg & BLR it is 4.39 per kg). DCSC. Delhi Airport increased charges steeply upwards (February. 2021}. There was no stakeholder consultation with DACAAI, the actual user. One CTO is charging double terminal charges on mobile phone consignments which are instantly airlifted and delivered and are rarely stored at terminals,

Office : M1 Frist Floor, DC5C Cargo Terminal. Air Cargo Complex, IGI, Airport-Gate No.-6, New Delhi -37 Office: 5-9-5-16. 2nd Floor, Plot No. ~24 , 5ector-20,Dwarka, Manish Highway Plaza, Above HDFC Bank, New Delhi-75 Registered office : 5C/105 - Mittallndustrial Estate. Andheri Kurla Road Andheri (East) Mumbai - 400056 E-mail : [email protected] Website : www.dacaai.com Domestic Air Cargo Agents Association Registration No. : 808 Dated 17·04·09 'TOrj'1."T.Iff!J( 1Y£ 11'i9'{

Sir, presently CONCOR, CIAL, BlAL, HIAL Proposals are with AERA which have proposed a steep increases for- cont-rol period 2021-26. All these charges are paid ultimately by Shippers/DACMI Agents only to render uir -carriage unviable. The arbitrary increases made by CTOs resemble their monopolistic -positionwhere each CTOlevies different charges for same service?

DACMI requests AERA to keep our submissions in mind while deliberating on the tariff increases which the trade cannot.afford. It will otherwise impact the airlines and ·aviation furthermore.

3. Clubbing of Multiple heads of charges to a Single head vl'erminal Handling Charge" The Terminal charges are under multiple heads at Cargo Terminals as under: Outbound Terminal.Storageec Processing X-Ray Charge X-Ray Screening Charge Unitisation Charge (Outbound) Inbound Deunitisation Terminal Storage and Processing.(inbou nd)

In domestic air cargo there is no unitisation. deunitisation function, but are being charged to us. The X ray charges, and X- ray Screening Charges, TSP etc cannot be unbundled to inflate charges. It is pertinent to realise that there is a single agency handling Domestic cargo. Domestic air cargo does not remain in storage either and moves fast. According to our study 96-97%c.argo· is: delivered.toairlines at origin or

Office : M1 Frist Floor, DCSC Cargo Terminal, Air Cargo Complex, IGI, Airport-Gate No.-6, New Delhl-37 Office: S-9-5-16, 2nd Floor, Plot No.-24, Sector-20,Dwarka, Manish Highway Plaza, Above HDFC Bank, New Delhi-75 Registered office: 5C/105 - Mittal Industrial Estate, Andheri Kurla Road Andheri (East) Mumbai - 400056 E-mail: [email protected] Website : www.dacaaLcom Domestic Air Cargo Agents Association Registration No. : 808 Dated 17-04·09 'rofj'L"I'Jtl:$.. '11'£ 11'J?o(

to consignee at destination within 6- hours. Therefore. DACAAI would urge upon you Sir, that this aspect- needs t-horough examination by AERA for a proper t-ariff evaluation: DACAAI suggests "one reasonable single terminal charge" of sayRs 3-4/ ·per .kg to be uniformly applied at all cargo terminals at airports with minimum variation. This will result inbetter planning of loads in the market, promotion of domestic air cargo and aviation getting increased volumes. 4. Presentation to HMCA on challenges to. increasing domestic air cargo. logistics­ (Annex. 1). We are attaching a presentation which was made to the Hon'ble Minister of Civil Aviation, Shri Hardeep S'Puri. Understanding the challenges being faced by domestic air cargo logistics and difficult situation in aviation sector, Hon'ble Minister has ordered a Sub-Committee under MoCA airlines reps. JV Cargo Terminal Operator reps, AAICLAS and DACAAI to go into various aspects with a view to ensure that pre-mium se-rvice- advantage- of dome-stic air cargo is maintaine-d which shall re-sult in optimally using airline flight capacity which nowgoes unutilized up to 35-40%.

5. Promoting movement of fruit vegetables and perishables by air to benefit farmers finding all India market ­ The perishables. agri-horti produce moves very fast from the airport terminals but surprisingly the Cargo Terminal Operators are charging double Terminal Charges on perishables..Mostperishables are delivered within one hour of arrival. of flight as well as lifted from origin station by airlines.

Impact of High Terminal charges along with freight & other costs on perishables with CTOs charging double terminal charges makes it totally unviable for farmers. With a

Office: M1 Frist Floor, DC5C Cargo Terminal , Air Cargo Complex, IGI, Airport-Gate No.-6, New Delhl-37 Office: 5-9-5-16, 2nd Floor, Plot No.-24, 5ector-20,Dwarka, Manish Highway Plaza, Above HDFC Bank, New Delhi-75 Registered office: 5C/105 • Mittallndustrial Estate, Andherl Kurla Road Andheri (East) Mumbai - 400056 E-mail: [email protected] Website : www.dacaai.com Domestic AIr Cargo Agents Association Registration No. : 808 Dated 17-04·09 'JOIj'l'!DfL'Ji. 11'£ 1VJ9{

view to promote movement: of fruit: and vegetables and other agri-horH produce aqua. fish culture, shrimps-etcthe CTOs--must charge only 50% of normal-terminal charges orr the agri-horti produce and- perishables. By offering- this-50% concession in terminal charges the fruit and vegetable and- perishables volumes can be quadrupled benefitting all stakeholders like airlines. airports and service providers.

Presentation showing the impact of various charges including first mile and last mile charges on- Fruits. Vegetables, Coriander and other products.is-attached-for your kind.

perusal. {Annex 2~ which gives a snapshot view as to how the terminal charges; airfreight. first and last mile cost affects products like coriander and fruit & vegetables. 6.. Domestic Air Cargo attracts IS%. GST increasing logistics cost Besides, there is 18% of GST applicable on domestic air cargo, Agri-horti-fruit & vegetables also attract 18% CST whereas by Road/Rail it is exempt. Hence there is an added cost of availing air freight for such cargo: We have-taken up-with GST Council­ and related forums to exempt agri-horti produce from CST levy. We have also requested the CST Council to remove the anomaly and reduce CST on general air cargo equal to Road.i.e. 5% Rep and. 12% with lTC.

7,.In view of the foregoing.factual discussion and.with a.view to achieve growth in air cargo. DACAAI offers the following suggestions for your kind consideration.

Office: M1 Frist Floor, DC5C Cargo Terminal, Air Cargo Complex, IGI, Airport-Gate No.-6, New Delhi-37 Office: 5-9-5-16, 2nd Floor, Plot No.-24, 5ector-20,Dwarka, Manish Highway Plaza, Above HDFC Bank, New Delhi-75 Registered office: 5C/105 - Mittallndustrial Estate, Andheri Kurla Road Andheri (East) Mumbai - 400056 E-mail: [email protected] Website: www.dacaai.com Domestic A ir Cargo Agents Association Registration No . : 808 Dated 17·04·09 'J01j'£T.Jf~ 11'£ 1V/?(

DACAAI Suggestions. 1. Freeze terminal charge increase for- next- 2021-22,_2022:-23 & 2023-24: AERA may consider that in view of recovery in aviation sector which is likely only in 2:023-24. there should-be no- increase in terminal charges atthe-Cargo Terminals during this period when the industry can consolidate and bring back the lost tonnage.

Z. Clubbing of multiple heads of terminal charges into One Single P-er Kg "Terminal Handling Charge" : There should-be a single component of terminal charge instead of multiple-heads which will facilitate-standardized seamless and easy system calculation.

3. Unifonnity of Charges for same service. Sir, You will observe that every cargo terminal is charging a different amount for the same service. DACAAI feels-that comparable Cargo Terminal Operators must have a similar single per kg terminal charge which will allow more-domestic air cargo-volumes. better planning of loads and promoting of domestic air cargo. The reason for DACAAI suggestion is as a principle that the service and process of domestic air cargo handling is similar at every cargo terminal. therefore, there has to be a similarity, reasonability and affordability in charges to support increasing volumes of cargo.

Office : M1 Frist Floor, DC5C Cargo Terminal, Air Cargo Complex, IGI, Airport-Gate No.-6, New Delhl -37 Office: 5-9-5-16, 2nd Floor, Plot No.-24, 5ector-20,Dwarka, Manish Highway Plaza, Above HDFC Bank, New Delhi-75 Registered office : 5C/105 - Mittallndustrial Estate, Andheri Kurla Road Andheri (East) Mumbai - 400056 E-mail: [email protected] Website : www.dacaai.com Domestic Air Cargo AlJents Association Registration No. : 808 Dated 17-04-09 'TOfj'C.'T!Jf!:JI.. 11'£ 'II'/?{

4. CTOs to offer 50% flat discount in Terminal Charge to boost movement of

agri-horti produce I. With a view to promote movement of fruit and vegetables and other agri-horti produce aqua. fish culture. shrimps etc the C'I'Os must

charge 50% of normal terminal charges OlL the. agri-horti produce and perishables. By offering this- 50% concession in terminal charges the fruit and vegetable and perishables volumes can be quadrupled benefitting all stakeholders like airlines. airports and service providers.

Thanking Y01,l. for the opportunity given to DA~AAI to present its views.

Warm Regards. rf3J/ President

Office: M1 Frist Floor, DC5C Cargo Terminal , Air Cargo Complex, IGI, Airport-Gate No.-6, New Delhl-37 Office: 5-9-5 -16, 2nd Floor, Plot No.-24, 5ector-20,Dwarka, Manish Highway Plaza, Above HDFC Bank, New Delhi-75 Registered office: 5C/105 - Mittallndustrial Estate, Andheri Kurla Road Andheri (East) Mumbal - 400056 E-mail: [email protected] Website: www.dacaai.com ~ ex-I '7lJ<;/E'J'lff.rR.:HIJ:. 'r"1)\' - st ic Air Cargo Logistics in Indi ,.--. 0 '--.) Highlights

I.Total tonnage Growt h in t he past IO Years 2. Ai rli ne wise aircraft data for as o n June 2 1 3. Metro sector wise boo king tonnage . Perishable Rates Co riander Ex - BLR 5. Recommendation 6. Delivery Time of Cargo: O ut bo und & Inbo und '1 0<}£'TI{i£~ :IJJt '111~\' o m estic rowt hart Total Domestic Cargo In M T · 1600000 '1------­

1400000 I . _ . _ 1325170

~ 1359990 1200000 I ~

1123180 1000000 I ...~

985020 800000 I I -+-Total

600000 I ·-11------­ 3~1 ~~-.~~~~~~------35nm __ 400000 _I ----~.---:::--==:;: ==-e 375057 .-1'6'945 I 35491 l 200000 I I o , I I 2009 2010 2011 2012 2013 2014 2015 2016 20/7 2018 2019 2020

Source: DGCA 8, MaCA '1()('j'J:.T.JPEfR..'ll1l:. ' 1I'1~ '1 N Aircraft in India w.eJ June 20

r-­ --

300

250

200

150

100 --

50 .. ' I o I I I r T n 34 145 IB 56 257 82 5 48

AirAsia Air-I ndia AlliancB Air Go Air IndiGo SpicBJBt Star Air Vistara India

Tota l Source: Moca, IFA Belly & Dedicated Cargo Percentage & YO

120 17.9 20.3 21.2 23.07 20.0 20.1 20.18 18 15.9 16.8 100 ! j"""'AA===i i Wi .:r= .... i , .... -----. I" _=t .-...... --.-­

80 ---t i l '-----j f------i I--­

60 I------. I i ~ I--­

~9 48 --o,JAI2 . - 40 ').lI•• I- 1 .7. - t.8 -­ ft9 . 8~ 8'- t--

20 .------, t---i r------i

o 1.0\0-\ \ 1.0\ \-\1.. 1.0\1··\3 1.0\3_\4 1()\4.\S 1.0\S-\6 10\6-\7 1()\1-\S 1.0\8-\9 1.0\9 ..1.0

BELLY CARG O DEDICATED CARGO

So urce MoCA,SAAI c iander Rates Ex-Bangal e (Sam )

1st Last Total

Coriander Terminal Total -~ ~ ~ ,,~ Airline Terminal ~ Chargabl Mile Mile Cost Origin Oeste Product Airlines Out Taxable _: Tariff Inbound ~ ~ e Rate by by Per Rate Bound Road Road KG

BLR JAI Coriander 68 51 4.22 2.98 58.2 10.48 68.68 4 2 74.68

BLR CCU Coriander 60 60 4.13 3.25 67.38 12.13 79.51 4 2 85.51

BLR DEL Coriander 54 54 4.13 3.83 61.96 11.15 73.11 4 2 79.11

BLR IXB Coriander 63 63 4.22 2.42 69.64 12.54 82.18 4 2 88.18 Notes: I. Airlines Give discounted rates for movement of coriander for Ex Bangalore 2. Bangalore airports gives discounted rates for terminal charge specifically for coriander 3. There is no GST applicable on Farmer produce transportation Road & Rail Perishabl ...... -es e.-._ t orra• er - Bangalore ( '-ILL. Ie)

... e­ ~ .. Terminal Total ~_ ~ . ..l. ... 0 Airline Out Terminal Taxable /­ Chargabl Last Total Origin Oeste Product Tariff Bound Inbound e Rate 1st Mile Mile Cost

BLR JAI Perishables 68 6.5 2.98 77.48 10.89 88.37 4 2 94.4 BLR CCLJ Perishables 60 6.67 3.25 69.92 12.59 82.51 4 2 88.5

BLR DEL Perishables 54 6.67 3.83 64.5 11.61 76.11 4 2 82.1 , BLR IXB Perishables 63 6.5 2.42 71.92 12.95 84.87 4 2 90.9 Notes: I. Standard Airline rates apply. Some Airlines charge premium rates for booking of Perishables depending upon the seasons 2. Terminals charge doubleTSP and handling charges for booking of Perishable 3. There is no GST applicable on Farmer produce transportation by Road & Rail I o livery •1m

Percentage of Cargo Delivered: Outbound & Inbound

Outbound Inbound In 6 hrs - 97% In 6 Hrs - 96% In 12 hrs - 3% In 12 Hrs- 02% In 24 hrs - 00/0 In 24 Hrs -1.5% Beyond 24 hours - 0% Beyond 24 Hrs - 0.5% DACAAI R ommendation

I. Krishi Udaan 50% discount on Air freight and Terminal Charges to be

made applicable for all Farm produces

2. Above clause to be integrated in the Civil Aviation Policy of India

3. No GST to be applicable on Air transportation on Farm produce as in

the case of Road & Rail

4. No Documentation needed with the booking, simple declaration on the

TransporterlAirl ine Airway Bill. The Airline is able to identif

produce as all cargo is X-ray. • • Functi I I I s • 14 ml I esc

I. Inadequate number of X-ray Machine, 2. Lack ofTrucks/Tempo Parking, 3. Approach road too narrow-congestion, 4. No staging area, 5. E-Carting and RFC: Creates Hurdle in operation 6. Lack of Minimum amenities for working staff 7. Lack of handling Manpower 8. Inadequate Inbound receipt area 9. Inadequate equipment e.g trolleys Functional Iss s in Bangalore C rminal

I. Out of the private terminal Bangalore both terminal are best' design and managed 2. Lack of space in menzies terminal and Introduce separated parking area by SIAL to decongest the area which has increase the cut of time by 30-45 minutes. 3. As per our observation one of the terminal in Bangalore is operating above capacity whereas is other terminal is operating below capacity, if some activity can be rationalise between the two terminal wor k will be better Functio I Is • Kolkata Cargo n

I. During rains flooding in terrninal and X- Ray Machine not worked 2. Space constrain in Inbound area hence delay in delivery

Notes :AAI Kolkata there is no PDA system • F ional Iss S In Ny raoa argo erminal

I. Inadequate Outbound receipt area 2. Handover of Cargo tn open area and there is no rain shed 3. Manpower shortage 4. Inadequate trollies for handling of cargo 5. Delivery of Cargo in open area 6. Inadequate delivery Truck Doc • Functional Issu I m ab rgo r •Ina

I. Inadequate number of X-ray Machine, 2. Warehouse truck doc is not in proper level 3. Warehouse X-ray machine is one feet down so we can't carry cargo in trollies 4. Shortage of TSP recite counter 5. Congestion in arrival cargo 6. Shortage of no ofTruck Doc considering peak hour movement 7. No specific cargo complex building was constructed, thus the old building ofAAI is converted into cargo terminal. 8. Shortage of Manpower Fu nal Issu e C ennai Cargo inal

I. Space constrain -limited space for offloaded and unloading of cargo 2. Inadequate X-ray Machine Domestic Cargo Terminal Handling Charges at Common User Terminals

OUTBOUND CHARGE /Per S.NG AIRPORT Kg iNBOUND CHARGE/ Per Kg! 1 AHMEDABAD 7.37 3.32 2 BHOPAL 5.15 2.71 3 SURAT 5.03 2.71

4 DELHI 6.2] 3.49 I 5 BANGAl-ORE 4.39 2.46 6 MUMBAI 4.78 2.28 7 HYDERABAD 3.56 2.2 8 RAlPUR 2.92 1.92 9 CHENNAI 3.55 2.8 10 COCHJN 3.75 1.75 11 IJ'IDORE 3.5 2.5 12 AURANGABAD 2.66 1.87 13 PORTBLAJR 1.96 0.96 14 BHUBANESHWAR 4.22 1.9 15 BAGDOGRA 2.96 1.96 16 VARANASI 2.72 1.97 17 VTSHAKAPATANAM 3.49 1.87 18 JAMMU 1.96 0.96 19 RANCHI 2.96 0.96 20 COIMBATORE 2.87 1.87 21 GOA 3.9 2.9 22 JAlPUR 4.3 1.98 23 LUCKNOW 4. ] 1.97 24 KOLKATA 4.69 2.54 25 NAGPUR 0.75 - 26 TRIVANDRUM 3.]9 2.]9 Z o «« ZI­ «0 OZ «- ~I W « CIS :J U Z _ I ~ « z 0« V)~

~u W ~ Perishables Rates except Coriander Ex-Bangalore Se mole)

Last Mile Total GST@18% Airline Terminal Termina l Total Chargable 1st Mile by Cost Origin Oeste Product Tariff Out Bound Inbound Taxable Rate byRoad Road Per KG

BLR JAI Perishables 68 6.5 2.98 77.48 10.89 88.37 4 2 94.4

BLR CCU Perishables 60 6.67 3.25 69.92 12.59 82.51 4 2 88.5

BLR DEL Perishables 54 6.67 3.83 64.5 11.61 76.11 4 2 82.1

BLR IXB Perisha bles 63 6.5 2.42 71.92 12.95 84.87 4 2 90.9 Notes : 1. Sta ndard Airline rates a pply. Some Airlines charge premium rates for booking of Perish ables depend ing upo n the seasons 2. Termina ls charge double TSP a nd ha ndling c harges for booking of Perisha ble 3. Th ere is no GST a pplicable on Farmer prod uc e tra nsporta tion by Road & Rail Coria nder Ra tes Ex-Banga lore (Sa mple )

1st last Coriande Terminal Total Airlin Terminal Total GST@18 Chargabl Mile Mile Origin Oeste Product r Airlines Out Cost e Tariff Inbound Taxable % e Rate by by Rate Bound Per KG Road Road

BLR JAI Coriander 68 51 4.22 2.98 58.2 10.48 68.68 4 2 74.68

BLR CCU Coriander 60 60 4.13 3.25 67.38 12.13 79.51 4 2 85.51

BLR DEL Coriander 54 54 4.13 3.83 61.96 11.15 73.11 4 2 79.11

. BLR IXB Coriander 63 63 4.22 2.42 69.64 12.54 82.18 4 2 88.18 Notes : 1. Airlines Give d iscounted ra tes for m ovement of coria nder for Ex Ba nga lore 2. Ba ng a lore airports gives d isc ounted rates for termina l c harge specifically for coria nder 3. There is no GST a pp licable on Farmer prod uce transporta tio n by Road & Rail Conditions For Subsidies Under Kris hi Udaa

Here we are mentioning some ma ndatory d oc uments which are necessary d uring applic ation for this scheme 1. Aad har Card 2. Voter id Card 3. Ra tion Card 4. Residence Certificate 5. Passport Size Photo 6. Mo bile Number 7. Farming Land Documents mesric Air Cargo: Outbound & In elivery Time

Percentage of Cargo Delivered : Outbound & Inbound

Outbound Inbound In 6 hrs - 97% In 6 Hrs - 960/0 In 12 hrs - 30/0 In 12 Hrs- 02% In 24 hrs - 0% · n 24 Hrs - 1.5% Beyond 24 hours - 0% Beyond 24 Hrs - 0.5% ACAAI Recommenda tion

1. Krishi Udaan 50% discount on Air freig ht a nd Terminal Charges to be made applicable for all Farm produces 2. Above c lause to be integrated in the Civil Aviation Policy of India 3. No GST to be applicable o n Air tra nsportatio n on Farm prod uc e as in the case of Road & Rail 4. No Documentation needed with the booking , sim ple dec laratio n on the Tra nsporter/ Airline Airway Bill. The Airl ine is able to identify the prod r c argo is X-ray. V) !l-... (]) E !l-... 0 LL !l-... :) 0 0 -+­ V) 0) C e ­ ~ (]) eo >- V') -+­ ~ , (]) --I

APAO/AERA / 2021-22 Date: 14th July 2021

Director (P&S, Tariff) Airports Economic Regulatory Authority of India (AERA), AERA Administrative Complex, Safdarjung Airport, New Delhi – 110 002

Subject: APAO response to Consultation Paper No. 08/2021-22 dated 15th June 2021 in the matter of determination of aeronautical tariff for Cochin International Airport, Kochi (Cok) for the Third Control Period.

Dear Sir / Madam,

This is in reference to the Consultation Paper No. 08/2021-22 dated 15th June 2021 issued by AERA in the matter of determination of aeronautical tariff for Cochin International Airport, Kochi (Cok) for the Third Control Period (01.04.2021- 31.03.2026) wherein written comments were sought from stakeholders.

Please find below the submission of APAO for the kind consideration of AERA.

1) Inclusion of profits of Subsidiary company Cochin Duty Free Services Limited as part of the non-aeronautical revenues for true-up of the second control period and the ARR computation of the Third Control Period

A. Proposal of AERA:

Para 4.9.25: “Based on the assessment of the financials of CDRSL, it was observed that the gross profit margin (gross profit/revenue from operations) for CDRSL excluding royalty paid to CIAL during the period FY 18-20 lies in the range 45-48%. As per the tariff order of the Second Control Period, the Authority had noted that the income would be earned by the wholly owned subsidiary of CIAL (i.e., CDRSL) from duty free operations and the Authority sees no reason in a part of the revenue earned by CIAL through its subsidiary to be kept outside the purview of being considered as Non-Aeronautical revenue and hence, the entire profits from that activity should be considered as Non-Aeronautical revenues for computing the Aggregate Revenue Requirement. In line with this, for the purposes of tariff determination and true up, the Non-Aeronautical Revenues for CIAL from duty free operations is proposed to be the sum of royalty received from CDRSL plus the net profits of CDRSL for any given year.”

Para 10.2.9 - “CIAL has considered a 30% revenue share from CDRSL for the 3rd Control Period. The Authority notes that based on the decision taken regarding duty-free revenue

Association of Private Airport Operat ors Page 1 of 8 A

in the 2nd Control Period Tariff Order, the entire profit of CDRSL should go to the CIAL (100% holding company of CDRSL). However, since forecasting profit of the subsidiary is difficult at this stage, the Authority proposes to consider a 30% revenue share during FY 2022 and FY 2023, owing to decline in international traffic due to COVID-19 pandemic. Further, the Authority proposes to consider 45% revenue share during the period FY 2024-2026 and true up the same based on actual revenues and profits.”

B. APAO Submission:

APAO strongly objects AERA’s treatment of profits of subsidiary company as part of the non-aeronautical revenues on account of the following reasons which are explained in detail below:

a. This is an Arm’s length transaction between airport operator and subsidiary.

i. Subsidiary financial accounts are outside of AERA’s jurisdiction. AERA Act, 2008 (and its amendment) and the AERA guidelines does not provide AERA with the mandate to evaluate the financial statements of the non-aeronautical subsidiaries. Therefore, AERA has no jurisdiction to review the financial accounts of CDRSL, an entity providing non-aeronautical services.

b. Need for consistent treatment on Subsidiaries to all private airports c. Change of decision of AERA from second control period to third control period.

2) Airline space rentals considered as aeronautical revenues in second control period and third control period by AERA

A. Proposal of AERA:

Para 4.10.16: “The Authority observes that in the Tariff Order for the 2nd Control Period, Airline space rentals were proposed to be considered as Aeronautical revenues basis which the Authority proposes to consider Airline space rental as Aeronautical revenue for the 2nd Control Period.”

Para 10.2.6: “Airline Space Rentals –The Authority proposes to consider all rentals collected from Airlines as Aeronautical revenues.”

Association of Private Airport Operat ors Page 2 of 8 A

B. APAO’s proposal:

i. APAO has noted that AERA has treated the airline space rentals of CIAL as aeronautical revenues. ii. APAO strongly objects AERA’s inconsistent approach on the treatment of the airline space rentals. iii. AERA Act, 2008 and the AERA guidelines do not consider the airline space rental as a aeronautical revenues. Further, AERA does not regulate the airline space rental at any of the airports. Thus, the proposal of AERA does not conform to its Act and guidelines. iv. ICAO’s Policies on Charges for Airports and Air Navigation mentions that airline space rentals are non-aeronautical in nature while airlines may be providing services aeronautical in nature. Below is the excerpt from the ICAO’s policy: “Revenues from non-aeronautical sources. Any revenues received by an airport in consideration for the various commercial arrangements it makes in relation to the granting of concessions, the rental or leasing of premises and land, and free-zone operations, even though such arrangements may in fact apply to activities which may themselves be considered to be of an aeronautical character (for example, concessions granted to oil companies to supply aviation fuel and lubricants and the rental of terminal building space or premises to air carriers). Also intended to be included are the gross revenues, less any sales tax or other taxes, earned by shops or services operated by the airport itself.” v. APAO emphasizes to AERA the need for consistent treatment of the airline space rentals and requests AERA to consider the airline space rentals as non-aeronautical revenues in the true-up of the second control period and the third control period.

3) CSR expenses excluded by AERA from the aeronautical operational expenditure for true-up of the second control period and the third control period

A. Proposal of AERA:

Para 9.2.18: “The Authority notes that CIAL has excluded CSR expenses for the 3rd Control Period, which is in line with the decision taken by the Authority in this regard in the previous tariff order.”

Association of Private Airport Operat ors Page 3 of 8 A

B. APAO’s proposal:

i. As per TDSAT judgement dated 16 December 2020 for BIAL, CSR expenses are allowed as part of aeronautical operational expenditure. Below is the excerpt from the TDSAT judgement: “The decision of the Authority to not allow CSR expenditure as a cost of the Airport Operator is not proper and is set aside. The Authority shall pass consequential orders so as to prevent loss of or reduction in the determined fair return to the equity holders. Necessary truing-up exercise shall be done accordingly. (Para 81).” ii. APAO requests implementation of above TDSAT order on all tariff determination process.

4) Land lease rentals from coast guards, navy considered as non-aeronautical revenues for the true-up of the second control period and the computation of ARR for the third control period

A. Proposal of AERA:

Para 4.10.12: “Further, there were some other revenues which had been considered as Non-Aeronautical Revenues by the Airport Operator under the head – ‘Land space excluding BPCL fuel hydrant rent’. On obtaining clarifications from this aspect from CIAL, the Authority noted that land lease from Coast Guard and Navy are considered as Non- Aeronautical. The same have been proposed to be reclassified as Aeronautical revenues.”

B. APAO’s proposal:

i. APAO has noted that AERA has considered the land lease rentals from Coast Guard and Navy as non-aeronautical revenues. APAO notes that such treatment is unprecedented, arbitrary and it lacks merit. ii. AERA Act, 2008 and the AERA guidelines do not consider the lease rentals from Coast Guard and Navy as an non-aeronautical revenue. Further, AERA does not regulate the lease rentals from Coast Guard and Navy at Cochin Airport. Thus, the proposal of AERA does not conform to its Act and guidelines. iii. ICAO’s Policies on Charges for Airports and Air Navigation mentions that lease rentals are non-aeronautical in nature while the entity may be providing services essential to airport. Below is the excerpt from the ICAO’s policy: “Revenues from non-aeronautical sources. Any revenues received by an airport in consideration for the various commercial arrangements it makes in relation to the granting of concessions, the rental or leasing of premises and land, and free-zone

Association of Private Airport Operat ors Page 4 of 8 A

operations, even though such arrangements may in fact apply to activities which may themselves be considered to be of an aeronautical character (for example, concessions granted to oil companies to supply aviation fuel and lubricants and the rental of terminal building space or premises to air carriers). Also intended to be included are the gross revenues, less any sales tax or other taxes, earned by shops or services operated by the airport itself.” iv. APAO has noted that it is a general practice of giving the space to the Indian Army, Navy and Air Force based on their needs and the lease rentals received from these entities have been considered as non-aeronautical revenues by AERA for all major airports including AAI airports. v. APAO requests AERA to consider the land lease rentals from Coast Guard and Navy as non-aeronautical revenues in the true-up of the second control period and the ARR computation of the third control period.

5) Interim review of tariffs at the end of FY23

A. Proposal of AERA: NIL

B. APAO’s proposal:

i. COVID-19 pandemic has significantly affected the aviation sector and the trajectory of COVID-19 pandemic is uncertain. During February, 2021, when it was thought that India has seen the last of COVID-19, we were hit by second wave which was worse than the first wave. Second wave has again affected the once improving domestic air traffic and pushed forward the recovery period of international traffic. ii. AERA will appreciate that during these uncertain times it is exceedingly difficult to forecast the traffic and the building blocks for the determination of the ARR of the third control period. Though CIAL has taken the assumptions to the best of its knowledge based on the information available today, these assumptions are most likely to undergo a change. iii. Given these unprecedented situations, it is a humble request to AERA to allow airports CIAL to undertake an interim review of tariffs at the end of FY23. APAO would like to clarify that it does not expect the interim review to be a detailed exercise of tariff determination but expects it to be a simplified version of tariff determination to quickly revise the aeronautical tariffs based on the actuals of FY22 and FY23. iv. AERA will appreciate that the interim review will surely reduce the uncertainty faced by the airport operator and will go a long way in building confidence and resilience in the entire airport operator community.

Association of Private Airport Operat ors Page 5 of 8 A

6) Exclusion of land not in use

A. Proposal of AERA:

Para 8.2.9 - “The Authority noted that the land for New Import Cargo Complex (4.1 acres), Future T3 apron expansion (33.6 acres) and the land for CISF quarters (5.4 acres at Akaparambu) have been considered in the computation of land cost for Aeronautical purposes. However, the Authority notes that according to Clause 3.5.3 of Order No. 42/2018-19 dated 05 March 2019 regarding FRoR to be provided on cost of land, the Authority only considers capitalised assets for providing a return and on the same lines would consider only value of land put to use by the Airport operator. The remaining land would be considered as and when the land is put to use. The Authority proposes to exclude such land earmarked for future use from the computation of return on land and proposes to true up the same based on actual usage.”

B. APAO’s proposal:

i. As per Order No. 42/2018 – 19, AERA has offered return on land procured for airport. However, while finalizing the CIAL orders, it is stated that it will provide return only on the land put to use by airport operator and not for the land acquired for future expansion purpose. ii. APAO requests AERA to provide return on the land earmarked for future expansion also as: a. acquiring land in future is not viable due to high land cost b. it disincentivizes the airport operator to acquire land now for future phases iii. If AERA proposes to consider only the land for the capitalized assets, AERA to provide return at the fair value of the land at the time when it is put to use instead of its book value.

7) Financing allowance excluded by AERA in the true-up of the second control period and the ARR computation of the third control period

A. Proposal of AERA:

Para 4.4.38 - “The Authority noted that the Airport Operator has considered a Financing Allowance (as provided in Direction 5 – Airport Guidelines) of INR 11.9 Crores, against Interest During Construction (IDC) on the Work-in-Progress (WIP) assets worth INR 158 Crores projected to be capitalised in FY 2021.

Association of Private Airport Operat ors Page 6 of 8 A

Para 4.4.39 - The Airport Operator has computed Financing Allowance on the entire WIP amount whereas the Authority is of the view that such allowance is essentially the IDC for a project and should be provided only on the debt portion of the project fund. Accordingly, the Authority has considered IDC to be provided based on the changes in aeronautical capital additions discussed above and the average gearing considered for the Second Control Period (refer Section 4.6).”

Para 6.2.61 - “The Authority noted that financing allowance and the methodology for computation of the same was detailed in the airport guidelines and the same would need to be provided to the Airport Operator. However, the Airport Operator has computed financing allowance on the entire WIP amount being capitalised, whereas the Authority is of the view that such an allowance is essentially the IDC for a project and should be provided only on the debt portion of the project funds. Accordingly, the Authority has considered IDC to be provided based on revisions in the proposed capital expenditure discussed above and the notional gearing considered for the Third Control Period (refer Section 7). IDC as considered by the Authority is given below.”

B. APAO’s proposal:

i. AERA has agreed in the consultation paper that the financing allowance and its methodology for computation is detailed in the airport guidelines and the same need to be provided to CIAL. ii. Further, AERA guidelines in para 5.2.7 clearly specify that the capital work in progress assets will be given return based on the computation of the financing allowance. iii. In the previous orders of AERA, financing allowance was allowed in the second control period of CIAL, BIAL and HIAL. iv. AERA’s proposal to exclude the financing allowance does not conform to the AERA guidelines and is a change of decision by AERA from the second control period order v. As per the AERA guidelines, APAO requests AERA to consider the financing allowance on the capital work in progress.

Association of Private Airport Operat ors Page 7 of 8 A

We earnestly request the Authority to give a serious consideration to the points raised by us in the above response, before issue of final order determining the aeronautical tariff for Cochin International Airport, Kochi (Cok).

In case any other information/ clarification is required in this connection, please inform the undersigned.

Thanking you.

Yours faithfully, For Association of Private Airport Operators (APAO)

Satyan Nayar Secretary General Mob: +91 98100 49839

Association of Private Airport Operat ors Page 8 of 8 A

Federation of Indian Airlines E-166, Upper Ground Floor, Kalkaji, New Delhi - 110019. Website: www.fiaindia.in MOST URGENT

14 July, 2021

To, The Chairperson, Airports Economic Regulatory Authority of India, AERA Building, Administrative Complex, Safdarjung Airport, New Delhi – 110003.

Kind Attention: Shri. B.S. Bhullar, IAS

Sub: In the matter of determination of aeronautical tariffs in respect of Cochin International Airport, Cochin for the Third Control Period (1 April, 2021 to 31 March, 2026)

Ref: 1. AERA Consultation Paper No. 08/2021-22 dated 15 June, 2021; and 2. AERA stakeholder consultation (virtual) meeting dated 30 June, 2021.

Dear Sir,

We, Federation of Indian Airlines (FIA), write in response to the Consultation paper No. 08/2021-22 dated 15 June, 2021 issued by the Airports Economic Regulatory Authority of India (AERA) in the matter of determination of aeronautical tariffs in respect of Cochin International Airport, Cochin (COK) for the Third Control Period (1 April, 2021 to 31 March, 2026) (‘Consultation Paper’) and Annual Tariff Proposal/Tariff Card (Tariff Card) submitted by Cochin International Airport Limited (CIAL) vide AERA Public Notice No. 07/2021-22 dated 22 June, 2021.

At the outset, FIA would like to express our sincere gratitude to AERA for inviting stakeholder comments on the Consultation Paper and Tariff Card, and further acknowledging the impact of COVID-19 on the aviation sector.

The Consultation Paper read with Tariff Card, inter alia, propose an increase/hike in the aeronautical tariffs at COK as follows:

(i) Landing Charges and other aeronautical charges at annual escalation rate in the range of 5% to 9%, and Cargo tariff in the range of 25% to 35%, w.e.f. 1.4.2022; and

(ii) Introduction of User Development Fee (UDF) after merging with existing PSF (FC).

Federation of Indian Airlines E-166, Upper Ground Floor, Kalkaji, New Delhi - 110019. Website: www.fiaindia.in

In this regard, FIA humbly requests AERA to not implement any increase in the aeronautical tariff in the Third Control Period and defer any increase in the same to the subsequent control period, in view of below.

Sir, as you would be aware that due to the impact of the second (major) wave of COVID-19 as experienced across India, the airlines have again started witnessing a sharp decline in the demand for air travel since March, 2021 and this being coupled with the government restrictions on fare & capacity on inter/intra State travel as applicable (‘Government Restrictions’) is preventing airlines from generating adequate passenger revenue to survive. Under this current scenario, the airlines continue to incur high operational costs on account of higher airport charges and taxes, and this has aggravated the imbalance in the cash flow position and is adversely impacting the gradual financial recovery of the airlines.

At present, the airline operations are barely at 35% of the pre COVID-19 capacity and the passenger traffic at around 30% of pre COVID - 19 levels. As per industry estimates issued by IATA and CAPA, airlines are likely to undergo losses of USD 8.0 billion for the FY 2020-21 and 2021-22 and it may take 2-3 years for airline operations to reach the pre COVID-19 level, in terms of number of flights and passengers. With limited financial support from the Government, airlines are constrained to implement severe cost control measures to sustain its operations.

In the given circumstances, it is imperative that AERA does not take any steps, including by way of increase in aeronautical tariff, during the Third Control Period, which precipitates any further adverse financial impact on the airlines.

Without prejudice to the above, and as desired by AERA, please find attached FIA’s recommendations/ comments on the Consultation Paper and Tariff Card, as applicable, under Annex – A. We hope that your good self will positively consider such recommendations/ comments as it will help in achieving the affordability and sustainability of the airline, which is also outlined as a key objective in the National Civil Aviation Policy, 2016.

Thanking you,

Yours sincerely,

For and on behalf of Federation of Indian Airlines,

UJJWAL DEY Associate Director

Copy to: Director (P&S Tariff), Airports Economic Regulatory Authority of India.

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Federation of Indian Airlines E-166, Upper Ground Floor, Kalkaji, New Delhi - 110019. Website: www.fiaindia.in

Annex – A

Comments on Consultation Paper and Tariff Card

S. No. Para Particulars Comments/Submission

1. 4.5.9 True Up of FIA submits that AERA should consider the useful life of Depreciation Building including Terminal Building as sixty (60) years as envisaged in AERA Order No. 35/2017-18 read with Schedule II of Companies Act 2013, as applicable, and revise the amount of depreciation accordingly.

FIA submits that useful life of assets at various international airports like London Heathrow, Sydney airport and Amsterdam airport indicated that terminal buildings have useful life of as long as 60 years and aprons have it for as long as 99 years. FIA submits that the useful life of terminal building for Kannur and Cochin airports have been considered sixty (60) years by AERA.

2. 4.6.11 – True up of Fair FIA submits that as the matter on ‘Fair Rate of Return’ on 4.6.14 Rate of Return Refundable Security Deposit (RSD) is presently sub-judice, AERA should not provide any return on RSD.

3. 4. True up of Non - FIA requests AERA to conduct an independent expert study Aeronautical on the Non-Aeronautical Revenues, in accordance with the Revenue Airports Economic Regulatory Authority of India Act, 2008, as amended (AERA Act).

Without prejudice to the above, AERA to ensure no adjustments are proposed to non-aeronautical revenue which is not dependent on traffic but are derived from agreements with concessionaires.

4. 4.10.4 True up of AERA to kindly clarify the actual method of true up applied Aeronautical for aeronautical revenue, in view of the following para: “..The Revenue Authority had also ordered to true up revenue on actuals while determining tariff for the 3rd Control Period. However, CIAL has considered a higher rate (37%) for projection of landing charge for FY 21”.

5. 5 Traffic While FIA appreciates that AERA has considered industry inputs/reports on traffic from agencies like IATA and ICAO, FIA requests AERA to conduct an independent expert study for traffic assessment, in accordance with the AERA Act. 3

Federation of Indian Airlines E-166, Upper Ground Floor, Kalkaji, New Delhi - 110019. Website: www.fiaindia.in

6. 6.2 Analysis of RAB & FIA submits that all only essential capital expenditures (from Capital a safety compliance perspective) should be approved by Expenditure AERA for the Third Control Period and the non-essential capital expenditures should be deferred to the next control period.

Further, in case CIAL wants to make capital expenditure, then it should be at no additional expense to the airlines until the project is completed and put for use by airlines.

Without prejudice to the above, AERA should not permit any deviations of costs from the Normative Order No. 07/2016- 17 “In the matter of normative approach to building blocks in economic regulation of major airports – capital costs reg.” dated 13.06.2016 (Normative Order). 7. 6.2.76 Depreciation (i) Terminal Building

FIA submits that on a review of useful life of assets at various international airports like London Heathrow, Sydney airport and Amsterdam airport indicated that terminal buildings have useful life of as long as 60 years and aprons have it for as long as 99 years. FIA submits that the useful life of terminal building for Kannur and Cochin airports have been considered 60 years by AERA and therefore AERA should lay down 60 years for the Terminal Building as is practiced by some of the developed aviation ecosystem.

(ii) Residential Building FIA submits that as per Sl. No. 8 of Annexure - I of the AERA’s Order 35/2017-18 “In the matter of determination of useful life of Airport Assets” dated 12.01.2018, residential buildings have a prescribed useful life of 30/60 years. It is pertinent to note here that unlike in case of terminal buildings where option of 30 or 60 years is to be evaluated by Airport Operator, the election of 30 years or 60 years is case of residential buildings is not to be evaluated by Airport Operator but is to be derived from provisions of Companies Act.

FIA submits that Part C of Schedule II of Companies Act 2013 prescribes useful life of Buildings (other than factory buildings) having Reinforced Concrete Cement (RCC) frame structure to be 60 years. It is very unlikely that residential buildings will not be built on RCC Frame structure.

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Federation of Indian Airlines E-166, Upper Ground Floor, Kalkaji, New Delhi - 110019. Website: www.fiaindia.in

FIA submits that residential buildings should be depreciated over a period of 60 years and not 30 years.

In view of (i) and (ii) above, FIA submits that AERA should consider the useful life of Residential building and Terminal Building as 60 years as envisaged in Order 35/2017-18 read with Schedule II of Companies Act 2013, as applicable, and revise the amount of depreciation accordingly. 8. 7 Fair Rate of FIA appreciate AERA has considered a lower FRoR of 11.63 % Return for the Third Control Period and has conducted an independent study in relation to cost of equity.

However, it may be noted that such fixed/ assured return favors the Airport Operators, and creates an imbalance against the airline, which are already suffering from huge losses and bear the adverse financial impact through higher tariffs.

Further, due to such fixed / assured returns, service providers like CIAL have no incentive to look for the productivity improvement or ways of increasing efficiencies or take steps to drastically reduce costs as they are fully covered for all the costs plus their returns. Such a scenario may result in inefficiencies and higher costs, which are ultimately borne by the airlines. In the present scenario any assured return on investment (i.e., return on investment after the income tax), in excess of three (3) %, i.e., being at par with bank fixed deposits, will be onerous for the airlines.

In view of the above, AERA is requested to immediately review FRoR by capping the returns to a maximum of three (3)%.

9. 8. Cost of land FIA recommends that no returns may be provided for investment in land by CIAL in view of the fact that Land value does not depreciate.

10. 9 Operating We are not aware whether CIAL has taken cost cutting Expenses measures including renegotiations of all the cost items, on its profit and loss account. It may be noted that cost incurred by CIAL impacts airlines, as such cost is passed through or borne by the airlines by way of aeronautical tariffs. AERA may advise CIAL to rationalize/re-negotiate all the cost/expenditure items or heads including ‘Employee expenses’, as deemed fit. Further, no escalations should be permitted under these items or heads. 5

Federation of Indian Airlines E-166, Upper Ground Floor, Kalkaji, New Delhi - 110019. Website: www.fiaindia.in

11. 10.2.14 Non-Aeronautical FIA submits AERA to conduct an independent study on the Revenue Non-Aeronautical Revenues, in accordance with AERA Act. Without prejudice to the above, FIA submits that:

1. Increase in non-aeronautical revenue is a function of passenger traffic growth, inflationary increase and real increase/escalations in contract rates. AERA to ensure no adjustments are proposed to non- aeronautical revenue which is not dependent on traffic but are derived from agreements with concessionaires; and

2. ‘Royalty’ is in the nature of market access fee, charged by the services providers under various headings. These charges are passed on to the airlines by the service providers. The rates of royalty at some of the airports, including CIAL are as high as forty six (46)%. It may be pertinent to note that market access fee by any name or description is not practiced in most of the global economies, including European Union, Australia etc.

In view of the above, we urge AERA to abolish such royalty which may be included in any of the cost items. 12. 3.1.2 Methodology for FIA submits that as per para 3.1.2 of the Consultation Paper, Tariff it is stated that the AERA shall determine tariffs for CoK using Determination – the Hybrid Till model. It is to be noted that FIA has from time Hybrid Till Vs. to time advocated the application of a Single Till model across Single Till the airports in India. FIA submits that AERA should adopt Single Till basis the following legal framework being:

In the Single Till Order, AERA has strongly made a case in favor of the determination of tariff on the basis of ‘Single Till’. It is noteworthy that the AERA has inter alia in its Single Till Order:

(i) Comprehensively evaluated the economic model and realities of the airport – both capital and revenue elements. (ii) Taken into account the legislative intent behind Section 13(1)(a)(v) of the AERA Act. (iii) Concluded that the Single Till is the most appropriate for the economic regulation of major airports in India.

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Federation of Indian Airlines E-166, Upper Ground Floor, Kalkaji, New Delhi - 110019. Website: www.fiaindia.in

(iv) The criteria for determining tariff after taking into account standards followed by several international airports (United Kingdom, Australia, Ireland and South Africa) and prescribed by ICAO.

AERA in its AERA Guidelines (Clause 4.3) has followed the Single Till approach while laying down the procedure for determination of ARR for Regulated Services.

The fundamental reasoning behind ‘Single Till’ approach is that if the consumers/passengers are offered cheaper air- fares on account of lower airport charges, the volume of passengers is bound to increase leading to more foot-fall and probability of higher non-aeronautical revenue. The benefit of such non aeronautical revenue should be passed on to consumers/passengers and that can be assured only by way of lower aeronautical charges. It is a productive chain reaction which needs to be taken into account by the AERA.

13. 14 Aeronautical (i) Overall Tariff Tariff /Tariff Card AERA is requested to review the suggestions/comments on the regulatory building blocks as mentioned under Annex – A, which is likely to reduce the ARR requirements of CIAL. This will further ensure the lowering of tariff, which will be beneficial to passengers and airlines.

(ii) User Development Fee

(a) FIA submits that exemptions from levy of UDF should be in line with the directions/guidelines given by Ministry of Civil Aviation and Directorate General of Civil Aviation.

(b) Collection Charges - The Consultation Papers state “To be eligible to claim collection charges, the airlines should have no overdue on any account with CIAL.”

FIA humbly submits that since ‘Collection Charges’ are primarily for rendering of service of collection of UDF as part of ticket, and does not have any correlation with payment of utilities/rentals to the airport operators, it should be treated on a stand-alone basis and not held back on account of any other overdues in favour of the airport operator.

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Ref. No. BAOA/AERA/01/2021-22 July 14, 2021

Director (P&S, Tariff) Airports Economic Regulatory Authority of India AERA Building, Administrative Complex, New Delhi -110003.

Subject: - Comments: AERA's Consultation Paper (CP) No. 08/2021-22

Sir,

BAOA participated in the stakeholders web discussions held on 30th June 2021 on the subject matter. We have the following comments to offer on the CP: -

a) Since AERA is undertaking independent airport specific study on aeronautical assets and the associate charges, it is requested that aeronautical assets for each square foot area, and the applicable aeronautical charges for its by aircraft operators, be unambiguously stated in every AERA order.

b) As a ‘follow up’ of the above point, ‘housing charges’, that affect the small aircraft industry the most, be well defined in terms of specific aeronautical assets available for the purpose on the airport. In the absence of each area specific charges, the possibility of airport operators interpreting the applicability of such charges in their own way, and to own advantage, has been taking place.

c) In line with GH policy being followed by AAI, the royalty on GH charges be restricted to 15% or the permissible FROR on each public airport. Further, due to greater attention now required to be given to GH services, being important from safety/security point of view, at public airports, these charges should be decided on ‘cost-plus’ basis and, not by ‘soft touch approach’, as has been happening hitherto.

Thanking You

Yours faithfully

For Business Aircraft Operators Association

Gp. Capt. Rajesh K. Bali (retd.) Managing Director