How Government destroyed Air India in Eight Years

Air India started its operation in 1932  with a First Mail flight from between Karachi and Madras via Ahmedabad and Bombay, covering over 1,300 miles.  and by 2012 it is in the state  of dismantling and collapse with a debt of Rs 42,570 Crores. An article by Senior Advocate Ram Jethmalani explains the reason behind this collapse of Air India and its journey from Rags to Riches and again to Rags.

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-engine aircraft – one Puss Moth and one Leopard Moth.

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

JRD Tata at Juhu Airport Bombay after first Karachi-Bombay Flight in 1932

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, willfully 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.