CAG blames ministry for AI mess

New Delhi: The civil aviation ministry initiated and then made a mess of the merger of the erstwhile Indian Airlines (IA) with Air India (AI), according to a Comptroller and Auditor General (CAG) report.
The national auditor also said Accenture, the consultant asked to prepare the merger plan, did not do enough work on the move’s financial implications. CAG did not agree with the theory that the merger was initiated by AI or IA in April 2006. The process, it said, was ‘top down’; the ministry directed the erstwhile AI to appoint a consultant for the process. After doing so, it said, the ministry failed to do a good monitoring job.
Accenture failed to provide a detailed, item-wise, financial analysis of the reasonableness of the projected savings, said CAG. The only major accounting implication it mentioned was that the net worth would go up considerably (Rs 185 crore as of 2005-06 to Rs 2,557 crore), mainly due to revaluation of fixed assets by 50 per cent of the current book value.
CAG said this was just window-dressing of accounts, without any cash flow or operational benefits. Questioning Accenture’s projections, it said one key assumption related to employee productivity was that the merged entity would have fewer employees per aircraft. This did not happen.
AI and IA were merged on March 1, 2007. The new company was called National Aviation Company of India Ltd, later changed to Air India Ltd. However, the merger has come under fire because of poor integration, leading to a rise in accumulated losses to Rs 15,000 crore.
09/07/11 Surajeet Das Gupta & Mihir Mishra/Business Standard

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Categories: Air India Jul 2011