CAG report slams Air India expansion

New Delhi:  The report of the Comptroller and Auditor General (CAG) on Air India, tabled in Parliament today, takes the Civil Aviation Ministry to task on its expansion plans. The government's auditor has said crores were wasted in the purchase and leasing of aircraft and that was the basic reason that the national carrier is in a financially crippled state.

Much of the auditor's report is based on what it calls the government's faulty acquisition plans. The acquisition, it says, was indecisive and does not withstand audit scrutiny. When approvals to acquire new planes took eight years - from 1996 to 2004 - why, the CAG asks, did the next phase of approvals happen in just months? It has questioned the sudden hurry.

The report also points out that while in early 2004, before the Congress-led UPA governmnet took over Air India said it needed 28 new planes, that number had gone up to 68 by the time Praful Patel took charge of the Civil Aviation ministry. The CAG report says such a huge order pushed up the airline's debt liability to almost Rs 38,500 crore from just Rs 29 crore in less than one year.

The decision to buy aircraft, the CAG report concludes, was driven by supply, that there was no demand for more planes, a charge strongly refuted by the then Aviation Minister Praful Patel.

The expansion plans it says was to be funded through debt or loans, to be repaid through revenue generation, except for a small infusion of Rs 350 crore as equity. This, the CAG describes as a "recipe for disaster" and says it should have raised alarm signals in the civil aviation ministry, planning commission and public investment board.

The report says in a contract with Airbus for planes, Air India took a Rs 200-crore loan and paid a high rate of interest on it. The Civil Aviation Ministry has said this was a decision taken by the airline.

The CAG has also slammed the ministry for setting up no cost benchmarks before buying aircraft. It says the ministry failed to factor in additional costs while projecting additional revenue from its expansion plans. The assumption of dramatic increase in IA revenue while assuming other costs to be constant was unrealistic, the report said.

The auditor has also questioned the merger of Air India and Indian Airlines and called it ill-timed. It has found "inexplicable" that integrated operations between AI and IA were not factored in as part of the acquisition process; the report says the potential benefit for the merger would have been far higher if it had been done before both airlines went for massive and separate fleet acquisition.

Among other things it finds fault with is subsidized or free travel for VIPs, saying this hurt the carrier as it was not reimbursed for expenditure on such travel. It has also slammed the aviation ministry's liberalised policy on international routes - non-stop US flights were loss making from day 1, it pointed out.

The Opposition was quick to slam the government. The BJP's Rajiv Pratap Rudy, who was a Civil Aviation Minister during NDA rule at the Centre, said, "The CAG report has been tabled in both the Houses of Parliament and the issues raised in the report are the same which the BJP has been raising for the past few years. The CAG has questioned the veracity of the merger of Air India and the basis thereof; the CAG has questioned the purchase of aircraft, and especially in the background that the CAG has very categorically stated that the purchase of aircraft was supply driven, thereby indicating that the number of aircrafts were forced upon Air India to be bought. There are financial implications which cross more than Rs 80,000 crore, it's a matter of deep investigation. And it seems the Air India is again unfolding another major scam in the UPA for the country to witness."

"Don't see ghosts where none exist," said Praful Patel, who was the UPA minister during the period under scrutiny, responding to some of the criticism in the report.  In an interview to NDTV, Mr Patel explained the urgent need to acquire aircraft: "93 aircraft were almost 20 years old, Air India could not compete with that fleet in a competitive market, he said.

He explained why the acquisition was funded through loans. Other carriers, he said, bought planes when they had the money. "We did not have the government gave a sovereign guarantee." The ministry has told CAG that the acquisition of planes had to be funded through the high-interest loan till the government guarantee was approved.

Mr Patel denied that there was undue haste in approving the expansion plans. He also brushed away the criticism that merger plans were not factored into the AI expansion plans.

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