Comptroller and Auditor General of India slams government, says Air India deal ‘ill-timed’

The nation’s official auditor has slammed the aviation ministry and flagship carrier Air India for haste in pushing the process for buying 111 aircraft, relying on assumptions it said were at best “flawed”.

 

The Comptroller and Auditor General of India (CAG) reviewed the decision to buy 68 Boeing aircraft for Air India and 43 Airbus planes for Indian Airlines, and called the acquisition process ill-timed and driven from the top.

Air India and Indian Airlines were merged in April 2007 into the National Aviation Company of India Ltd (NACIL), which has since been renamed as Air India.

In a report tabled in the Lok Sabha, the lower house of parliament, yesterday, the CAG said the initial proposal to acquire aircraft was first made in 1996. But soon after the United Progressive Alliance (UPA) government took charge in 2004, the procurement process picked up speed and the deal was wrapped up in seven months.

The new deal also saw Air India altering the acquisition plan, at the behest of the civil aviation ministry, from buying 18 small capacity short-range aircraft and 10 medium capacity long-range planes in January 2004 to 50 medium capacity long-range aircraft in November 2004.

The auditor said that between August 2004 and December 2005, the proposal was formulated and approved by the Air India board, the ministry of civil aviation, the Planning Commission, the Public Investment Board and the Cabinet Committee on Economic Affairs.

“The government conveyed its approval on December 30 and the contract was signed by Air India with Boeing on the same day. From the receipt of proposal to signing of contract took seven months. Many of the key assumptions underlying the revised project report (for 50 long-range aircraft) were flawed,” the CAG said in its findings.

“The chronology of events leading to change in aircraft requirements of Air India clearly brings out the role played by the ministry in the proposal being revised from 10 long-range aircraft to 50 long-range aircraft,” the auditor said.

About the acquisition of 43 aircraft from Airbus for the erstwhile Indian Airlines, the CAG said the needs of the carrier could have been met by a more limited number of planes.

From 2006-07 when Indian Airlines started to take delivery of the aircraft to 2009-10, the carrier’s total revenue declined by 25% from Rs7,196 crore (Rs70bn) to Rs5,372 crore as the cost of operating these many flights took a huge toll on the company’s finances.

“Indian Airlines could not even achieve constant revenues at constant costs, let alone increased yields; this was to be expected, considering the wholly unrealistic nature of the assumption. This factor, though overstated by the airline, should have been questioned by the government,” the CAG said.

The merger of Indian Airlines and Air India was also questioned by the CAG, which called it unjustified and not adequately validated.

Reliance violated gas contract: auditor

The Mukesh Ambani-led Reliance Industries violated the agreement to share gas produced in the Krishna-Godavari basin and failed to part with the government’s due share of the hydrocarbon, the official auditor said yesterday. In a report tabled in parliament, the Comptroller and Auditor General of India (CAG) did not make any comment, though, on the manner in which the company had sharply raised its capital expenditure claimed on the project from $2.4bn to $8.8bn. Under the production-sharing contract, Reliance Industries should have given to the government a share of 25% of the total area outside that allocated to it. However, the company was allowed to treat the entire area as its discovered area, the report said.

There was also an about-turn in the government’s and the watchdog’s own interpretation, said the auditor, since it earlier had held that the 25% share must be given to the government. “Subsequently, in February 2009, the government also conveyed its approval to treat the entire contract area of 7,645sq km as discovery area, thus enabling the operator to completely avoid relinquishment of area,” the report said.

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