PAC slams AI merger, aircraft purchase

The airline’s top brass and the civil aviation ministry have been given a week to submit all relevant documents


Sweta Ranjan | January 23, 2012

Parliament’s public accounts committee (PAC) has asked the civil aviation ministry for the particulars of Air India’s fleet acquisition plan under which the airline ordered aircraft from Boeing and Airbus.

The PAC has demanded the details after a comptroller and auditor general (CAG) report slammed the decision to acquire 111 planes under debt, saying that it was a “recipe for disaster”. The apex auditor had also criticised the timing of the Air India’s merger with Indian Airlines at a time when the former was burdened by losses.

The committee, under Murli Manohar Joshi, had summoned the state-owned airline’s top officials and demanded the official record of the purchase and the merger after deeming the officials’ replies unsatisfactory. A source in the PAC said, “The committee has got unconvincing responses from the officials of AI and the ministry of civil aviation. The panel’s findings are almost in line with those of the CAG. We will scrutinise the officials and the documents we have demanded from the airline and the ministry to get satisfactory details.” PAC has given a week’s time for the submission of the documents.

The officials defended the merger decision saying that the ‘open sky’ policy had led to stiff competition in the aviation sector and the merger had been a financially sound decision to take at the time. The fleets of the two airlines were ageing which is why the fleet acquisition plan had been approved, the officials had told the committee.

Soon after the CAG findings had been made public, the then civil aviation minister Praful Patel had also come out in defence of the fleet acquisition deals saying that they were the need of the time as Air India had to compete at an international level as well.

CAG had said in its report that the purchase of new planes for $11 billion had “contributed predominantly” to the airline’s massive debt liability. It criticised the ministry for approving the orders even when the airline was “deep in the red” and for the decision to finance the orders through debt.

CAG in its report had concluded that “capacity expansion by both the erstwhile airlines (Indian Airlines and Air India) without adequate due diligence by either the companies or the ministry as to requirement and imprudent project financing has put the merged entity into acute financial stress.”

The report squarely blames the ministry in the matter of fleet acquisition noting that its directive compelled Air India to increase one of the order from 28 aircrafts to 68 despite the airline officials’ reservations against such a large order.




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