Opening the Pandora’s Box- What Went Wrong with Air India?

Written By: Pathikrit Payne
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The explosive revelations by Vinod Rai, former head of CAG, on Air India's expensive acquisition of aircrafts, has once again opened a Pandora's box and revealed two distinct things. In the first place, it revealed how in the name of policy decisions, some of the most blatant and bizarre decisions were taken which were not in the interest of the nation but invariably they were in the interest of some vested interests. Secondly it also revealed why organizations like CAG need more of enforcement power to correct the anomalies.

What Really Happened with Air India?

However those who thought that the buck with UPA stopped with only the Coal Block allocation scam and the 2G scam, the saga of how the then Civil Aviation Minister Praful Patel literally forced the Air India Board to increase the size of the order for new planes from 28 to a whopping 68 planes at a total cost of Rs 50,000 crore, proved that more surprises are awaiting with respect to suspicious cases of wrong doings during UPA regime. The Air India deal for 68 aircrafts was financed with a back breaking 97% debt proportion, good enough to make a company perpetually bankrupt and mired in debts.

This decision was taken during UPA-1 regime. Not only Air India was made to buy 40 more planes than its original requirement for 28 planes, in the same time Indian Airlines, later named as Indian was also buying 43 aircrafts. While Air India was buying from Boeing, the Indian orders were for Airbus.

Did it help Air India to go for such deals with 97% debt?

In other words, the two state owned carriers were together made to buy 111 aircrafts and then they were merged into one entity thereby creating duplicity of fleet. The merger of Indian and Air India was not just ill conceived but was done in haste without any proper revival plan for the national carriers in place. Today the combined entity named Air India Limited which runs Air India, is in a mess and is one of the worst performing PSUs of the country.

While the former Civil Aviation Minister Praful Patel has been trying to justify his act by stating that it was a collective policy decision, the biggest question that remains unanswered is what kind of a policy decision would allow a company to buy aircrafts which are not needed and that too with a 97% debt component? The Air India deal for huge number of aircrafts certainly, it seems, ended up benefitting many but not Air India.

Brand New Planes bought and then sold off in a few years' time?

If one looks at the kind of planes that were purchased, it included several Boeing 777-200 Long Range intercontinental aircrafts as well as 27 Boeing 787 Dreamliners. The shocking thing is that Air India hardly had much use for so many long range planes and eventually it sold 5 of those aircrafts to Etihad Airways.

Now the question is which sensitive organization in rational sense would buy brand new aircrafts and then sell them at one-fifth of the price unless the case is of the company being forced to buy the planes by some vested interests? Something equally shocking is the fact that even when so many intercontinental planes were being bought by Air India, the Ministry was handing over lucrative overseas flying rights to foreign players instead of getting them utilized by Air India.

The revelations by former CAG head about the issue of Air India's humongous purchase, is nothing new. This news has been in media for many years now. And if the logic of the Civil Aviation Minister was that increased purchases would help in making Air India gain more market share and profitability then it has surely not happened in that manner. Air India, saddled with a back breaking debt and being run without a professional approach is now almost near to bankruptcy without any possibility of it becoming viable in the medium term.

Contrast with the Private Airlines Companies

In the last half a decade, several private airlines have entered the Indian market and they have well laid plans to expand their operations. Many of them have ordered a huge number of aircrafts and have inducted them in a calibrated manner by keeping the market conditions in mind. While Indigo leads the race with a brand new fleet, gradual expansion of operations and phased induction of crafts, Spicejet and Go Air are also fast doing the catching game.

Their measured approach, buying of aircrafts specifically which are needed for expansion in domestic market, intelligent financing have raced them far ahead of the national carriers. The market is going to get even more competitive with the arrival of Air Asia India, Air Costa and that of TATA-SIA venture as well as some other airlines companies like Air One

In a ruthlessly competitive market, there is no place for likes of Air India or Kingfisher Airlines

Meanwhile the collapse of Kingfisher Airlines vindicated how merciless the aviations sector is and how little there is room for error. Kingfisher was started with much fanfare and for grabbing overseas flight rights Vijay Mallya acquired Air Deccan but the large fleet without any well laid revenue model or expansion plan eventually led to its gigantic collapse. The path on which Air India is travelling is no different either. If one collapsed because of fancy and lack of vision of the promoter the other invariably is sinking because of a former Minister's whims and interest in seeing more planes are purchased by Air India than needed.

What next for CAG?

The saga of Air India, Coal Block Allocation Scam as well as the 2G spectrum scam exemplify the extent of transgressions and malpractice that can be done in India unless major administrative reforms are brought in. The limitless power of ministers and the clout they wield would always lead to such massive transgressions which is why it is imperative to have more number of independent regulatory authorities for sectors which would have the prerogative and the mandate to make policies.

While the constituents of the erstwhile UPA regime have been harping on the bogus logic that these are policy decisions and CAG overstepped its mandate by commenting on policy affairs, fact of the matter remains that every policy decision which uses tax payers' money to buy expensive equipment and which ends up creating major losses for the national exchequer without any concurrent benefit to the sectors or organizations for which such decisions are taken, then surely the CAG would have the right to intervene and bring to justice the perpetrators and personal beneficiaries of such dubious deals.

The present NDA regime should ideally give more power to the CAG and give it enforcement rights. While one should also make sure that decision making does not get stalled and both polity and bureaucracy is given enough elbow room to take right kind of policy decisions in the interest of the nation, there is also a strong need for a more empowered CAG to make sure that those who try to give shape to dubious deals and encourage crony capitalism in the name of policy initiatives, should be nipped in the bud.

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