New Delhi In its bid to acquire 111 aircraft for two national carriers — Air India and erstwhile Indian Airlines — for nearly Rs 44,000 crore, the civil aviation ministry ignored red flags raised by several evaluating agencies, the Comptroller and Auditor General’s report is said to have concluded.
Not only was the deal fraught with anomalies, it also failed to incorporate concessions worth $350 million exacted by an Empowered Group of Ministers (EGoM) in a time-bound manner, in the final agreement, thus making them ‘non-enforceable’.
During the acquisition process, the ministry led by Praful Patel then, failed to adequately address initial concerns raised by the Planning Commission, the Public Investment Board (PIB) and its own then financial advisor. In 2005-06, erstwhile Indian Airlines (domestic and medium-haul international carrier) and Air India (international carrier) ordered 43 Airbus and 68 Boeing aircraft, respectively, to replace their ageing fleet.
When contacted, officials in the ministry said it clarified its position to the CAG in four drafts of the report sent to it so far. “The 111 aircraft acquisition was a collective decision of the government, vetted by an independent committee and taken at the level of the Prime Minister’s Office. It is easier to comment (referring to CAG report) having advantage of hindsight. The decision was immediately followed by a global recession, which changed the aviation scenario. It is not necessary for the ministry to address objections of all evaluating agencies, which can sometimes be superfluous. These objections were appended with the proposal sent for the Cabinet’s consideration which took the final call,” an official told The Indian Express.
The final CAG report is said to have removed references to any monetary losses arising out of the deal unlike its draft versions. Sources in the government said the report is likely to tabled in Parliament on Thursday. The report is said to have held the Cabinet Committee on Economic Affairs and the PIB, too responsible for approving the acquisition that was to be funded largely through debt. The ministry’s proposal backed 97 per cent debt financing and 3 per cent government equity against normal practice of 80:20. The deal — CAG is said to have concluded — pushed the national airline, Air India Limited, formed after Indian Airlines was merged into it, into a “debt trap with its deteriorating financial performance”.
In the case of Indian Airlines, given its losses in last three years, the Planning Commission, in a PIB meeting in November 2004 raised an alarm, cautioning against capacity increase. In the same meeting, the then financial advisor (FA) to the ministry also advocated that at least 15 planes be ordered on an optional basis, providing room for a rethink later. In March 2005, the FA said the order may not be financially viable.
The observations were overturned by the EGoM chaired by then finance minister P Chidambaram. While recommending 43 plane purchases, the PIB asked the ministry to furnish additional information — related to allowing domestic carriers to fly abroad, economic viability of the proposal and benchmark pricing for further negotiations — when it takes the proposal to the CCEA. The auditor is said to have blamed each of these evaluating agencies for just forwarding their concerns and imposing conditions, while none of them ensured compliance.
It observed similar discrepancies in the Air India 68 aircraft purchase deal. It has questioned the wisdom of the ministry for ramping up the original 28 aircraft order to 68 — despite objections from the then financial advisor in the ministry. The report is said to take to task the ministry for failing to ensure that the concessions exacted by the EGoM from the two plane suppliers — French manufacturer Airbus and US’ Boeing — during final price negotiations were included in the final agreement. The EGoM had negotiated — separately with the two suppliers — concessions like investing in training facilities, maintenance, repair and overhaul (MRO) and warehouse in the country, amounting to $175 million each.
The report, said sources, has called these concessions ‘meagre’ and pointed towards non-inclusion of a time frame for their implementation in the final agreement. Till date, CAG has noted, these investments have not been concluded, more than five years after the deal was signed.
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