The adoption of International Financial Reporting Standards (IFRS) 16 has introduced significant changes in lease accounting, affecting industries governed by rate-of-return regulation. This study aims to examine how IFRS 16 impacts the regulated airport industry in India, specifically its influence on airport tariffs and the rate of return for airport operators, with a focus on its broader regulatory and policy implications.
A qualitative research approach is adopted using in-depth interviews with key stakeholders, including finance professionals, regulatory experts and industry consultants involved in airport industry. The study investigates both opportunities and challenges related to IFRS 16 adoption in airports operating under rate-of-return regulation.
The findings suggest that IFRS 16 changes cost structure, leading to higher allowable returns for airport operators, which in turn results in increased passenger tariffs. However, IFRS 16 also imposes challenges such as administrative complexities, contractual renegotiations and compliance burdens. These unintended consequences raise concerns about IFRS 16’s suitability for regulated industries and highlight the need for policy guidance in rate-of-return regulated airports.
This study contributes to the limited literature linking lease accounting and regulated infrastructure industries. By examining the case of Indian airports, it provides insights into the broader implications of IFRS 16 for regulatory frameworks. The findings are valuable for policymakers, regulators and industry practitioners in assessing the need for amendments to IFRS 16 or developing a specialized lease accounting framework for regulated industries.
