Flying to Delhi, Mumbai to get costlier as GMR, Adani win case over tariff math

Airport charges for the Delhi and Mumbai international terminals can rise by about 6% from the current revenue base over the next decade, as per analysts at Kotak Institutional Equities. The higher costs could be equivalent to 3.4% of the sales of IndiGo, India’s largest airline, according to the analysts. The carrier reported a topline of ₹80,803 crore for 2024-25.

The issue centres around the calculation of the Hypothetical Regulatory Asset Base (HRAB), which governs how much revenue operators can make from an airport. The airport business is effectively a monopoly in most Indian cities, making it critical for regulators to cap the maximum earnings for operators to keep air travel affordable. Higher the HRAB, the more airports can charge in airport fees and tariffs.

The Airport Economic Regulatory Authority of India (AERA) had excluded non-aeronautical revenues such as from airport parking, food courts, and advertising from the HRAB calculation at Mumbai and Delhi, only factoring in earnings such as landing fees and passenger charges.

However, the Delhi and Mumbai international airports, which were the first to be privatized in 2006, challenged this system in 2012-13 arguing that both aeronautical and non-aeronautical incomes should be considered for calculating HRAB. The case went on for more than a decade.

A tribunal has ordered a fresh revenue calculation for Delhi and Mumbai airports, allowing GMR and Adani to include non-aeronautical income like retail, ads, and parking—significantly increasing their earnings potential.

Prior to privatization, the ministry of civil aviation (MoCA) had included both aeronautical and non-aeronautical revenues for calculating HRAB under a so-called single-till approach. At airports that were privatized after the Mumbai and Delhi airports, non-aeronautical revenue is given a lower weight in calculating the HRAB. This system is called the hybrid-till approach.

In 2023, the Supreme Court of India sided with the Delhi and Mumbai airport operators after the submission of new evidence—a 2011 letter from the civil aviation ministry to AERA stating that the original intention had been to use the single-till approach at Mumbai and Delhi.

The top court asked the Telecom Disputes Settlement and Appellate Tribunal to reconsider the calculation of HRAB to include non-aeronautical revenues. TDSAT has been the appellate arbiter for aviation disputes since the Airports Economic Regulatory Authority Appellate Tribunal was merged with it in 2017.

What about the lost revenue?

The appellate tribunal in a 1 July judgment quashed the airport regulator’s tariff decision for the 2009-2014 period, agreeing with GMR Airports’s claim that the aviation regulator had under-calculated the investment base (HRAB) using wrong methods.

The appellate tribunal also said AERA had ignored a 2011 letter from the civil aviation ministry directing it to recalculate HRBA within 12 weeks. The Airports Authority of India (AAI) had also confirmed in a letter dated 18 June 2018 that tariffs for 2008-09 were based on a single-till model, it said.

GMR and Adani did not reply to Mint’s queries on the matter. Queries emailed to India’s leading airlines went unanswered.

“The recalculation of HRAB using the single-till mechanism will increase the revenue base for DIAL (Delhi International Airport Ltd) and MIAL (Mumbai International Airport Ltd) as non-aeronautical revenues are now included in the tariff calculation,” said Aslam Ahmed, partner at Singhania & Co., a law firm.

However, TDSAT in its 1 July order did not state anything about lost revenue recovery from the past. “To claim interest and recovery of lost tariff, a separate suit has to be filed claiming the above reliefs,” said Ahmed.

The lost revenues could likely be used for the calculation of future HRAB using an accounting method called true-up, said an executive at one of the two airport operators. The executive spoke on condition of anonymity as the matter is sub-judice.

As per the calculations of the Kotak analysts, the net present value of the lost revenue at Delhi, including interest, is about ₹17,500 crore, which if allowed, could be recovered from the 80 million annual passengers of Delhi Airport.

Kotak Institutional Equities has raised its fair value estimate for GMR Airports from ₹91 to ₹96 per share. The stock ended Friday’s trading on NSE down 2.10% at ₹90.36 per share, while the benchmark Nifty 50 index fell 0.81%.

“It remains to be seen whether the regulator will accommodate this tariff increase right now or if it will be postponed to the FY29-34 cycle, since they have already decided on the tariffs for FY24-29,” said an analyst at a leading brokerage, speaking on condition of anonymity.

A precedent

India’s airports authority could still appeal the appellate tribunal’s decision at the Supreme Court. But the new evidence cited in the Supreme Court ruling supported the two airport operators’ interpretation, strengthening their case, lawyers said.

“In the event AERA appeals any future adverse finding, (the civil aviation ministry’s) 2011 letter will act as primary documentary evidence affirming the government’s intent,” said Alay Razvi, managing partner at law firm Accord Juris.

“AERA can question the lack of enforceability of MoCA’s (aviation ministry’s) letter and say it is not a binding order. But it is highly unlikely as MoCA was the pre-expert body before AERA came into existence,” added Ahmed of Singhania & Co.

To be sure, TDSAT’s 1 July judgement is limited to the First Control Period (2009-2014), when AERA took over from the aviation ministry and set the aeronautical tariffs. However, it paves the way for the Delhi and Mumbai airports to get the same relief in subsequent periods too.

“The judgement by the tribunal establishes precedent value for other tariff control periods and other PPP (public-private partnership) airports with similar disputes,” said Razvi.

Between 1 July, when TDSAT passed its judgement, and Friday, 11 July, GMR Airports shares gained about 5%, while the Nifty50 declined 1.5% in that period. Adani Airports, which is housed under Adani Enterprises Ltd, is not listed on stock exchanges.

GMR Airports’s revenue rose 19% year-on-year to ₹10,414 crore in FY25 while its loss narrowed to ₹817 crore from a loss of ₹828 crore in the year before. Adani Airports’s topline rose 27% to ₹10,224 crore in FY25 while it reported a pre-tax loss of ₹5 crore against a loss of ₹68 crore in FY24.