People's Democracy

(Weekly Organ of the Communist Party of India (Marxist)


No. 38

September 18, 2011

Investigate CAG Findings on Air India


The Polit Bureau of the Communist Party of India (Marxist) issued the following statement on September 9, 2011.


THE CAG Performance Audit Report on Civil Aviation in India, submitted to the parliament, clearly indicts the Ministry of Civil Aviation (MoCA) for the state of affairs of Air India (AI), whose accumulated losses since 2006 have crossed Rs 20,000 crore and its current debt burden amounts to over Rs 46,000 crore. The MoCA has been held directly responsible for the following decisions by the CAG:


1) Increasing the number of Boeing aircrafts to be acquired by Air India from 28 (proposed earlier) to 68 in 2004 in a hasty manner, based on grossly inflated projection of increases in market share and yields. The purchase agreement was signed with Boeing in December 2005 for Rs 33,197 crore. This arbitrary expansion of the acquisition plan, financed by loans, has been a significant factor behind the sharp increase in AI’s debt burden.


2) In the case of Indian Airlines (IA) too, the MoCA had pushed for the acquisition of 43 aircrafts from Airbus for Rs 8,399 crore in February 2006 with undue haste, ignoring the concerns of several officials on the financial viability of such large scale acquisitions. The CAG report notes that the “large acquisition was clearly driven under the influence of the MoCA.” 


3) The merger of Air India Limited and Indian Airlines Limited was initiated in March 2006, immediately after AI and IA had completed independent large scale aircraft acquisition plans from Boeing and Airbus. Had the merger taken place before the separate acquisition of aircrafts, a common acquisition process would have saved significant revenues for the airline. The CAG notes that “an ill-timed merger undertaken strangely after separate aircraft acquisitions by AIL and IAL were completed, driven from top (rather than by the perceived needs of both these airlines), with inadequate validation of the financial benefits from such a merger..…” (emphasis added)


4) The policy on bilateral entitlements for international operations was substantially liberalised from 2004-05 onwards. This one-sidedly benefited big international airlines like the Emirates to access the Indian market without any reciprocal benefit to AI. The CAG notes, “These agreements, besides not affording adequate time to AIL/IAL to set their houses in order and gear up for a highly competitive environment, very evidently worked to the detriment of the national and Indian private carriers.”


The CAG report further confirms the findings of the parliamentary Committee on Public Undertakings (CoPU) which had noted in its March 2010 report: “The Committee note with concern that the merger of the erstwhile Indian Airlines and Air India was an ill-conceived and erroneous decision neither arrived at by the two Airlines on their own accord nor mutually considered by them to be in their best interests.” The CoPU report further recommended that the loss attributable to merger of IA and AI should be recouped by the government “as the decision of merger was a policy decision spearheaded by the Ministry-in-charge.” The CoPU also called for a review of route and slot allocations to airlines in the backdrop of reports “about the public carriers being disadvantaged by the allocation of prime commercial routes to private airlines such as Jet Airways, Kingfisher Airlines and the Emirates and also the allocation of time-slots on common routes in such a way that the private carriers would get the bulk of passengers on such routes.”


It is evident that the policy decisions taken by the MoCA from 2004 onwards converted the state-owned airlines --- AI and IA --- which were making profits till 2005, into a loss making debt-ridden entity. Moreover, major aircraft manufacturers Boeing and Airbus, as well as major foreign airlines like Emirates have benefited from the MoCA’s decisions at the cost of the national carrier.


The CPI(M) demands that this whole matter be investigated by the CBI. The role of the former Minister of Civil Aviation and the former finance minister, who chaired the EGoM that cleared the proposal for acquisition of the aircrafts, should be probed.