Public, Private and Mixed Ownership and the Performance of International Airlines

 Public, Private and Mixed Ownership and the Performance of International Airlines

Many Airlines are neither completely public nor private enterprises but have hybrid or mixed public-private ownership. Theory and evidence regarding the performance of private, public and mixed ownership are addressed in the context of the international Airline industry. The study empirically examines the influence of an Airline's ownership structure on multiple dimensions of its performance. In general, the results indicate that public sector Airlines under-perform relative private sector Airlines. In addition, we find that Airlines with mixed ownership tend to perform better than public sector Airlines, but worse than private sector carriers.

Production and Marketing Efficiencies of the U.S. Airline Industry: A Two-Stage Network DEA Approach

This chapter presents an application of a two-stage network data envelopment analysis (DEA) for examining the performance of 30 U.S. Airline companies. The Airline industry is a subject of concern because the industry is a major contributor to a country’s or even global economic development. Although a number of studies have explored Airline performance using DEA, relatively few studies have applied a two-stage DEA model. The current chapter examines production efficiency and marketing efficiency through an additive two-stage network DEA model. This approach allows the black-box of the performance measurement process to be assessed, thus, providing a new direction in measuring Airline performance. The chapter includes a managerial decision-making matrix and makes suggestions to help Airline managers improve performance for Airlines. In addition, a regression analysis of the effect of corporate governance mechanisms on Airlines performance is conducted. Given the volatility of growth in the Airline industry, it is expected that we will see more research related to performance management in the industr

An integrated MCDM model for improving Airline operational and financial performance

The development of better methods for the improvement of Airline performance is crucial, but this type of problem is difficult to solve because of the large number of complex factors involved making this inherently a multiple criteria decision making (MCDM) problem. In current studies, the factors to be evaluated are considered based upon a literature review or expert opinions. This study proposes an integrated model that combines data mining and MCDM to extract the critical factors for the improvement of Airline performance. We apply the dominance-based rough set approach to extract the essential factors. The decision-making trial and evaluation laboratory method with the concepts of the analytic network process (DANP) is then used to construct the complex evaluation system. Finally, the VIKOR (VlseKriterijumska Optimizacija I Kompromisno Resenje in Serbian, meaning multicriteria optimization and compromise solution) method is applied to select the suitable improvement alternative goals with the corresponding weights provided by the DANP method. The results show that the current model can be used as the basis for a benchmark industry improvement index which can be used to evaluate each Airline individually with defined planning goals to achieve financial efficiency by improving operational efficiency.

Public-Private Partnerships in Airports

Airports provide access to and interlink between regional, national and international markets. This makes investment in existing or new Airport infrastructure essential to economic development. Traditionally, Airports were owned, managed and operated by governments but there has been a worldwide trend towards increasing private sector involvement to varying degrees, including through the use of public-private partnerships (“PPPs”).

A number of different models have been used for Airport PPPs:

Concession arrangements – the private operator pays a concession fee to the contracting public authority and recovers its costs (plus a return on investment) through collecting various charges from Airport users (e.g. service charges by Airlines, rent from retail tenants inside the Airport, parking fees, etc). This arrangement largely shifts revenue and demand risks associated with the infrastructure to the private operator, although the public authority may retain a degree of revenue risk through minimum revenue guarantees to the private operator.

Availability model – the contracting government has authority to make regular payments to the private contractor based on the availability of the Airport facilities. This has sometimes been used where the associated demand / revenue risk is perceived as too high by the private contractor (e.g. during the initial phases of a new Airport in a developing country, where revenue forecast is uncertain).

A key issue in Airport PPPs is the regulation of Airport charges. As Airports typically occupy a natural monopoly position, normal market forces have limited effect over the setting of Airport charges. A delicate balance would often need to be struck between ensuring that the public can access the Airport at a reasonable cost and protecting the Airport’s profit margins. The private developer’s flexibility in setting and collecting tariffs has a significant impact on its assessment of the attractiveness of the project and the level of revenue / demand risk it is prepared to assume.

Find below sample relevant laws, policies, and regulations, a checklist that highlights the key legal issues that need to be considered in relation to Airport concessions, sample Airport concession agreements and reading materials related to PPP Airport projects.

Laws, Policies & Regulations

Australia

Most Airports in Australia are leased by the federal government to operating companies. Their development and operation are regulated under the Airport Act 1996 (Cth). A key requirement under the Act is that each Airport must have a 20 year master plan approved by the responsible federal minister, which sets out the Airports’ development and operational activities over period covered by the plan.

India

Airports in India can be either owned, developed and operated by State entities, such as the Airports Authority of India (“AAI”) or by private companies. A key requirement for private Airport operators is that they must have obtained a license to operate Airports as required under Rule 133A of the Aircraft Rules 1937 (“Aircraft Rules”). They must also enter into an Operation, Management and Development Agreement with the AAI.

Spain

In general terms, the regulation of Airports in Spain is mainly implemented through Royal Decree Law 13/2010, 3 December, approving tax and labor measures and measures to foster investment (“RDL 13/2010”) and Law 21/2003, of 7 July on Air Security (“Law 21/2003”).

Furthermore, the general Spanish policies for the development of Airport infrastructures and the adequate rendering of basic Airport services are contained in the Document of Airport Regulation (“DORA”) for the period 2022-2026 approved by the Spanish Ministry of Transport.

AENA, S.A (formerly Aena Aeropuertos, S.A.) (“AENA”) is the state-owned company that manages general interest Airports and heliports in Span.

Being a state-owned company, the applicable legal framework for AENA is private, with certain specificities as regards contracting for works and services in the Spanish general interest Airports managed by AENA.

Such specificities for AENA in its contracting process for works and services in general interest Airports, may be summed up as follows:

In general terms, the contracting processes are subject to the principles of publicity, transparency, confidentiality and competitiveness and may elect subject to certain requirements, to apply open, restricted or negotiated procedures.

AENA, as a state-owned company has to fulfil the requirements of Royal Decree-law 3/2020, 4 February (“RDL 3/2020”), transposing Directive 2014/25/UE and Directive 2014/23/UE, which mainly regulates contracting for certain entities that operate in water, energy, transportation and postal services, being public sector entities and public companies which are not, stricto sensu, Public Administration.

For those contracts not subject to RDL 3/2020, AENA has approved its own internal rules for contracting which also contains publicity, transparency, confidentiality and competitiveness principles. These internal rules for contracting are also applicable to those contracts subject to RDL 3/2020 on a subordinated basis, together with private law.

Further information of the different bidding processes and tenders published by AENA can be found in the tender section of its website.

Checklist Airport BOT & Concession Agreements

Checklist of legal issues to consider when developing Airport Build-Operate-Transfer (BOT) or concession agreements: This checklist highlights the key legal issues that need to be considered in relation to Airport concession agreements (assuming single site Airport projects), covering both due diligence issues regarding the host country’s laws, as well as commercial and regulatory considerations.

Sample Airport Concession Agreements

Large Airports

Costa Rica

Concession Agreement: Daniel Oduber Quirós International Airport's New Passenger Terminal (document in Spanish with summary of key features in English) - Concession agreement for the design, construction, operation and maintenance of a new passenger terminal of the Daniel Oduber Quirós Airport, entered into by and between the Government of Costa Rica, Coriport S.A. and the Coriport Consortium. The concession agreement is based on the Ley General de Concesión de Obras Públicas con Servicios Públicos (Concession of Public Work with Public Services).

Bulgaria

Sofia Airport Tender Documentation - Tender Document for the Designation of a ConcessionAire and Awarding a Works Concession for Airport in Sofia of 5 July 2018 as amended on 29 March 2019 published by the Republic of Bulgaria, Ministry of Transport, Information Technology and Communications.  Bidding document contains low carbon incentives.

India

The Government of India has developed new Airports or modernized existing Airports in several cities on a PPP basis:

Delhi, India: Operation, Management and Development Agreement between the Government of India and Delhi International Airport, 2006 (brownfield)

Mumbai, India: Operation, Management and Development Agreement between the Government of India and Mumbai International Airport, 2006 (brownfield)

Hyderabad draft concession agreement, India: Concession Agreement for the Development, Construction, Operation and Maintenance of the Hyderabad International Airport between the Government of India and Hyderabad International Airport, 2004 (greenfield)

Small Scale Airports

South Africa

Skukuza Airport - Public-Private Partnership Agreement for the Management and Operation of Skukuza Airport in the Kruger National Park (sample draft agreement of October 2008 with annotations) - Model agreement for a PPP involving the management and operation of a single runway small scale Airport.

Further Reading and Resources

Private Investment in Airport Infrastructure

Main elements of the concession model for the Madrid-Barajas and Barcelona-El Prat Airports (Principales elementos del modelo concesional de los aeropuertos de Madrid-Barajas y Barcelona-El Prat), Clifford Chance, Client Briefing June 2011 (English and Spanish)

La experiencia española en concessiones y APPs: Puertos y Aeropuertos, by Andrés Rebollo, Programa para el Impulso de Asociaciones Publico-Privadas en Estados Mexicanos (PIAPPEM), October 2009.

Developing Best Practices for Promoting Private Sector Investment in Infrastructure - Airports and Air Traffic Control,Asian Development Bank (ADB) 2001: This is one volume of a five-volume set presenting the findings of an ADB regional technical assistance study which developed sector-specific best practices for promoting private sector participation in key infrastructure sectors in ADB's developing member countries. The best practices cover the role of government, institutional reform, strategic planning, legal and regulatory frameworks, unbundling and competition, contractual arrangements, sources of financing, and the allocation of risk. This volume examines the underlying economics and alternative models of private sector participation in the Airport sector, and recommends approaches to encourage successful private sector participation.

The Airport Ownership and Regulation Guidance Booklet and Balanced Concessions for the Airport Industry published by the International Air Transport Association (“IATA”) sets out a useful overview of different ownership and operating models for Airports and best practice guidelines for implementing PPPs for Airport projects.

Airport In-Terminal Concessions

Guidebook for Developing and Leasing Airport Property, Report 47, Airport Cooperative Research Program (ACRP), 2011 - This Guidebook discusses the key issues associated with developing and leasing available Airport land and summarizes best practices from the perspective of the Airport sponsor. The guidebook presents a diverse set of case studies that show several approaches Airports have taken to develop and lease property for both aeronautical uses (e.g., Aircraft maintenance facilities, fixed-base operator facilities, hangars, training centers, and cargo facilities) and nonaeronautical uses (e.g., light industrial and commercial facilities). A glossary of terms is also included. This guidebook will therefore be of interest to anyone desiring a better understanding of the process for developing and leasing Airport property.

Resource Manual for Airport In-Terminal Concession by the Airport Cooperative Research Program. This manual provides guidance on the development and implementation of Airport concession programs. The report provides information on the Airport concession process; concession goals; potential customers; developing a concession space plan and concession mix; the Airport Concessions Disadvantaged Business Enterprise (ACDBE) program; and concession procurement, contracting, and management practices.

points-1-Public, Private and Mixed Ownership and the Performance of International Airlines

2-An integrated MCDM model for improving Airline operational and financial performance

3-Public-Private Partnerships in Airports

4-

Laws, Policies & Regulations

5-Small Scale Airports

6-Airport In-Terminal Concessions

Diffrence between Goverment and Private sectors in Aviation Industry in India.

Aviation Sector in India: A Cross Boundary Comparison Priority

on Air India

According to International Air Transport Association‘s (IATA) Airline Industry Forecast 2012-2016, India's

domestic Air travel market would be among the top five globally, experiencing the second highest growth rate at

CAGR of 13.1%.India has the potential to become the third largest aviation market by 2020 and the largest by

2030. There is large untapped potential for growth due to the fact that access to aviation is still a dream for

nearly 99.5 per cent of its population. Financial year 2012-2013 shows an increase of revenue by 30,164.3

million in comparison to the base year. All these borrowings are part of Turnaround Plan to ease Air India out of

the debt burden of Rs 40,000 Crores. It would be wrong, however to say that such capital infusion has yielded

no results. After the implementation of the financial restructuring plan as approved by the UPA in 2012, the

operating losses have halved from Rs 5,138.69 Crores in FY 2012 to Rs. 2,171.40 Crores in FY 2015 while net

loss has climbed down from Rs. 7,559.74 Crores in FY 2012 to Rs.5,547.47 Crores in FY 2015.

The Airline had demanded around Rs 1,777 Crores more than the budgeted from the current government. This

unexplained cut means that the Airline is distressed and might lead to deficit of government guaranteed loans

which in turn will lead to compulsory borrowings from banks. If the banks are restricted to lend to the Company

that is functioning at a loss of Rs 21.71 Billion, then Air India might have to raise funds from the market at

higher cost further putting stress on its already besieged resources. At a time when the Aviation Sector seems on

a high, it is demotivating that Air India‘s prospects to raise capital from the public seems shaky at best. The

National Carrier had also approached the FinMin to allow it to raise Rs 10,000 Crore as capital in the form of

tax free Bonds. The Government turned sour on the proposal and was reluctant to act as a guarantor in such a

deal

The Airline industry in India has

historically been dominated by a few players with

Air India and Jet Airways together dominating the

domestic passenger market. However, in the last

decade, the industry has become more fragmented

with the entry of full service carriers such as

Kingfisher Airlines and low cost carriers including

the erstwhile Air Deccan (since merged with

Kingfisher), SpiceJet, Indigo and GoAir . Evolution

of Civil Aviation Industry in India Indian aviation

industry began with the establishment of Tata

Airlines in 1932, through the business relationship

between Mr. Neville Vincent, a Royal Air Force

pilot and Mr. JRD Tata. Tata Airlines was

rechristened as Air India in August 1946. In 1953,

the Air Corporation Act nationalized all existing

Airline assets and established the Indian Airline

Corporation and Air India International to cater to

domestic and international Air services respectively.

The operations of scheduled Air transport services

became a monopoly of these two Corporations and

the Act prohibited any person other than the

Corporations or their associates to operate any

scheduled Air transport services from, to, or within

India. However, in order to boost tourism and

enhance domestic Air services, private Airlines were

given permission to operate charter and nonscheduled services under the ‗Air Taxi

IATA, International Air

Transport Association, forecasts international Air

travel to grow by an average 6.6% a year to the end

of the decade and over 5% a year from 2000 to

2010. These rates are similar to those of the past

ten years. In Europe and North America, where the

Air travel market is already highly developed,

slower growth of 4%-6% is expected. The most

dynamic growth is centred on the Asia/Pacific

region, where fast-growing trade and investment

are coupled with rising domestic prosperity. Air

travel for the region has been rising by up to 9% a

year and is forecast to continue to grow rapidly,

although the Asian financial crisis in 1997 and

1998 will put the brakes on growth for a year or

two. In terms of total passenger trips, however, the

main Air travel markets of the future will continue

to be in and between Europe, North America and

Asia.

Airlines' profitability is closely tied to

economic growth and trade. During the first half of

the 1990s, the industry suffered not only from

world recession but travel was further depressed by

the Gulf War. In 1991 the number of internationa

passengers dropped for the first time. The financial

difficulties were exacerbated by Airlines overordering Aircraft in the boom years of the late

1980s, leading to significant excess capacity in the

market. IATA's member Airlines suffered

cumulative net losses of $20.4bn in the years from

1990 to 1994.

Since then, Airlines have had to recognize

the need for radical change to ensure their survival

and prosperity. Many have tried to cut costs

aggressively, to reduce capacity growth and to

increase load factors. At a time of renewed

economic growth, such actions have returned the

industry as a whole to profitability: IATA Airlines'

profits were $5bn in 1996, less than 2% of total

revenues. This is below the level IATA believes is

necessary for Airlines to reduce their debt, build

reserves and sustain investment levels. In addition,

many Airlines remain unprofitable.

To meet the requirements of their

increasingly discerning customers, some Airlines

are having to invest heavily in the quality of service

that they offer, both on the ground and in the Air.

Ticketless travel, new interactive entertainment

systems, and more comfortable seating are just

some of the product enhancements being

introduced to attract and retain customers.

A number of factors are forcing Airlines to

become more efficient. In Europe, the European

Union (EU) has ruled that governments should not

be allowed to subsidize their loss-making Airlines.

Elsewhere too, governments' concerns over their

own finances and recognition of the benefits of

privatization have led to a gradual transfer of

ownership of Airlines from the state to the private

sector. In order to appeal to prospective

shareholders, it is necessary for the Airlines to

become more efficient and competitive

1-Directorate General of Civil Aviation

The Directorate General of Civil Aviation (DGCA) is the regulatory body in the field of Civil Aviation, primarily dealing with safety issues. It is responsible for regulation of Air transport services to/from/within India and for enforcement of civil Air regulations, Air safety, and Airworthiness standards. The DGCA also co-ordinates all regulatory functions with the International Civil Aviation Organisation (ICAO).

Private operators were allowed to provide Air transport services. However, no foreign Airline could directly or indirectly hold equity in a domestic Airline company. By 1995, several private Airlines had ventured into the aviation business and accounted for more than 10 percent of the domestic Air traffic. Today, Indian aviation industry is dominated by private Airlines and these include low cost carriers, who have made Air travel affordable. The Government nationalized nine Airline companies vide the Air Corporations Act, 1953. These government-owned Airlines dominated Indian aviation industry till the mid-1990s. In April 1990, the Government adopted open-sky policy and allowed Air taxi- operators to operate flights from any Airport, both on a charter and a non charter basis and to decide their own flight schedules, cargo and passenger fares. As part of its open sky policy in 1994, the Indian Government ended the monopoly of IA and AI in the Air transport services. Private operators were allowed to provide Air transport services. However, no foreign Airline could directly or indirectly hold equity in a domestic Airline company. By 1995, several private Airlines had ventured into the aviation business and accounted for more than 10 percent of the domestic Air traffic. Today, Indian aviation industry is dominated by private Airlines and these include low cost carriers, who have made Air travel affordable.

Registration of Civil Aircraft.

Formulation of standards of Airworthiness for civil Aircraft registered in India and grant of certificates of Airworthiness to such Aircraft.

Licensing of pilots, Aircraft maintenance engineers and flight engineers, and conducting examinations and checks for that purpose.

Licensing of Air traffic controllers.

Certification of aerodromes and CNS/ATM facilities.

Granting of Air Operator's Certificates to Indian carriers and regulation of Air transport services operating to/from/within/over India by Indian and foreign operators, including clearance of scheduled and non-scheduled flights of such operators.

Conducting investigation into accidents/incidents and taking accident prevention measures including formulation of implementation of Safety Aviation Management programmes.

Carrying out amendments to the Aircraft Act, the Aircraft Rules and the Civil Aviation Requirements for complying with the amendments to ICAO Annexes, and initiating proposals for amendment to any other Act or for passing a new Act in order to give effect to an international Convention or amendment to an existing Convention.

Coordination at national level for flexi-use of Air space by civil and military Air traffic agencies and interaction with ICAO for provision of more Air routes for civil use through Indian Air space.

Keeping a check on Aircraft noise and engine emissions in accordance with ICAO Annex 16 and collaborating with the environmental authorities in this matter, if required.

Promoting indigenous design and manufacture of Aircraft and Aircraft components by acting as a catalytic agent.

Approving training programmes of operators for carriage of dangerous goods, issuing authorizations for carriage of dangerous goods, etc.

2-Bureau of Civil Aviation Security

The Bureau of Civil Aviation Security (BCAS) was initially set up as a Cell in the DGCA in January 1978 on the recommendation of the Pande Committee. The BCAS was reorganized into an independent department under the Ministry of Civil Aviation on 1st April, 1987. The main responsibilities of BCAS include laying down standards and measures with respect to security of civil flights at international and domestic Airports in India. BCAS Head quarter is located at "A" Wing, I-III floor, Janpath Bhavan, Janpath, New Delhi-110001. It has got four Regional Offices located at International Airports i.e. Delhi, Mumbai, Kolkata and Chennai.

Laying down Aviation Security Standards in accordance with Annex 17 to Chicago Convention of ICAO for Airport operators, Airlines operators, and their security agencies responsible for implementing AVSEC measures.

Monitoring the implementation of security rules and regulations and carrying out survey of security needs.

Ensure that the persons implementing security controls are appropriately trained and possess all competencies required to perform their duties.

Planning and coordination of Aviation security matters.

Surprise/Dummy checks to test professional efficiency and alertness of security staff.

Mock exercise to test efficacy of Contingency Plans and operational preparedness of the various agencies.

3-Airports Economic Regulatory Authority of India

Airports Economic Regulatory Authority of India (AERA) AERA, was established by the Government of India vide notification No. GSR 317(E) dated 12th May 2009 as a statutory body of Government of India. The Parliament of India enacted an Act called 4-“The Airports Economic Regulatory

 

Authority of India Act, 2008” (hereinafter to be referred as the “Act”). The said Act envisages the establishment of a statutory authority called the Airports Economic Regulatory Authority (hereinafter referred to as the “AERA”) to regulate tariff for the aeronautical services, determine other Airport charges for services rendered at major Airports and to monitor the performance standards of such Airports. The provisions of the said Act came into force w.e.f. 1st September, 2009.

The functions of AERA, in respect of major Airports, are specified in section 13 of the Act, which are as below:

To determine the tariff for aeronautical services taking into consideration the capital expenditure incurred and timely investment in the improvement of Airport facilities.

The service provided, its quality and other relevant factors.

The cost for improving efficiency.

Economic and viable operation of major Airports.

The concession offered by the Central Government in any agreement or memorandum of understanding or otherwise, and

Any other factor which may be relevant for the purpose of the Act.

Determine the amount of the development fees.

Determine the amount of the passengers’ service fee levied under Rule 88 of the Aircraft Rules, 1937 made under the Aircraft Act, 1934.

Monitor the set performance standards relating to quality, continuity and reliability of service as may be specified by the Central Government or any authority authorized by it in this behalf.

Call for any such information as may be necessary to determine the tariff for aeronautical services, and

Perform such other functions relating to tariff, as may be entrusted to it by the Central Government or as may be necessary to carry out the provisions of the Act.

Today, Airports Economic Regulatory Authority of India plays a vital role in fostering a healthy competition amongst all Major Airports, encouraging investment in Airport facilities, protection of reasonable interests of users, operation of efficient, economic and viable Airports through regulations of tariff for aero nautical services/activities and also monitors performance standards at Major Airports.

5-Airports Authority of India

The Airports Authority of India (AAI) was formed on 1st April 1995 by merging the International Airports Authority of India and the National Airports Authority with a view to accelerate the integrated development, expansion, and modernization of the operational, terminal and cargo facilities at the Airports in the country conforming to international standards.

Design, Development, Operation and Maintenance of international and domestic Airports and civil enclaves.

Control and Management of the Indian Airspace extending beyond the territorial limits of the country, as accepted by ICAO.

Construction, Modification and Management of passenger terminals.

Development and Management of cargo terminals at international and domestic Airports.

Provision of passenger facilities and information system at the passenger terminals at Airports.

Expansion and strengthening of operation area, viz. Runways, Aprons, Taxiway etc.

Provision of visual aids

Design, Development, Operation and Maintenance of international and domestic Airports and civil enclaves.

Control and Management of the Indian Airspace extending beyond the territorial limits of the country, as accepted by ICAO.

Construction, Modification and Management of passenger terminals.

Development and Management of cargo terminals at international and domestic Airports.

Provision of passenger facilities and information system at the passenger terminals at Airports.

Expansion and strengthening of operation area, viz. Runways, Aprons, Taxiway etc.

Provision of visual aids

topics-Diffrence between Goverment and Private sectors in Aviation Industry in India.

:-Directorate General of Civil Aviation

:-Bureau of Civil Aviation Security

:-Airports Economic Regulatory Authority of India

-The Airports Economic Regulatory

:-Airports Authority of India

Sneha Jaiswal

HR Manager & Marketing Research