AI move to acquire 111 planes a recipe for disaster: CAG

New Delhi, Sep 8 (PTI) The decision to acquire 111 planes
by Air India through debt was "a recipe for disaster" and
should have raised alarm in the government, the Comptroller
and Auditor General has said.
Terming the move for getting of a "large number" of
planes as "risky", the CAG said the aircraft acquisition had
"contributed predominantly" to the airline's massive debt
liability of Rs 38,423 crore as on March 31 last year.
In its latest report tabled in Parliament on Thursday,
the public audit body also called the merger of two erstwhile
state-run carriers--Air India and Indian Airlines--
"ill-timed" and said that "the financial case for the merger
was not adequately validated prior to the merger".
"The entire acquisition (for both Air India and Indian
Airlines) was to be funded through debt (to be repaid through
revenue generation), except for a relatively small equity
infusion of Rs 325 crore for Indian Airlines.
"This was a recipe for disaster ab initio and should
have raised alarm signals in Ministry of Civil Aviation,
Public Investment Board and the Planning Commission", the
report said.
Significantly, the CAG recommended, among other
measures, "a total hands-off approach (by the government) with
regard to the management of the airline".
The report dealt with several aspects of the ailing
national carrier's losses, fleet acquisition, merger, huge
debt burden, delay in joining the global airline grouping Star
Alliance and its financial and operational performance.
Noting that the fleet acquisition process took an
"unduly long time", the CAG said the initial proposal was made
in December 1996 and its examination continued "in fits and
starts" till January 2004 when a plan was made to buy 28
planes, which was revisited and later a decision taken to
acquire 68 aircraft.
It said the revised plan saw "a dramatic increase" in
the number of planes to be purchased and maintained that the
sequence of events up to November 2004 clearly demonstrated
that the pre-merger AI "hastily reworked" its earlier plan.
"This increase in numbers does not withstand audit
scrutiny, considering the market requirements obtaining then
or forecast for the future, as also the commercial viability
projected to justify the acquisition. The acquisition appears
to be supply-driven", the report said.
Commenting on the "speed" at which the acquisition
process for 68 aircraft proceeded, it said while the first
plan took eight years to decide on 28 planes, "between August
2004 and December 2005, the proposals were formulated by AI,
approved by the Board, examined and approved by the MoCA, the
Planning Commission, the Department of Expenditure, Public
Investment Board, empowered Group of Ministers and also the
Cabinet Committee on Economic Affairs".
Observing that many assumptions for the revised plan
were "flawed", the CAG said the negotiation process was
"irregular and adversely affected the transparency of the
process".
Maintaining that "no benchmarks" relating to
comparable prices and commercial intelligence were set, it
said, "Consequently, in the absence of such benchmarks, the
effectiveness and efficacy of negotiations and the
reasonableness of the price arrived at is difficult to
ascertain".