AERA Act, 2008, was enacted by Parliament and was notified in the Gazette of India vide Gazette No.36 dated 05.12.2008.
The Act provides for the establishment of an Airports Economic Regulatory Authority (AERA) to regulate tariff and other charges for the aeronautical services rendered at airports and to monitor performance standards of airports.  Thus, AERA is the economic regulator of the airport infrastructure sector and air navigation services in the country.        

The Central Government have notified the  establishment of the Authority with effect from 12th May, 2009; vide Gazette Notification (GSR) No.317(E) dated 12th May, 2009.

The provisions of AERA Act, except chapter III and chapter VI, came into force on 1st day of January 2009. 
The provisions of Chapter III and VI also came into force from first day of September,2009.

In terms of Section 1(3), the AERA Act applies to: 
a) All airports whereat air transport services are operated or are intended to be operated, other than airports and airfields belonging to or subject to the control of the Armed Forces or paramilitary Forces of the Union.;
b) All private airports and leased airports;
c) All civil enclaves;
d) All major airports. 

a) “Airport” means a landing and taking off area for aircrafts, usually with runways and aircraft maintenance and passenger facilities and includes an aerodrome as defined in clause (2) Of section 2 of the Aircraft Act, 1934;{ Section 2 (b) }

b) “Major Airport” means any airport which has, or is designated to have, annual passenger throughput in excess of one and half million or any other airport as the Central Government may, by notification, specify as such;{ Section 2 (i) }

c) “Airport User” means any person availing of passenger or cargo facilities at an airport;{ Section 2 (c) }

d) “Aeronautical Services” means any service provided –

1.  For navigation, surveillance and supportive communication thereto for air traffic management;
2.  For the landing, housing or parking of an aircraft or any other ground facility offered in  connection with aircraft operations at an airport;
3.  For ground safety services at an airport;
4.  For ground handling services relating to aircraft, passengers and cargo at an airport;
5.  For the cargo facility at an airport;
6.  For supplying fuel to the aircraft at an airport; and
7.  For a stake-holder at an airport, for which the charges, in the opinion of the Central Government for the reasons to be recorded in writing, may be determined by the Authority;{ Section 2 (a) }

In terms of Section 13 of the Act, the Authority shall perform following functions in respect of major airports:

• To determine the tariff for the aeronautical services taking into consideration—
  • The capital expenditure incurred and timely investment in 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;
  • Revenue received from services other than the aeronautical services;
  • The concession offered by the Central Government in any agreement or memorandum of understanding or otherwise;
  • Any other factor which may be relevant for the purposes of this Act:

Provided that different tariff structures may be determined for different airports having regard to all or any of the above considerations specified at sub-clauses (i) to (vii);

• To determine the amount of the development fees in respect of major airports;
• To determine the amount of the passengers service fee levied under rule 88 of the Aircraft Rules, 1937 made under the Aircraft Act, 1934;
• To monitor the set performance standards relating to quality, continuity and reliability of service as may be specified by the Central Government or any authority authorised by it in this behalf;
• To call for such information as may be necessary to determine the tariff under clause (a);
• To 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 this Act.

1. Where the Authority considers it expedient so to do, it may by order in writing—

• Call upon any service provider at any time to furnish in writing such information or explanation relating to its functions as the Authority may require to assess the performance of the service provider; or
• Appoint one or more persons to make an inquiry in relation to the affairs of  any service provider; and
• Direct any of its officers or employees to inspect the books of account or other documents of any service provider.{ Section 14(1) }.

2.   The Authority shall have the power to issue such directions to monitor the performance of the service providers as it may consider necessary for proper functioning by service providers.{ Section 14(4)) }
3.  The Authority may, for the purpose of discharge of its functions under the Act, issue, from time to time to the service providers, such directions, as it may consider necessary.  {Section 15}. 
4. The Authority or any other officer specially authorised by it in this behalf may enter any building or place where the Authority has reason to believe that any document relating to the subject matter of the inquiry may be found, and may seize any such document or take extracts or copies therefrom subject to the provisions of section 100 of the Code of Criminal Procedure, 1973 in so far as they may be applicable.{ Section 16 }

As per Section 13(2) of the Act, the Authority shall determine the tariff once in five years and may if so considered appropriate and in public interest, amend, from time to time during the said period of five years, the tariff so determined.

As per air traffic statistics for 2008-09, following airports in the country had annual passenger throughput in excess of 1.5 million, thereby qualifying to be ‘major airports’:  

Chairperson and Members: The Authority shall consist of a Chairperson and two other Members to be appointed by the Central Government:
Provided that wherever the Authority is deciding a matter involving a civil enclave in a defence airfield, there shall be an additional Member, not below the rank of Additional Secretary to the Government of India, to be nominated by the Ministry of Defence.{ Section 4(1) }

Secretary and other officers : The Central Government may appoint a Secretary to discharge his functions under the Act.  The Authority may appoint such officers and other employees as it considers necessary for the efficient discharge of its functions under the Act.  The Authority may engage, in accordance with the procedure specified by regulations such number of experts and professionals of integrity and outstanding ability, who have special knowledge of, and experience in, economics, law, business or such other disciplines related to aviation as it deems necessary to assist the Authority in the discharge of its functions under this Act. { Section 9 (1), (2), (4) }

Passenger Service Fee is levied under rule 88 of the Indian Aircraft Rules 1937 which is collected by licensee from embarking passengers.  It has two components, namely, Security Component and Facilitation Component.  Security Component is utilised for incurring the expenditure in respect of the Aviation Security Force deployed at the airports and related equipments.  The Facilitation Component is appropriated by the airport operator (s) towards services provided to the passengers at the airport.  Further, Section 22 of the AAI Act empowers the AAI to charge fees for the amenities given to the passengers and visitors at any airport, civil enclave, heliport or airstrip.

User Development Fee is levied under rule 89 of the Aircraft rules 1937.  Though  the  rule does not prescribe the specific purpose of levy, UDF is conventionally levied to ensure fair return to the airport operators on the investments made for providing airport services.  In other words, UDF is intended to cover any deficit in revenues so as to ensure  fair return on investment.

Development Fee (DF) is levied on embarking passengers at an airport at the rate as may be prescribed by Central Government, as per Airports Authority of India Act, 1994 (Section 22A) for following purposes:

• Funding or financing the costs of upgradation, expansion or development of the airport at which the fee is collected; or
• Establishment or development of a new airport in lieu of the airport referred to in clause (a); or
• Investment in the equity in respect of shares to be subscribed by the Authority in companies engaged in establishing, owning, developing, operating or maintaining a private airport in lieu of the airport referred to in clause (a) or advancement of loans to such companies or other persons engaged in such activities.

It is ‘pre-funding’ measure in terms of Section 13(1)(b) of the AERA Act, AERA is required to determine the amount of development fee in respect of major airports.

In terms of rules 86, 88 and 89 of the Aircraft Rules, 1937, the rates of the tariff charges, the passenger service fee, and the user development fee, charged/levied at the major airports are to be as determined by AERA.