Story ID: 2NMairindia09242014
Air India’s Fleet Buy Under Scrutiny 
By: Neelam Mathews
Caption: Criticism runs rampant of inprudent spending.
Word Count: 440
Controversy continues to swirl in India over whether excessive spending by Air India on a fleet acquisition order in 2006 has led to its present financial difficulties. The clamor follows a book by former Comptroller Auditor General (CAG) Vinod Rai titled The Diary of the Nation’s Conscience Keeper-Not Just an Accountant. The CAG acts as an independent authority established by the constitution of India to audit the expenditures of the government of India and its corporations.

“An airline with revenues of $1.2 billion was asked to take on a debt of $8.2 billion [including pre-existing debt],” said Rai during a recent television interview. He credited former aviation minister Praful Patel for having ‘nudged’ Air India to increase the Boeing order from the original 28 to 68. The government has given the airline a $5 billion equity infusion until 2021.

Air India’s order consisted of 111 aircraft—43 Airbus A320-series jets and 68 Boeings, including eight 777-200LRs, fifteen 777-300ERs, eighteen 737-800s and twenty-seven 787-8s.

“Air India has been sliding—there is no doubt about it—probably [because of] certain decisions that were forced [upon it]…it has been pushed [into]…buying and selling of aircraft,” Indian aviation minister Ashok Gajapathi Raju Pasupati said at a recent press conference. “This does not appear to have been done with a commercial plan in mind.”

Air India has also drawn criticism for selling five newly bought 777-200LRs. “When any purchase has a debt portion of 97 percent, there’s no way it can be commercially viable,” said Rai. “Within five years of the 777s being bought, they had to be sold to Etihad for the price of one…at one-fifth of the price.”

Still, according to former Air India senior official Shakti Lumba, unforeseen market forces contributed to the 777s’ withdrawal.

“In all fairness, Air India was never able to use these aircraft to full capacity as the market went down,” he told AIN. “However, the carrier got value for its money as the remaining loan is now being paid by Etihad.” Besides, he explained, the order got placed before the merger of Indian Airlines and Air India, and both airlines listed individual requirements. “The main culprits of Air India’s poor dispatch reliability were the 777s and 787s, with their constant breakdowns,” Lumba added.

Air India has already taken delivery of 17 of 27 Dreamliners. It expects the final delivery by 2016. On whether Air India appears headed toward divestment, Pasupati said no decision has been taken. “I do not want to stir a hornet’s nest,” he added.