The inordinate delay defeated the objective of reducing maintenance costs by way of inducting new planes in their place, according to the CAG report tabled in Parliament on Friday.
The Company took more than three years (May 2010-August 2013) to float the global tender after recommendation of the consultant and five years to induct the aircraft.
Global network consultant SH&E had in May 2010 observed that the 1989-1994 vintage Airbus A-320 planes with V2500-A1 engines were "uneconomical" and needed to be phased out "urgently" as maintenance cost of these aircraft was USD four million per year per aircraft.
"The SH&E recommended immediate leasing of 10 A-320s or B-737s to replace these classic aircraft. During July 2010, the Board considered and approved the recommendation of the network consultant for dry leasing of 10 new A-320 aircraft in March 2010," the report said.
As per the report, the Air India Board was apprised that turnaround plan (TAP) envisaged aggressive fleet induction.
"However, the same would involve incremental lease charge which was risky keeping in view the financial position of Air India. Therefore, pending government approval for financial Restructuring Plan and financial constraints of Air India, aircraft induction had not progressed," it noted.
In May, 2013, the Board approved the fleet renewal plan, envisaging leasing of 19 A320 units as replacement capacity to maintain network and authorised management to issue Request for Proposal for the same.
According to CAG, China Aircraft Leasing Company (CALC) was the sole qualified bidder, which submitted its bids through e-mail which was in contravention of the general terms and conditions of tender.
"However, CALC was given a chance to furnish bids as per tender requirements and tender closing dates were extended twice. Audit noticed that two of the other shortlisted bidders (Bank of China and AWAS, Singapore) had withdrawn their bids," it said.
The company has also signed a lease agreement for 14 A-320 aircraft in March 2016 delivery of which has already commenced from last month.
"Though the consultant pointed out urgent need for the aircraft, Air India could induct only five aircraft till March 2016, (after a delay of five years)," the CAG said.
Air India in its reply informed the CAG that "though concerted efforts were made to replace the old classic fleet, no suitable aircraft was available in the market for which the deal could be concluded. Therefore, the airline concluded the deal in two parts with CALC and ALAFCO (of Kuwait)."
According to the CAG, Air India said the amount spent on maintenance cost of old aircraft would be more or less equal to the amount the airline would have contributed towards maintenance reserve of new aircraft.
"Air India did not incur any additional cost except on schedule interruptions. Besides, due to company's financial situation, induction of these aircraft on lease was postponed," it said.
The Civil Aviation Ministry, in its reply, said the leasing activities could not be completed due to "weak financial position of the company, high cost of operations in view of the steep increase in fuel prices leading to a number of domestic routes also not meeting the operating costs, among others."
The reply was not tenable as "despite approval of the Board for leasing ten aircraft in September 2010, the tender was issued only in August 2013, after 34 months. Such a long delay points to inefficiency of the procurement process given the urgency of the requirement," the CAG said.
The CAG report also said the contention that maintenance cost of old aircraft would be equal to contribution required for maintenance reserve for new aircraft was not tenable as the management had informed the board of the high maintenance costs of the old aircraft emphasising the need to replace these uneconomical old classic aircraft urgently.