Aircraft buy to hit AI financials from this year: CAG

New Delhi: The Comptroller and Auditor General (CAG) is likely to strongly criticise a decision by Air India to spend 50,000 crore to buy 111 new aircraft, as they are unlikely to generate enough revenues to service the national carrier's colossal debts. This would badly impact the airline's financials from 2011 onwards, a draft report from the national auditor said.
The erstwhile Indian Airlines had ordered the purchase of 68 Boeing aircraft in 2005 at a price of 33,000 crore. "The debt service of this deal is estimated to be 3,300 crore per year. The revenue generated by the induction of these aircraft will not be sufficient to service the debt," said a top CAG official, requesting anonymity.
The draft report, which will be tabled in Parliament during the Budget session, also slams Air India for opting for what it describes as an " expensive" loan to purchase its 43 Airbus aircraft though it could have opted for a cheaper loan. CAG audits the finances of public sector undertaking, including Air India.
"As per the agreement between Air India and Airbus, the latter will make provision for funding the purchase of 43 aircraft at LIBOR rate (London Interbank Offered Rate). However Air India did not utilize this clause and had to avail loan at higher rate of 11%, which will result in a payment of 2,700 crore as interest premium," the CAG official said.
01/02/11 Anindya Upadhyay & Rohini Singh/Economic Times

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Categories: Air India Feb 2011