The tragedy of Air India

This is an ARTICLE by eminent Lawyer & MP
Ram Jethmalani – on the

A MUST READ for people in the Aviation Industry –
especially those in the Management.

During the heady post independence years,
when India dreamed of fulfilling its destiny
as a free modern state, a jewel that it inherited
was the Tata Airlines, founded in 1932 by
J.R.D. Tata and which became Air India in 1946.
We still fondly remember its logo, the friendly
and slightly mischievous looking maharaja.

Most of us may not know that Air India started from a hut
with a palm thatched roof at Juhu Aerodrome and had one
pilot and two apprentice mechanics, along with two
piston-engined aircraft — one Puss Moth and one Leopard Moth.

Air India was an international airline even
before Independence. It grew rapidly and
modernised speedily in the early years, and
became a symbol of pride and glamour for our
country. In 1953, Government of India nationalised
the air transportation industry and exercised its
option to purchase majority stake in the carrier
and Air India International Limited was born.

During the same time, all domestic services were transferred to Indian Airlines
(later renamed as Indian). Its strengths based on a sound foundation became evident,
and in 1962 it became the world’s first all-jet airline. In 1993, Air India’s first
Boeing 747-400, Konark, made history by operating the first non-stop flight between
New York City and Delhi.

Even today, in its beleaguered state, its safety record
is among the best in the world.

But something went terribly wrong in the last decade.

The demise of the airline started as the old professional
leadership who had built it up started fading away and was
replaced by politicised recruitments and a leadership that
had no commitment or stake in the airline, their only
commitment being the bidding of their political bosses
and personal gain.

The politicians too by then were more canny and confident,
and had mastered the art of domesticating the public sector
and its riches.

The Comptroller and Auditor General of India,
in his Performance Audit Report of Civil Aviation
in India, 2011-2012 provides us with shocking
revelations about how the government, from 2004
onwards, wilfully and knowingly took every decision
possible to ensure that our national airline plunged
from being the pride of our nation to complete penury,
forever with a begging bowl before the government.

The open sky policy in the mid-1990s ended government monopoly
in civil aviation. Further pressure on Air India and Indian Airlines’
declining market share came to bear through the liberalized policy
(2004-05 onwards) permitting private Indian carriers to fly on all
international routes.

And just then, instead of downsizing to adjust to the competitive
environment of the new liberalization policy, their management
decided in 2005 to embark upon some startling profligacy and
bizarre administrative decisions that firmly placed the airline in a coffin.
Massive fleet acquisitions of Airbus and Boeing aircraft for nonexistent
purposes were proposed, without any financial and commercial
analyses that constitute mandatory processes for such huge
purchases with public money. A decision to merge Air India and
Indian Airlines into National Aviation Company of India (NACIL)
was taken in 2007, without any ostensible reason and with ill-founded
justification, duly assented to by the UPA government, leading to
complete financial and operational breakdown.

The CAG report clearly states that the acquisition of a large and
expensive fleet of aircraft when the market share of Air India was
declining was clearly inflated, did not withstand audit scrutiny,
was not based on market forecast or commercial viability, and
was supply driven. In other words, it reeked of corruption, abuse
of office and misuse of public funds. Interestingly, the fleet
acquisition was to be funded through debt and a small equity
of Rs 325 cr, to be recouped through revenue generation
(which of course never came, and therefore Air India’s bankruptcy today).

This was nothing but financial suicide with the blessings and abetment
of the all concerned, the Ministry of Civil Aviation, the Pre Investment
Board and the Planning Commission.

The shopping list included 43 Airbus aircraft for Indian Airlines, costing
Rs 8,399 cr, and 50 long range aircraft for Air India, costing Rs 33,197 cr,
all headed for non-existent destinations, and without any financial
viability or commercial necessity.

Note the financial profligacy: with an annual turnover of just Rs 7,000 cr,
it was placing orders of a scale where interest outgo alone would be
around Rs 6,000 cr. And shockingly, provisions regarding maintenance,
repair and overhaul (MRO) remained open-ended, were not included
in the purchase agreements and the MOUs were heavily tilted in favour
of the suppliers.

The CAG, like the informed citizen, is unable to comprehend the
rationale or justification of merging Air India and Indian Airlines
into NACIL. The amalgam of the two wings of the national airline
was done hastily and defied the recommendations of several
committees, without working out any solutions for the possible
problems to be encountered. The vital issue of integrating human
resources and flight operations still remains unattended.

Revenues remained static, working capital loans and borrowings
increased, liquidity decreased and losses increased all round.
All that the merger has done is create innumerable personnel
problems, with pilots getting different scales of pay for the same
work, innumerable strikes; the airline has not yet been able to be
part of the Star Alliance, which was its purported objective.

Pilots belonging to the erstwhile Indian Airlines are disgruntled
for not getting the same pay as their Air-India colleagues for doing
identical work in the same organisation. Some top officials,
including the expatriate chief operating officer Gustav Baldauf,
have quit because of this.

The report also clearly reveals that the oversight of the Ministry
of Civil Aviation was highly inadequate, and if one dissects the
sentences and words, there can be no doubt that its monitoring
role was defective and conspiratorial.

The management had by now fallen completely into
the hands of politically handpicked bureaucrats,
who toed the political line, gifting lucrative flights
to private players, retaining the non remunerative
ones, failing to take any measures to curtail losses,
providing flying freebies to bureaucrats and airlines
staff past and present, to keep them happy at the
cost of the exchequer. It is a matter of shame that
retired air hostesses and some other officers have
not been paid their pension and other legitimate dues,
compelling them to seek redress in court. It is even
more shameful that the Maharaja, in utter humiliation,
has had to plead insolvency. The court has ordered
payment in about three months.

I would not be surprised if further default leads to attachment
of the aircraft and office furniture.

As on March 2011, Air India has accumulated a debt of Rs 42,570 cr
(approximately $10 billion) and an operating loss of Rs 22,000 cr,
and is seeking Rs 42,920 cr from the government. Salary payments
and interest payments are being defaulted.

The shopping spree financed by debt was the last nail on the coffin.

I recently read in newspapers that the CBEC has frozen Air India’s
bank accounts for non-payment of service tax.

A tragic story indeed, and another example of the government
criminally cannibalising its own public property for private gain.
The report states that the suicidal acquisition of a large number
of aircraft by Air India “was clearly driven under the influence of
the Ministry of Civil Aviation”.

Praful Patel converted Air India into his personal
property, gifting away whatever was lucrative in
Air India, and mismanaging the rest through crony
bureaucrats. There is some talk that he carefully
crafted the Air India crisis to hand it over to private
players on a platter.

This is the dying Maharaja’s last sigh.


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