If Air India 's Maharaja is in the red today, one man - Praful Patel - is largely to blame for it.
On August 2, 2004, four months after he took over as civil aviation minister, Patel, now the minister for heavy industries, chaired a meeting that decided to inflate Air India's purchase order from the original proposal of 28 aircraft to 68 at a stupendous cost of Rs 50,000 crore.
Of the 50 aircraft on Patel's shopping list for Air India, 27 were Boeing 787 Dreamliners.
Worse, the inflated purchase order was not backed by either a viable revenue plan or expansion of routes. The erstwhile Indian Airlines too was asked to revisit its proposal to buy 43 aircraft but it refused.
The ministry, through a letter dated August 5, 2004, forwarded minutes of the meeting to then CMD Air India, V. Thulasidas. The letter written by an under-secretary in the ministry K. K. Padmanabhan said: "I am directed to forward herewith a copy of the minutes of the meeting taken by Shri Praful Patel, Minister of Civil Aviation on August 2, 2004, to discuss the proposal of Air India for acquisition of aircraft by Air India."
The minutes of the meeting tasked that the "Air India should revisit the proposal of aircraft and submit a fresh project proposal to the government at the earliest which could include the revised requirements." Thulasidas agreed to revise the proposal despite strong opposition from the ministry's additional secretary-cum-financial adviser V. Subramaniam.
Patel's controversial decision proved to be the proverbial millstone for the airline which is still straddled with a debt burden of more than Rs 40,000 crore and an estimated loss of around Rs 7,000 crore. Till the 2003-2004 fiscal, AI was making a profit of around Rs 105 crore.
When contacted, Patel's official spokesperson from the heavy industries ministry said in 2004 the civil aviation ministry had asked both Air India and Indian Airlines if they would like to revisit and revise their order. "The Air India, in view of traffic growth, revised its proposal for aircraft acquisition but Indian Airlines revisited and came back with the same proposal. This was a suggestion and not a direction and since the aviation ministry is a parent body, the minister chairs review meetings of national carrier."
The spokesperson claimed: "There were a number of channels involved in the process which included C. G. Somiah Committee, committee of secretaries, empowered group of ministers (EGoM) and not the civil aviation ministry alone. The committees/group negotiated with both the companies (Boeing and Airbus) and cost was brought down considerably."
It is true that after the inflated proposal was cleared by the aviation ministry, the EGoM approved the purchase of 50 aircraft on firm basis and 18 for official low-cost Air India Express. But the documents with Mail Today show the ministry had kept the EGoM in the dark about the objections to the proposal by its financial adviser.
The spokesperson, for instance, did not mention that V. Subramaniam had questioned the need to increase the number of aircraft to be purchased from the Boeing in the absence of any viable revenue or business plan. More importantly, Subramaniam's objections were not recorded in the minutes of the meeting forwarded to the committee of secretaries and the EGoM. Not only did the ministry conceal its financial adviser's objections from the high-powered committees, but it also shunted out Subramaniam, who was also on the Air India board, just a week after the November 2004 meeting.
Between January and August 2004, there wasn't much change in the aviation scenario - either by way of load factor or growth in traffic. Yet, the meeting presented a bizarre justification for the purchase of new long-range aircraft.
The minutes say: "There had been some developments of late that needed consideration vis-a-vis the project proposal. First the competition for AI on the US route had assumed a different dimension, particularly with the introduction of non-stop flights through ultra long range aircraft by competing airlines in South East Asia and the gulf region." "Unless AI was able to match this product and connectivity by adding suitable aircraft to its fleet (which was not a part of the present proposal). AI's competitiveness, load factors and revenues were likely to be severely affected," the minutes add.
Then Air India CMD Thulasidas agreed that the "present proposal did not fully cater to the requirement of the AI's fleet, the additional requirement could be projected separately through a supplementary proposal after due evaluation".
The evaluation was done and final order inflated to buy 68 flying machines was okayed. There was, however, no change in the original plan of buying 18 Boeing 737-800s. Additions were made in the Boeing order. That included Boeing 777 LR (long range), Boeing 777 ER (extra range), and Boeing 787 Dreamliner. The final order included 50 wide bodied aircraft for Air India and 18 narrow bodied aircraft for Air India Express.
Shockingly, the Dreamliner, which did not meet the delivery schedule was selected, for which Air India is now seeking compensation from Boeing. The national carrier has already received a delivery of 40 aircraft.
The draft CAG report has demolished the ministry's reason for augmenting the fleet - that the competition on the US route had grown. However, the draft audit report on the purchase of aircraft said the 10 international routes on which AI was plying since 2005 started incurring losses three years later. AI was consistently making losses on the USA route and was the single biggest sector impacting its revenue.
The report said that the Jet Airways was wise enough to withdraw from non-remunerative flights to San Francisco during the same period.
The original plan to purchase 28 aircraft incidentally was approved by the AI board during the NDA government. At its meeting on November 8, 2003, the board had approved a project report for acquisition of 10 A- 340- 300 long range aircraft, plus 18 B 737-800 short range aircraft. This report was sent to the government in January 2004. So, Patel's ministry overturned the earlier decision.
The Indian Commercial Pilots Association (ICPA), which called off its 10-day strike on Friday, has demanded a CBI inquiry into the aircraft acquisition during Patel's tenure, which, they said, defied logic. How an organisation, whose annual turnover was around Rs 7,000 crore, could place orders worth Rs 50,000 crore, asked an ICPA office bearer.
Civil aviation minister Vayalar Ravi refused to comment. "Let us wait for the CAG report," he said.
Courtesy: Mail Today