People's Democracy

CAG REPORT ON AIR INDIA

Exposure of “Well Scripted”

Disaster Plan

                                                                                     Dipankar Mukherjee

THE CAG Performance Audit Report tabled in the parliament on September 8, 2011, while indicting Ministry of Civil Aviation (MoCA) on acquisition of aircrafts by Air India (AI) and Indian Airlines (IA), terms it as a “recipe for disaster”.  However the CAG report, read along with the Fourth Report of Committee on Public Undertakings (CoPU) on merged entity of erstwhile AI and IA, tabled in the parliament on March 12, 2010, makes it abundantly clear that it was not a “recipe” or ingredients for future disaster but “well scripted” disaster plan scripted by the then minister of civil aviation to serve the short term and long term business interests of Boeing, the US aircraft manufacturer.  In the process, the two national carriers since 2006 after their merger have now accumulated losses of Rs 20,000 crore and have a current debt amounting to Rs 46,000 crore. There is a well orchestrated campaign by corporate media to clean the balance sheet and to offer the merged entity on a platter to a private player.

There are three major acts of omission/commission on which the ministry of civil aviation and the minister in charge in particular has been severely indicted, viz hasty acquisition of aircraft, merger of AI and IA and bilateral agreement on international operations. However, acquisition of aircraft holds the key to the present crisis of survival of the national public carrier.

ACQUISITION

OF AIRCRAFT

The script starts from AI’s decision to change its acquisition plan from 28 aircrafts to 68 aircrafts from Boeing USA totaling Rs 38,149 crore (Para 3.1.1 of CAG Report)  comprising Rs 33,197 crore for 50 aircrafts for AI and Rs 4952 crore for 18 short range aircrafts for AI Charters Ltd. The following sequence of events speak for itself:

Date/  Brief details  of event.

30 October/3 Nov 2003:  Letters from 43 member delegation of US regarding AI’s proposed air craft acquisition forwarded to MoCA by PMO.

January 2004: AI submitted project report for acquisition of 28 aircrafts to  MoCA

27 January 2004: PMO forwarded two letters from Boeing to MoCA wherein Boeing indicated that economics of the acquisition project were dependent on number of aircrafts chosen.         

29 June 2004: Director (S), MoCA recorded on file that there had been some “important developments” as submitted by Secretary, MoCA to the Principal Secretary to PMO that many international carriers were planning direct operations to USA/Canada and the A340-300 aircraft was going out of production in near future.  Therefore, AIL needed to review its proposal and consider suitable long range aircraft for its fleet. Further, it was understood that “Minister, Civil Aviation (CA) also impressed upon AIL in a meeting at

Mumbai to examine the feasibility of direct India-US/Canada flights”.

August 2004 : In a meeting on 2 August 2004 taken by the then Minister, Civil Aviation with Secretary, MoCA and CMD, AI it was decided that: Air India should revisit the proposal for purchase of Aircraft and submit a fresh project proposal to the government at the earliest which could include the revised requirements. MoCA communicated the above mentioned decisions on 5 August 2004 to AI and directed them to revisit the acquisition proposal and submit a fresh proposal, which would include revised requirements.

24 November 2004: AI Board considered and approved a revised long term fleet plan for 50 aircraft (two thirds on firm basis and one-third on option basis), apart from 18 aircraft for its subsidiary, AICL.  This process of revision took only four months.

         (Reference table 3.1 and 3.2 of CAG Report)

CAG rightly concluded:

“The above sequence of events clearly demonstrates that the erstwhile Air India was advised to revisit  its proposal by MoCA into expanding its requirement of aircraft. Whilst their earlier proposal for 28 aircraft had taken two years (from January 2002 to January 2004) to prepare and submit, the revised long-term fleet for 50 aircraft plan was completed in four months (from August to November 2004).”

GAME

CHANGER

Obviously the game changer in the acquisition process of enhancing the numbers, as desired by US Congressmen and Boeing, was the meeting on 29 June 2004 and 2 August 2004 after UPA-I government came to power and Praful Patel became the minister of civil aviation. Who was the beneficiary in the hasty change in acquisition plan without ensuring debt servicing capacity of AI? Obviously Boeing. Wikileaks reveals that in order  to hasten the enhanced deal, the US embassy put in a special request to ministry of external affairs that GoI conclude the deal prior to PM Manmohan Singh’s visit to Washington in mid July 2005. This did not materialise. But the deal definitely went on at supersonic speed when Manmohan Singh took over the foreign ministry from Natwar Singh on November 6, 2005.  Look at the events:

15 December 2005 : CCEA (Cabinet Committee on Economic Affairs) approved constitution of EGoM (Empowered Group of Minister) for final round of negotiation with lowest bidder.

20 December 2005 : Cabinet Secretariat communicated constitution of EGoM.

24 December 2005: EGoM held discussions with the representatives of Boeing and GE.

30 December 2005: PMO forwarded a copy of the note of the Chairman, EGoM to the PM on the action taken by the EGoM, where it approved acquisition of 50 aircraft by AI on firm basis, in addition to acquisition of 18 aircraft by AICL;

30 December 2005: PMO returned the note indicating that the “prime minister has seen the note and directed that the ministry of civil aviation may inform CCEA about the finalised transaction”.

30 December 2005: MoCA conveyed Gol’s approval to AI.

30 December 2005: On the same day, AI also signed purchase agreements.

                            (Reference Table 3.1 of CAG Report) 

December 30, 2005 can be a red letter day in the history of independent India when purchase agreement of Rs 33,000 crore was signed after approval of EGoM, PM on the same day! Why this haste? A deadline was to be met. US President Bush was to visit India on March 01, 2006. A friendly gift from the strategic partner at the cost of national exchequer!

In the case of Indian Airlines too, the ministry of civil aviation had pushed for the acquisition of  43 aircrafts from French company Airbus for Rs 8339 crore in February 2006 with undue haste, ignoring the concern of several officials about the financial viability of such a largescale acquisition. The CAG report notes that “the large acquisition was clearly driven under the influence of MoCA”.

COPU HITS

THE NAIL

The CoPU in its report in March 2010 summed up the issue categorically when it said “The Committee feel that the lack of continuity of polices as is manifest in the failure of the concerned entities to adhere to plans (made by positions in authority) regarding the revenue sources for financing the acquisition projects reveal an underlying lack of sense of ownership and public responsibility”.

Who will be accountable for “lack of sense of ownership and public responsibility” for more than Rs 40,000 crore worth acquisition which CAG calls “supply driven” i.e. an acquisition to protect the interest of supplier of aircrafts? CAG, constitutionally the supreme auditing authority of the country and CoPU, a joint parliamentary committee, had diagnosed and held MoCA and the minister in charge directly responsible.

In the present case PAC is not necessary to examine CAG report as CoPU, headed by veteran Congress parliamentarian Kishore Chandra Deo, had already examined the issue and submitted an unanimous report one and half years’ back, on which the government has not acted so far. Why? Manmohan Singh and Congressmen, when cornered, cited parliamentary Standing Committee as “supreme authority”, a `mini parliament’ and so on and so forth for Lokpal Bill. Now, why this contemptuous disregard for CoPU’s recommendations?

As a matter of fact on issue of merger, CoPU is more emphatic when it says in recommendation No.3.

 “The Committee also recommends that all 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”

What more indictment do you expect? Read this along with what CAG says “In our view, the potential benefit for the merger would have been far higher, had this been undertaken before finalisation of massive and separate fleet acquisition exercises undertaken by AI and IA.”  This makes the acquisition deal much more murkier leading to stupendous loss to AI and IA, which has to be now recouped by government through tax payers’ money.  Who is accountable for this huge loss?  Praful Patel, like A Raja, says in the decision for hasty acquisition of fleet both PM and the then FM were in loop.  What will PM say? “Coalition compulsion” or “Compulsion of Strategic Partnership?” US embassy communication in April 2005 as reported by Wikileaks says “The large procurement such as this one require multi pronged strategies.  While it is important to nurture the technical interlocutors on technical aspect of the bid (eg. price, delivery schedules, counter trade offset) it is equally, if not more, important for company leadership to touch the right political bases at the right levels”.

IS THERE ANY

ACCOUNTABILITY?

Right levels were obviously touched.  The modalities of touching is also not unknown to the country – remember Rs 64 crore spent by the US company Enron for political education. Sections of media and civil society can seek blood selectively for corrupt politicians and bureaucrats. But they are silent when the “strategic partner” and its company are involved. They are silent when Patel, an industrialist, articulate, media savvy, and above all the darling of private civil aviation lobby is involved. The walk the talkers, the Padmashree TV anchors, the corporate media are only keen on privatising  Air India but they are eloquently dumb on the scam, leading to the disaster thrust on public carriers. When CAG and CoPU are ignored and the major opposition party and media are silent, public opinion has to be created for immediate resignation of Praful Patel who has been identified and indicted by both CAG & CoPU without any ambiguity.  An independent probe should be conducted, to find out the other culprits for the well scripted disaster plan of Air India. There has to be some accountability if a parliamentary system is to be sustained.