Aircraft purchases, merger caused Air India mess: CAG

Sep 09, 2011, 07:59 IST | Agencies

The Comptroller and Auditor General of India tabled its report in parliament blaming dismal management practices for Air India's downfall

The Comptroller and Auditor General of India tabled its report in parliament blaming dismal management practices for Air India's downfall

The government's auditor said yesterday the decision to buy new aircraft, which was driven by the aviation ministry, and dismal management practices had led to the downfall of flag carrier Air India.

"The current dismal state-of-affairs of Air India is a combination of factors like, risky aircraft acquisition, an ill-timed merger and operational deficiencies," the Comptroller and Auditor General of India (CAG) said in its report tabled in parliament.

"Air India is no more a favoured airline for passengers. The services and criteria that benchmark a favoured and popular airline are absent in Air India," the report said.

Reviewing the decision to buy 68 Boeing aircraft for Air India and 43 Airbus planes for Indian Airlines the report termed 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.
The merger was, however, criticised by the auditor who called it ill-timed and done without thought to the synergies that could be exploited.

The report deals with the period the Nationalist Congress Party's Praful Patel was the civil aviation minister. Patel is now the heavy industries minister.

The CAG said the initial proposal to acquire aircraft was made in 1996. But soon after the United Progressive Alliance (UPA) government assumed office in 2004, the procurement process picked up and the deal was wrapped up in seven months.

The 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.

"Government conveyed its approval on Dec 30, 2005 and the contract was signed by Air India with Boeing on the same day.

From the receipt of the proposal to the signing of contract took seven months. Many of the key assumptions underlying the revised project report (for 50 long-range aircraft) were flawed," said the CAG 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 limited number of planes.

The CAG also said that had some thought been put into the merger, the cost of fleet acquisition for the combined entity would be much lower.

The auditor's findings on the ministry's role probably can be best summed up with this remark: "There is also no evidence of MoCA having provided it (Air India) with positive support in the last few years."

Reacting to the report, Patel told reporters: "In 2004, Air India and Indian Airlines had 93 aircraft, most of which were 20 years old. There was no way the airlines could have withstood the global competition with these planes."

"Whatever the government did was to make the airline commercially viable. We had to decide immediately otherwise the airline would have closed down," Patel added.

The year in which Air India and Indian Airlines were merged into the National Aviation Company of India Ltd. (NACIL)

Some of the recommendations to revive the airline
Government should infuse equity if the airline agrees to revamp operations, cut costs

Reduce employee incentives and rethink on purchase of additional aircraft

Rationalisation of routes and cutting down on unnecessary staff

Ask senior officials to personally supervise operations and take feedback

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