This article, co-authored by Karam Daulet-Singh, Managing Partner, Sameeksha Chowla, Counsel, and Vansh Aggarwal, Associate, provides an overview of the regulatory regime for conducting aircraft ground handling activities in India.
Aircraft Ground Handling in India
As is well known, India is amongst the fastest growing civil aviation markets in the world, with significant potential for further growth – primarily owing to the rapid increase in the population and their disposable incomes along with the current dispensation’s constant push to promote India as the business and tourism hub of the world. It is expected that India would be the third largest aviation market in the world from its current seventh position by circa 2030. The aircraft fleet is projected to be at approximately 2,500 aircrafts by 2038.
The aviation sector has seen increasing participation from private players over the years. The Government has in fact been working towards attracting more private investment and particularly foreign investments in the aviation sector by privatizing airports and monetizing assets. In-principle approvals have been granted for setting up of over 20 greenfield airports and plans are also being made to revive 50 additional airports as per the annual budget of 2023.
One of the aviation-related sectors which has attracted significant foreign participation in the last few years is the aircraft ground handling services sector. Simply put, ground handling is the more “consumer-facing” aspect of the sector and includes all services which are necessary for an aircraft’s arrival and departure from an airport, including ramp handling, baggage handling, cabin cleaning, passenger check-in, etc., other than air traffic control services. A case in point which evidences foreign participation in this sector is – the Turkey-based Celebi Group and Germany-based Bird Group recently won the tender to provide ground handling services at the airport at Chennai. LAS Goldair Handling (which is a joint venture between India-based LAS Ground Force and Greece-based Goldair Handling) also won the tender to provide ground handling services at the airport at Bagdogra.
This note provides an overview of the regulatory regime for conducting ground handling activities in India.
Regulatory framework
Domestic airline operators are permitted to carry out ground handling operations by themselves or by engaging a ground handling entity. Whilst foreign airline operators are also permitted to carry out ground handling operations themselves, they are required to engage a ground handling entity for the purposes of carrying out security functions such as screening of baggage, aircraft security check and carriage of security removed articles. In addition, foreign airline operators are also not allowed to carry out ground handling operations at “civil enclaves”, i.e., any area at an airport belonging to any armed force of the Government.
In terms of other entities that can be engaged by airline operators for the purposes of ground handling, airport operators, which are the entities responsible for operating airports, are also permitted to provide such services. However, airport operators are mandatorily required to ensure a competitive environment, and, to this end, airport operators are required to ensure that every airport having an annual passenger throughput of 10 million passengers or above has at least three ground handling entities on its panel, which can be engaged by the airline operator, including: (a) the airport operator or its joint venture or its wholly owned subsidiary; (b) a joint venture or a subsidiary of Air India (the erstwhile flag carrier of India which has recently been acquired by the Tata group); and (c) any other ground handling entity appointed by the airport operator through a transparent bidding process. However, at an airport having an annual passenger throughput of less than 10 million passengers, the airport operator has the discretion to determine how many ground handling entities should be permitted amongst (a), (b) and (c) but subject to a cap of three.
Special status of Air India
Given Air India’s erstwhile status of being the flag carrier of the country, a special status has historically been accorded to it in that a joint venture or a subsidiary of Air India is mandatorily to be included amongst the eligible ground handling entities for airports having an annual passenger traffic of 10 million passengers or above. In addition, the Air India entity is only required to pay the lowest amount of royalty paid to the airport operators by the other ground handling entities. These privileges extended to the Air India ground handling entity were contemplated to continue to apply for a period of seven years even after Air India passed into the private sector.
Press reports suggest that a part of the ground handling business of Air India (housed within Air India SATS Airport Services Private Limited (AI-SATS)) was acquired by the Tata group as part of the overall acquisition in January 2022. As such, with all else being equal, the privileges mentioned above would continue to be available to AI-SATS at least till January 2029. Interestingly though, press reports also suggest that before the acquisition by Tata Sons, the Government hived off Air India’s primary ground handling entity, viz. Air India Air Transport Services (AIASL), to another entity called the Air India Assets Holding. It appears that Tata Sons is now evaluating acquiring AIASL to meet its as well as the Air India fleet’s growing ground handling needs, and, possibly to also take advantage of the privileges mentioned above for a longer time period through AIASL.
Security clearance and security programme approvals
In order to be eligible to provide ground handling services at airports in India, an entity is required to obtain a security clearance from the Bureau of Civil Aviation Safety, Ministry of Civil Aviation (BCAS). Further, a security programme approval is required to be obtained, again from BCAS, in respect of each airport at which such services are being provided. Whilst the security clearance is specific to an entity, the security programme approval is required to be obtained separately for each airport. For instance, a ground handling entity that seeks to operate at the airports located at New Delhi, Mumbai and Bengaluru would have to obtain a security clearance only once but would have to obtain three separate security programme approvals for operating at each of the three airports.
Whilst no specific time periods have been prescribed under the regulations re the validity of the security clearances and security programme approvals, these typically have a validity period of five years and need to be renewed prior to the expiry of the validity periods. The approvals are also required to be renewed in case of any changes in, inter alia, the management control or shareholding pattern of the entity, directors or key managerial personnel and in the name of the entity.
Concession agreements
Once a ground handling entity is selected by an airport operator pursuant to the bidding process to provide ground handling services at a particular airport, it enters into a concession agreement with the airport operator. There is no standard practice around the term of the concession agreement and this could vary anywhere between five to 20 years.
The concession agreements set out the detailed quality standards that need to be complied with for each relevant ground handling service element (say, safety and security, response time during crisis, pilferage, geotagging, electric tugs, upgradation of technology, training hours, check-in queue time and delivery of transfer baggage). Generally, 95 per cent. to 100 per cent. of the expected quality standard is required to be met with little to no exceptions, with damages being payable by the ground handling service provider in case these quality standards are not met. The quantum of damages varies depending on the airport operator but these can go as high as USD 2,500,000 in some cases. In exceptional cases, not meeting the expected quality standards can also lead to termination of the concession agreement.
Payments to the airport operators typically include a fixed percentage of the revenue generated by the ground handling entity in the form of royalty, utilities charges for using electricity, water, etc. and space rentals for using the infrastructure and equipment (which are either paid in terms of the concession agreement itself or pursuant to separate lease agreements entered into with the airport operator for this purpose).
Finally, in case of situations of emergency, the airport operators / Airports Authority of India (AAI, being the relevant Governmental body responsible for managing the civil aviation sector in India) have the right to suspend the concession granted to the ground handling services provider and step-in and perform the ground handling services without paying any damages or compensation for such period of suspension.
Engaging contract labour
Given the sensitivities of the services being provided, ground handling entities are specifically prohibited from engaging any employees through a contractor or manpower supplier. All ground handling services are mandatorily required to be provided exclusively by the full-time employees of the ground handling entities.
Foreign investment, particularly from countries sharing land borders with India
From a foreign direct investment (FDI) point of view, until 2015, FDI of only 74 per cent. was allowed in ground handling entities, of which upto 49 per cent. was permitted under the automatic route (i.e., without the need for seeking prior approval of the Government), with the balance being subject to prior approval of the Government being obtained. However, with effect from November 2015, 100 per cent. FDI under the automatic route has been permitted in ground handling entities.
Separate from the sectoral FDI restrictions, the Government of India issued Press Note 3 (PN3) in April 2020, which required that investments from an entity based in a country which shares a land border with India, or where the “beneficial owner” of the investment is situated in a country which shares a land border with India, will be subject to prior Government approval. Whilst it has been almost three years since the introduction of PN3, there is still a lack of clarity around its scope and interpretation coupled with a general hesitance on the part of the Government in issuing approvals. This hesitance is particularly stark in case of certain sensitive sectors, which includes the aviation sector. Based on a very recent set of developments on this front, it is expected that Government approvals may be forthcoming in the case of greenfield joint ventures being set up in connection with certain sectors such as electronic components essential for mobile manufacturing, EV manufacturing, etc., but nothing concrete has been reported for investments in the aviation sector or in ground handling entities as such.
Interestingly, whilst not specifically legislated for, seemingly as an extension of PN3, there has been an increasing trend of other authorities such as BCAS also viewing applications for granting security clearances (or indeed renewing clearances where those have expired) to entities where they either have investments from, or directors on their boards from, countries sharing land borders with India more carefully.
Major litigations impacting the sector
A few pertinent issues relating to the provision of ground handling services have also been dealt with by Indian courts.
Very recently, the Supreme Court of India (the highest judicial body) ruled[1] that AAI has complete freedom while deciding the eligibility criteria and terms of the tender for the grant of a concession for ground handling services at the airports operated by AAI, subject only to such terms not being arbitrary or actuated by bias. The decision was given in the context of the challenge made by the Centre for Aviation Policy, Safety and Research (CAPSR, an independent body in the civil aviation space) to a tender floated by the AAI for grant of a concession of ground handling services for a group of airports on the grounds that the tender proposed clustering of airports as well as certain stringent prior qualification and financial requirements, all of which were seen as an attempt to restrict participation of smaller ground handling entities currently operating in smaller airports. AAI, on the other hand, contended that the clustering of airports was done with the aim of promoting regional connectivity and avoiding the cumbersome task of inviting and dealing with separate tenders for each airport. The qualification and financial requirements were considered necessary in light of the significant obligations of ground handling entities. AAI also contended that it is a settled principle of law that the tender making authority has the power to set the terms and conditions and these are not open to judicial scrutiny.
Another relevant principle that was re-emphasized recently[2] by the Telecom Disputes Settlement and Appellate Tribunal (TDSAT, the relevant appellate tribunal for dealing with aviation related matters) was that ground handling services are “non-aeronautical” services by nature, and, therefore, the parties can commercially agree on the tariff to be paid in respect of these. An appeal was filed by the airport operator of the New Delhi Airport – DIAL before TDSAT challenging the communications issued by the Airports Economic Regulatory Authority of India (AERA, which is responsible for regulating tariff and other expenditure and fees at airports) wherein it was stated that ground handling services are “aeronautical” in nature if ground handling services are rendered by third party ground handling entities and accordingly AERA has the authority to fix the tariff for these services. DIAL contended that ground handling services have been enumerated as non-aeronautical services under the agreement entered into between DIAL and AERA for the operation, management and development of the airport at New Delhi (OMDA) and that OMDA grants DIAL the power to fix the tariff for non-aeronautical services. TDSAT, while upholding DIAL’s contentions, noted that this issue has already been determined by TDSAT in a 2018 judgement and has been affirmed by the Supreme Court as well wherein it was clarified that the revenue generated from ground handling services is non-aeronautical in nature irrespective of whether such services were performed by the airport operator itself or through other third-party ground handling entities. The tribunal also clarified that the third-party ground handling entities need not be a party to the OMDA as the OMDA allows the airport operators to grant concessions to third party entities.
In another landmark ruling[3], the High Court of Kerala held that the central Government and not the respective state Governments has the jurisdiction to deal with labour related matters relating to ground handling entities. The decision was given in the context of certain notices issued by the local labour officers calling upon the ground handling entity providing services at the airport at Cochin to respond to certain queries and objections under various labour related legislations.
[1] Airports Authority of India v. Centre for Aviation Policy, Safety and Research (2022).
[2] Delhi International Airport Limited v. Airports Economic Regulatory Authority of India (2023).
[3] Celebi Airport Services India Private Limited v. Union of India (2020).
This material is for general information only and is not intended to provide legal advice.
For further information, please contact:
Karam Daulet-Singh
Managing Partner
karam.dauletsingh@touchstonepartners.com
Sameeksha Chowla
Counsel
sameeksha.chowla@touchstonepartners.com
Vansh Aggarwal
Associate
vansh.aggarwal@touchstonepartners.com