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Air India loses USD449m through bad aircraft decisions: CAG

8-Aug-2011 11:35 AM

India's Comptroller and Auditor General (CAG) found Air India and erstwhile Indian Airlines lost close to INR20 billion (USD449 million) in the 111 aircraft deal reached during UPA-I (United Progressive Alliance) through faulty purchase and bridge loan agreements and also avoidable expenses incurred by delay in returning leased aircraft once new ones started joining the fleet (Times of India/NDTV/TNN, 05-Aug-2011). The figure of total aircraft acquisition-related losses could have been closer to INR50 billion (USD1.1 billion) as the CAG found that Indian Airlines selected costlier loans for the acquisition of 21 Airbus aircraft leading to a loss of INR3.15 billion (USD70.7 million). The report also stated that the expansion plans of the carrier were not based on due diligence, and that the new aircraft should have been bought in two phases. Air India has also rejected the CAG's contention that "defective contracts" led to losses, saying the new aircraft were intended to meet increased demand. The government also stated all decisions to buy aircraft were cleared by an Empowered Group of Ministers (EGOM). The government has also defended its decision to acquire 50 Boeing aircraft due to the large discounts it obtained. The CAG, in its report, had observed that in this case 35 aircraft would have sufficed.

Comptroller and Auditor General: "A loss of INR2,459.79 crore would further be incurred in future ... (due to) faulty finances...Capacity expansion was not based on due diligence. While replacement of (old) aircraft ... is understandable, the proposal to expand capacity was not warranted in view of intense competition and the inability of Indian Airlines Ltd to handle competition with its poor financial performance ... It should have opted to procure aircraft in two phases," CAG report. Source: Times of India, 05-Aug-2011.