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Thursday , September 29 , 2011
 
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A LONG, SORDID AND PATHETIC TALE OF FAILURE

To write on the ‘Maharaja Airline’ of India in a few words is almost like telling the story of the Mahabharat in one line. It would be impossible to do justice to the tale. So one concentrates only on a few salient factors that sank Air India financially.

One must remember that the foremost outcome of the last seven years’ monumental mismanagement of Air India is that the entire staff — from those working in the hangar to those in the cockpit — has been going without salary for the last two or four months. And that is a sure recipe for disaster. Since Air India is an airline owned and operated by the government of India, this fact is indicative of the lack of administrative control, economic misadventure and poor captaincy.

At least three quotes from the latest (September 2011) report of the comptroller and auditor general of India should act as an eye-opener for all gullible tax-payers of India. On the effective negotiation of the price of aircraft, it says: “No benchmarks for the cost of the aircraft were set by Air India or the Ministry of Civil Aviation before negotiations were initiated with the manufacturers at various levels.” Interestingly, I had found out (from open sources) a few years ago that (foreign) aircraft manufacturers had usually charged India more than it charged China for the same type of aircraft.

To make matters worse, “The entire acquisition (for both Air India and Indian Airlines) was to be funded through debt (to be repaid through revenue generation), except for a relatively small equity infusion of Rs 325 crore for Indian Airlines. ” Understandably, “this was a recipe for disaster ab initio and should have raised alarm signals in Ministry of Civil Aviation, Public Investment Board and the Planning Commission”, commented the CAG report cryptically.

The best, however, came when the additional secretary and financial adviser, ministry of civil aviation, repeatedly expressed serious reservations about the acquisition proposal. But to no avail, as his views did not cause a rethink on the aircraft acquisition process. Air India signed purchase agreements for “50 Boeing aircraft (with GE engines) at an estimated project cost of Rs 33,197 crore”. The acquisition appears to have been supply-driven and although the commitments made by the (foreign) manufacturers/suppliers to the empowered group of ministers regarding the creation of maintenance, repair and overhaul training, warehouse facilities for aircraft spares and the like were quite open ended, these were not included in the purchase agreements.

To top it all, the “post-bid change in the seat configuration during the negotiation process was irregular” — which adversely affected the transparency of the negotiation process. The assumption of further yield increase was also of dubious reliability, considering the caveats attached by the then commercial director of Air India. Significantly, one of the ex-commercial directors of Air India subsequently went to jail on corruption charges relating to the 2010 Commonwealth Games in Delhi.

Bulky new aircraft order, inefficient management, low morale and financial extravagance aside, what really spelt doom for Air India was the owner’s, that is, the government of India’s ‘farsighted’ policy to give the Indian consumers and travellers a chance to make merry at the cost of the taxpayers. To me, however, this seems to have been a double whammy for Indian consumers. On one hand, crores of rupees (from the taxpayers’ pockets) are being spent on a financially mismanaged government company, which is run by officers of the level of senior joint secretary or additional secretary. On the other hand, the same bosses of mismanagement have virtually opened up all possible routes for foreign carriers to make a profit at the expense of a sinking Air India and of Indian taxpayers.

This has led to the opening of a floodgate of corruption, much to the detriment of the nation. A few lines from the CAG report are presented to the taxpayers of India to make them aware of the reality behind the rainbow — “The sequence of events relating to the Dubai sector, covering the period from May 2007 to March 2010, (when the seat capacity was increased from 18,400 seats/ week to 54,200 seats/ week and points of call in India were increased from 10 to 14), clearly demonstrates the one-sided nature of benefits to Emirates/ Dubai (through enhancement of entitlements and additional points of call in India).” Air India repeatedly protested to the government of India about the lack of reciprocity and the funnelling of sixth freedom traffic (the right to carry traffic from one State through the home country to a third State. For instance: passengers from India going to Dubai on an Emirates flight and then going to London in the same airline, though not necessarily on the same flight) by Emirates through Dubai from interior locations in India.

Unfortunately, the government simply failed to adequately grant additional benefits to its own carrier even at the Dubai airport. Dubai too ignored (perhaps on seeing the inaction of the Indian government with regard to Air India) repeated requests from Air India to improve the operation facilities at its airport. Instead, offers were made for the “upcoming Jebel Ali Airport (an impractical option for AIL and other Indian carriers) and that too with distant timeframes between 2012 and 2018!”

Clearly, while Dubai actively protected the commercial interests of its airlines, the Indian ministry of civil aviation failed to fix the appropriate quid pro quo terms while granting concessions. Yet the authorities were acting supposedly with national interests in mind. Taxpayers sustain Air India. They also sustain the interests of Dubai and its Emirates at the expense of Air India, thereby making it a win-win situation for Dubai while Delhi gains nothing.

The failure to look after the interests of the nation and of the national carrier is bound to have an adverse effect on India’s standing as an aspiring superpower. The Indian establishment in its magnanimity seems to have overlooked the fact that many of the countries in the Middle East have only one or two major airports or points of call to offer, while the vast Indian market has more than 60 attractive interior locations with commercial prospects. The Indian authorities simply ignored the basics of Air India’s route performance. Air India has been seeing red on most of its routes. Except the routes in the Gulf/Middle East and in Far East Asia, all others, like those in North America, the United Kingdom or Southeast Asia, were incurring losses till 2005-2006. And by 2009-2010, all the routes were on a loss-making path.

The story of the plight of Air India is so long, sordid and pathetic that one ends with a note of protest at the report of the CAG. It has been claimed that most of the liberalized entitlements for bilateral rights granted to foreign airlines, especially in Dubai, Bahrain, Qatar and other Gulf/Southeast Asian countries, have been utilized for sixth freedom traffic, typically to destinations like the United States of America/UK/Europe, and not for genuine traffic to the other country. Air India and Indian carriers are handicapped by the lack of adequate hub facilities that prevent them from competing effectively. The CAG has suggested a rollback of the traffic rights given to foreigners. But that cannot done at this point in time.

The ministry of civil aviation must start paying more attention to the interests of Indian carriers from now on instead of playing games with foreign operators. Only this can solve the problems plaguing Indian carriers, both State-run and privately-owned. A rollback can be no cure for the disease that afflicts Air India.

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