A report by the government’s auditor has blamed former aviation minister Praful Patel for pushing through an untimely merger of Air India Ltd and Indian Airlines; forcing Air India to buy aircraft it didn’t need; and signing off rights the airline held to fly certain routes to international carriers.
The report by the Comptroller and Auditor General of India (CAG) that was submitted to Parliament on Thursday, found fault with Patel for not supporting the airline, which has lurched from one crisis to another over the past few years and now finds itself in a debt trap.
The former aviation minister, now in charge of the ministry of heavy industries, defended himself and said all his decisions followed the proper process and were made with the involvement of other arms of the government.
Independent analysts and political opponents of the government refused to buy the argument.
The auditor’s report comes as another blow to the government, which has been mired in controversies, including those related to corruption in organizing last year’s Commonwealth Games and the 2008 issue of radio waves to telcos, and criticized for its inability to contain inflation.
In 2002-03, Air India (the combined entity of Indian Airlines and Air India) lost Rs.63 crore. This ballooned to almost Rs.7,000 crore in 2010-11 after a much-publicized merger in 2007 that was aimed at making the airline profitable by the third year. The government is now trying to script a turnaround of Air India that has defaulted on payments to employees, oil companies and airports.
The auditor, which covered the 2002-2010 period in its review, said in its 121-page report that Air India was forced to buy aircraft from Boeing Co. and Airbus SAS in a hurry. It also detailed events that led to the company’s ambitious $11 billion (Rs.50,820 crore today) purchase on a paltry equity base of $34 million.
It said that in 2004, minister Patel, “in a meeting at Mumbai impressed upon the need for Air India to examine the possibility of non-stop India-US operations” and review its fleet acquisition plan.
Thereafter, the ministry “communicated the above-mentioned decisions on 5 August 2004 to Air India and directed them to revisit the acquisition proposal and submit a fresh proposal which would include revised requirements in view of” the “new dimension in the competition on the India/US route” and launch of a no-frills airline called “Air India Express”.
Interestingly, the India-US route was one on which Air India made the highest loss among all the routes it flew in 2005-06.
It lost Rs.552.44 crore in the India-US sector that year. By 2009-10, this had increased to Rs.1,522.15 crore.
“The above sequence of events clearly demonstrates that the erstwhile Air India was advised to revisit its proposal by” the ministry “into expanding its requirement of aircraft. Whilst their earlier proposal for 28 aircraft had taken two years to prepare and submit, the revised long-term fleet for 50 aircraft plan was completed in four months”, the auditor said.
The ministry also ignored warnings by its financial adviser, who had said then that “this (Airbus aircraft) project is not going to be financially viable”, the report added.
CAG also found fault with the Patel-led ministry over the merger of Indian Airlines and Air India soon after separate orders for both the airlines had been placed.
The report described it as an “an ill-timed merger undertaken strangely after separate aircraft acquisitions by Air India and Indian Airlines were completed, driven from the top (rather than by the perceived needs of both the airlines) with inadequate validation of the financial benefits for such a merger without adequate consideration of the difficulties involved in integration”.
The auditor saved its most damning criticism of Patel for international flying rights granted to foreign airlines, especially West Asian ones.
Dubai carriers had the rights to operate flights corresponding to 10,400 seats a week to India in 2003-04 to just six cities. This increased to 54,200 seats a week by 2008-09 to 14 cities.
In 2007, airline regulator, Directorate General of Civil Aviation, indicated that “while there was no justification for permitting Emirates request (for more seats and bigger aircraft), in view of the open-sky policy during the peak season and non-availability of seats to the travelling public, the ministry might like to consider the case”.
The auditor’s report said that the then aviation ministry joint secretary (R.K. Singh) “indicated the minister of civil aviation had discussed this case with him and in view of the winter rush and problem of getting seats on the flights, it was felt that we may agree to the upgradation request. This was approved by the minister”.
Similarly, while Air India disapproved of another round of bilateral talks with Dubai in 2008, “the proposal for holding bilateral talks was approved by the minister”.
“The sequence of events clearly demonstrates the one-sided nature of benefits to Emirates/Dubai,” CAG said.
It added that while Dubai’s aviation authority protected the interests of its airlines, India’s did not.
The former aviation minister stood by and defended each of the decisions criticized by CAG.
“In 2004, Air India and Indian Airlines had 93 aircraft, most of which were 20 years old,” he said. “There was no way the airline could have withstood the global competition with these planes.”
He added that several government bodies, including the Planning Commission and the Public Investment Board, were involved in the process of fleet acquisition.
“Whatever the government did in its wisdom was to make the airline commercially viable,” Patel said. “We had to decide immediately as to whether new planes should be bought, otherwise the airline would have closed down.”
Analysts don’t see it that way.
“I think it really indicts Praful Patel,” said Mohan Ranganathan, an aviation safety expert and member of the government-appointed Civil Aviation Safety Advisory Council, referring to CAG’s report. “The ministry’s defence is not on firm grounds.”
Ranganathan said Air India could have entered into code-sharing with airlines instead of giving up its rights to them in order to increase connectivity.
The main opposition Bharatiya Janata Party’s spokesperson Rajiv Pratap Rudy, a former aviation minister, alleged that CAG’s report highlighted a scam.
“CAG has very categorically stated that the purchase of aircraft was supply driven. There are financial implications which cross more than Rs.80,000 crore—it’s a matter for deep investigation,” he said.
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