Thursday, June 13, 2019

Grounding the Maharaja: How UPA clipped Air India’s wings

It took five years of the Modi government for the Enforcement Directorate to summon former civil aviation minister Praful Patel for questioning “over an alleged aviation scam”.

While law will take its own course, this article jogs your memory with what happened then—Air India/Indian Airlines merger, acquisition of aircraft and bilateral traffic rights.

One, have you heard of a company that makes a financial commitment of about `67,000 crore for purchase of 111 (AI 68, IA 43) aircraft on an equity base of `586 crore (AI `153.84 crores, IA `432.13 crore) and carry-forward losses of `776 crore (Indian Airlines brought forward loss of `957 crore less Air India profit reserves `181 crore) as on March 31, 2006?

According to a 2011 India Today report, it is clear that Air India’s financial problems began in 2004, when Praful Patel chaired a meeting of the board, in which, the airline suddenly inflated its order for new aircraft from 28 to 68 without a revenue plan, or even a route-map for their deployment.

This is substantiated by the former executive director of Air India and author of The Descent of Air India, Jitender Bhargava: “The Air India Board-approved purchase of 28 aircraft in November 2003 includes 10 medium-capacity long haul aircraft. During UPA, the number of long-haul aircraft was increased from 10 to 50,” and, “despite the recommendations of the techno-economic committee and the AI board that two-third of the 50 aircraft should be ordered on a ‘firm basis’ and the rest on ‘option,’ the empowered group of ministers decided to order the entire lot on a firm basis.”

Two, one does not need to be a qualified accountant to know that making huge financial commitments on a low equity base is a precursor to bankruptcy or a government bailout.
13/06/19 Financial Express

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