The Comptroller & Auditor General (CAG) has termed the entire fleet expansion plan of Air India “risky”, saying such a large order has contributed predominantly to the airline’s massive debt liability of Rs38,423 crore (as on March 31, 2010).
Questioning the wisdom of the ministry of civil aviation in allowing AI to go ahead with 111 aircraft purchase order, CAG wants bilateral agreements (for granting traffic rights to foreign airlines) frozen and also a review of some earlier ones so that AI can benefit.
In its Performance Audit of Civil Aviation in India report, tabled in Lok Sabha on Thursday, CAG also called the merger of two erstwhile state-run carriers — Air India and Indian Airlines— into the present Air India “ill-timed”, saying the financial case for the merger was “not adequately validated prior to the merger”.
Interestingly, while CAG has examined Air India’s operations from 2005-2010, when Praful Patel was the civil aviation minister, his name does not find mention in the report. Patel has often been accused of mishandling AI and its aircraft purchase plan. His opponents have accused him of granting profitable overseas routes to other airlines, instead of protecting AI’s interests.
CAG has put the onus of turning around the ailing Air India squarely on the government, suggesting that it lay down a roadmap for liquidating the huge debt liability of AI, reassess bilateral agreements on certain routes (mainly routes to the Gulf region) and provide the airline with “more than a level” playing field. It has also suggested that the government should immediately give out a bailout package, comprising equity, outright grant and soft loans to bring the airline back to profitability.
It has also noted that piecemeal infusion of small amounts of equity is merely going to delay the “certain” closure of the airline, The government has so far approved Rs2,000 crore as equity investment in 2009-10 and 2010-11 while Rs500 crore has been released as equity investment during the current financial year. Air India’s initial equity base was a mere Rs145 crore.
Also, the CAG is very critical of the financing and timing of the acquisition of aircraft. “The entire operations (for both Air India and erstwhile Indian Airlines) were to be funded through debt (to be repaid through revenue generation), except for a relatively small equity infusion. This was a recipe for disaster… and should have raised alarm signals in the ministry of civil aviation and the planning commission,” the report said.
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