Cross-Ownership Reforms in Indian Aviation: The Legal Framework and the Alternatives

The legal architecture that prevents cross-ownership today is not an accidental accretion of bureaucratic red tape but was deliberately, and painstakingly, constructed, brick by brick, in the aftermath of introducing the public-private partnership model in Indian airport ownership, precisely to guard against the very risks that are now being dismissed as manageable. The firewalls were not a mere afterthought but were seen as an essential condition of such outsourcing. Dismantling them would require an answer to a question that proponents seem to have so far sidestepped: what safeguards, short of structural separation, can truly prevent an airport operator from favouring its own airline – or a dominant airline from capturing the infrastructure its rivals need to survive?

What the Concession Agreements Say

The current restrictions on cross-ownership are embedded in the original 2006 PPP framework for Delhi and Mumbai airports.

Under the Operation, Maintenance and Development Agreements signed in 2006, the GMR-Fraport consortium for Delhi and the GVK consortium for Mumbai were granted 30-year concessions. The Airports Authority of India retained a 26% equity stake. The government imposed strict conditions:

• A lock-in period of at least seven years for equity holders.
• Capping of the aggregate equity held by all Indian scheduled airlines at 10%.
• No equity holding in the airport operating companies by any foreign airlines.

The concession agreements for newer airports like the Noida International Airport and Navi Mumbai International Airport provide that no scheduled airline, cargo airline, or their associates may hold more than 26% of the subscribed and paid-up equity of the concessionaire. This is a looser cap than the 10% for Delhi and Mumbai but is still a significant barrier.

These restrictions also operate in reverse, effectively preventing airport operators from owning or controlling airlines. The current proposal is centred on whether to waive these restrictions – such a waiver would require legal clearance from the law ministry and approval from the Union Cabinet.

The AAI Divestment Opportunity

The discussions come at a time when the Ministry has submitted a proposal to the PPP Appraisal Committee for the third round of airport concessions for 11 airports.

The government is also revisiting an earlier proposal for the Airports Authority of India to divest its entire 26% stake in the GMR-operated Delhi International Airport and Adani-operated Mumbai International Airport. The divestment is driven primarily by fiscal compulsions. The government is facing rising expenditure pressures – linked in part to the economic fallout of the US-Iran conflict – which have increased the urgency of asset monetisation plans. Selling these mature minority holdings is expected to generate nearly ₹57.50 billion over two years: ₹28.00 billion in 2026-27 and ₹29.50 billion in 2027-28.

The proceeds are intended to be reinvested into building new greenfield airports and expanding regional connectivity in tier-2 and tier-3 cities under the UDAN scheme, which has come under scrutiny for its outcomes. Despite an investment of ₹46.38 billion in airport infrastructure and ₹47.00 billion in viability gap funding, 15 UDAN airports are currently non-operational, costing nearly ₹9 billion in maintenance alone, and nearly 50% of launched routes no longer have commercial flights. Critics argue that the scheme has struggled with poor demand estimation, airlines exiting once subsidies end, and infrastructure that outpaces actual passenger traffic.

The stake sale was previously deferred in 2022 over valuation concerns. Its revival under NMP 2.0 reflects both the immediate fiscal need and the strategic opportunity created by the ongoing cross-ownership policy debate. Critically, the divestment creates a concrete and immediate pathway for airlines like Air India or IndiGo to acquire stakes in the country’s busiest airports, transforming the cross-ownership policy from a theoretical exercise into a live and highly lucrative transaction opportunity.

The Government’s Safeguards

The government has already indicated that if the clause is amended, it will include provisions mandating an arm’s-length distance between the airport and airline arms – barring direct or indirect disclosure of commercially-sensitive information relating to slot allocation and prohibiting common key managerial executives across both arms. It also argues that India’s slot allocation guidelines, under which an incumbent airline that has used 80% of its allocated slots is ensured of retaining them in the next season, are sufficient to prevent any unfair advantage.

To be fair, there are some clear arguments in favour of the proposed change:

(i) Breaking the Airline Duopoly: The duopoly is real and damaging. IndiGo and Air India control nearly 90% of domestic capacity, leaving little room for genuine price competition or consumer choice. Authorities have indicated that the government is looking at whether a well-funded airline operator will inject much-needed competition. Theoretically, the entry of a well-capitalised, infrastructure-backed airline could bring in much-needed competition and lower fares.

(ii) The Aircraft Supply Constraint: There is a practical constraint on the worst-case scenarios – the global shortage of aircraft means any new entry, even with deep pockets, will be constrained. Delivery delays at Airbus and Boeing have slowed expansion plans worldwide, with pandemic-era supply chain disruptions continuing to limit availability.

(iii) Coordinated Infrastructure Investment: Academic research suggests that vertical integration can yield efficiency benefits, including the removal of double-marginalisation and coordination of optimal production in supply chains. An integrated entity could align its fleet planning, route network, and terminal development in ways that a separated structure cannot.

(iv) The Adani-Embraer Synergy: Adani’s unstated interest in starting an airline is seen as strongly linked to its plans to set up an aircraft manufacturing facility in partnership with Embraer. Having failed to garner interest from existing airlines to buy Embraer planes, Adani sees starting a carrier of its own as a way to make the project viable. A manufacturing unit can only become commercially viable if it secures a sizeable order for the planes. This represents a potential efficiency gain from vertical integration that could benefit the broader aviation ecosystem.

Each of these arguments has surface plausibility. But they rest on a fragile foundation: the assumption that conduct regulation can effectively police a structural conflict of interest. While the benefits are contingent, time-bound, and reversible, the risks are structural, permanent, and self-reinforcing. A new airline might lower fares today, but a vertically integrated oligopoly would raise barriers to entry tomorrow. And though coordinated investment could yield efficiencies, those efficiencies would accrue to an entity with the power and incentive to exclude rivals. Similarly, the Adani-Embraer project may create jobs, but it would also create a powerful incumbent with every reason to protect its position. The speculative benefits, even if realised, do not outweigh the dangers of permanent erosion of structural firewalls between infrastructure and operations.

The Oligopoly Risk

The other question that needs to be addressed is whether, if we have two or three more players – with, say, IndiGo and Air India also acquiring airport stakes – that would reduce monopoly fears.

The evidence suggests it does not; it merely shifts the risk from a duopoly to a more complex oligopoly problem. The fundamental concern is not the number of players, but the incentive to abuse market power that comes with controlling both an airport (a natural monopoly) and an airline. Whether two or three such integrated giants exist, the core conflict of interest and the potential for market distortion remain.

The current major airport PPP concessions are already held by a duopoly of operators: the Adani Group and GMR Airports. Allowing airlines to acquire stakes would create a small group of integrated conglomerates, each with the incentive and ability to create “fortress hubs” that are difficult for competitors to enter. The government itself has acknowledged this risk, reversing its earlier controversial policy stance and now proposing to cap airport bundles at “two to three” per bidder in the next PPP bid round to prevent an oligopoly.

The Alternatives: Structural Separation and Genuine Reform

If the goal is to break the duopoly and stimulate competition, there are safer, more effective alternatives than allowing airport operators to own airlines – or airlines to own airports. These alternatives address the root causes of market concentration without introducing the perils of vertical integration.

1. Bring ATF Under GST

Aviation Turbine Fuel accounts for 35-40% of an airline’s operating costs, and the cascading tax burden – state VAT plus central excise – makes Indian airlines structurally unviable. Bringing ATF under the Goods and Services Tax would provide a uniform, lower tax regime across the country, reducing costs, lowering fares, and improving the financial viability of all carriers.

2. Address the Pilot Shortage

India faces a chronic shortage of pilots and crew, a binding constraint on the entire industry. The December 2025 IndiGo crisis was triggered by new flight duty time limitation rules that effectively reduced available pilot hours. Instead of ad-hoc regulatory interventions, the government could invest in streamlining the licensing process, in improving the training infrastructure, and in creating incentives for the expansion of pilot training capacity.

3. Rationalise the Slot Allocation System

One of the most potent tools for anticompetitive behaviour is control over airport slots. India should consider a more transparent, market-based system for slot allocation, such as secondary slot trading, which would allow airlines to buy and sell slots and reduce the advantage of incumbents. The government’s argument that the 80% “use-it-or-lose-it” rule is sufficient to prevent unfair advantage is contested by airline executives who fear that an airport-owning airline could still manipulate the system.

4. Regulate Conduct, Not Ownership

If vertical integration is to be permitted – in either direction – it should be accompanied by robust ex ante regulation, not just ex post antitrust enforcement. This would include:

• Open Access Policies: Compelling the integrated operator to offer all airlines access to airport infrastructure at reasonable, non-discriminatory prices.
• Accounting Separation: Requiring the integrated entity to maintain separate accounts for its airport and airline businesses, with transfer prices that are transparent and non-discriminatory.
• Strict Firewalls: Prohibiting the sharing of commercially sensitive information between the airport and airline arms of the business, and preventing cross-directorships.

The World Bank notes that such regulations are costly to monitor and enforce, and developing countries with limited regulatory capacity are better advised to choose structural separation.

5. Encourage Limited Partnerships

If cross-investment is to be considered, it should be strictly limited, minority, and non-controlling. Australia’s 5% cap is a model: it allows airport operators to have a financial interest in airlines without gaining effective control or creating incentives for anticompetitive conduct.

Ultimately, the proposal to relax cross-ownership caps confronts a problem. The aviation sector is unquestionably broken: a duopoly stifles competition, a graveyard of failed carriers litters the past three decades, and the regulator appears to be lurching from crisis to crisis. But the proposed remedy is the aviation equivalent of treating a broken leg by amputating the foot. The fact that the proposal itself has generated such immediate pushback from the current market leader and a formal denial from the leading airport operator shows just how sensitive and conflicted the issue is. The core structural problem remains, even as the immediate players keep shifting their public positions. The choice is not between a duopoly and a vertically integrated oligopoly, but whether to dismantle the firewalls or to first fix the underlying distortions.

This is the concluding part of a two-part series. Part 1 examined whether easing aviation cross-ownership rules could improve competition or create new conflicts among airport operators, airlines and regulators.