AI Maharaja scam - Ex-minister Praful Patel forced Air India to buy excess aircraft

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Nov 16, 2011, 5:38:08 PM11/16/11
Forwarded message from S. Kalyanaraman

AI Maharaja scam: Ex-minister Praful Patel forced Air India to buy
excess aircraft


AI Maharaja scam: Ex-minister Praful Patel forced Air India to buy
excess aircraft

Ex-minister Praful Patel forced Air India to buy excess aircraft

Ajmer Singh
Indraprasth aka New Delhi
May 8, 2011 - 08:28

Former Union civil aviation minister Praful Patel.

If Air India's Maharaja is in the red today, one man - Praful Patel -
is largely to blame for it.

On August 2, 2004, four months after he took over as civil aviation
minister, Patel, now the minister for heavy industries, chaired a
meeting that decided to inflate Air India's purchase order from the
original proposal of 28 aircraft to 68 at a stupendous cost of Rs
50,000 crore.

Of the 50 aircraft on Patel's shopping list for Air India, 27 were
Boeing 787 Dreamliners.

Worse, the inflated purchase order was not backed by either a viable
revenue plan or expansion of routes. The erstwhile Indian Airlines
too was asked to revisit its proposal to buy 43 aircraft but it

The ministry, through a letter dated August 5, 2004, forwarded
minutes of the meeting to then CMD Air India, V. Thulasidas. The
letter written by an under-secretary in the ministry K. K.
Padmanabhan said: "I am directed to forward herewith a copy of the
minutes of the meeting taken by Shri Praful Patel, Minister of Civil
Aviation on August 2, 2004, to discuss the proposal of Air India for
acquisition of aircraft by Air India."

The minutes of the meeting tasked that the "Air India should revisit
the proposal of aircraft and submit a fresh project proposal to the
government at the earliest which could include the revised
requirements." Thulasidas agreed to revise the proposal despite
strong opposition from the ministry's additional secretary-cum-
financial adviser V. Subramaniam.

Patel's controversial decision proved to be the proverbial millstone
for the airline which is still straddled with a debt burden of more
than Rs 40,000 crore and an estimated loss of around Rs 7,000 crore.
Till the 2003-2004 fiscal, AI was making a profit of around Rs 105

When contacted, Patel's official spokesperson from the heavy
industries ministry said in 2004 the civil aviation ministry had
asked both Air India and Indian Airlines if they would like to
revisit and revise their order.

"The Air India, in view of traffic growth, revised its proposal for
aircraft acquisition but Indian Airlines revisited and came back with
the same proposal. This was a suggestion and not a direction and
since the aviation ministry is a parent body, the minister chairs
review meetings of national carrier."

The spokesperson claimed: "There were a number of channels involved
in the process which included C. G. Somiah Committee, committee of
secretaries, empowered group of ministers (EGoM) and not the civil
aviation ministry alone. The committees/group negotiated with both
the companies (Boeing and Airbus) and cost was brought down

It is true that after the inflated proposal was cleared by the
aviation ministry, the EGoM approved the purchase of 50 aircraft on
firm basis and 18 for official low-cost Air India Express. But the
documents with Mail Today show the ministry had kept the EGoM in the
dark about the objections to the proposal by its financial adviser.

The spokesperson, for instance, did not mention that V. Subramaniam
had questioned the need to increase the number of aircraft to be
purchased from the Boeing in the absence of any viable revenue or
business plan. More importantly, Subramaniam's objections were not
recorded in the minutes of the meeting forwarded to the committee of
secretaries and the EGoM. Not only did the ministry conceal its
financial adviser's objections from the high-powered committees, but
it also shunted out Subramaniam, who was also on the Air India board,
just a week after the November 2004 meeting.

Between January and August 2004, there wasn't much change in the
aviation scenario - either by way of load factor or growth in
traffic. Yet, the meeting presented a bizarre justification for the
purchase of new long-range aircraft.

The minutes say: "There had been some developments of late that
needed consideration vis-a-vis the project proposal. First the
competition for AI on the US route had assumed a different dimension,
particularly with the introduction of non-stop flights through ultra
long range aircraft by competing airlines in South East Asia and the
gulf region." "Unless AI was able to match this product and
connectivity by adding suitable aircraft to its fleet (which was not
a part of the present proposal). AI's competitiveness, load factors
and revenues were likely to be severely affected," the minutes add.

Then Air India CMD Thulasidas agreed that the "present proposal did
not fully cater to the requirement of the AI's fleet, the additional
requirement could be projected separately through a supplementary
proposal after due evaluation".

The evaluation was done and final order inflated to buy 68 flying
machines was okayed. There was, however, no change in the original
plan of buying 18 Boeing 737-800s. Additions were made in the Boeing
order. That included Boeing 777 LR (long range), Boeing 777 ER (extra
range), and Boeing 787 Dreamliner. The final order included 50 wide
bodied aircraft for Air India and 18 narrow bodied aircraft for Air
India Express.

Shockingly, the Dreamliner, which did not meet the delivery schedule
was selected, for which Air India is now seeking compensation from
Boeing. The national carrier has already received a delivery of 40

The draft CAG report has demolished the ministry's reason for
augmenting the fleet - that the competition on the US route had
grown. However, the draft audit report on the purchase of aircraft
said the 10 international routes on which AI was plying since 2005
started incurring losses three years later. AI was consistently
making losses on the USA route and was the single biggest sector
impacting its revenue.

The report said that the Jet Airways was wise enough to withdraw from
non-remunerative flights to San Francisco during the same period.

The original plan to purchase 28 aircraft incidentally was approved
by the AI board during the NDA government. At its meeting on November
8, 2003, the board had approved a project report for acquisition of
10 A- 340- 300 long range aircraft, plus 18 B 737-800 short range
aircraft. This report was sent to the government in January 2004. So,
Patel's ministry overturned the earlier decision.

The Indian Commercial Pilots Association (ICPA), which called off its
10-day strike on Friday, has demanded a CBI inquiry into the aircraft
acquisition during Patel's tenure, which, they said, defied logic.
How an organisation, whose annual turnover was around Rs 7,000 crore,
could place orders worth Rs 50,000 crore, asked an ICPA office

Civil aviation minister Vayalar Ravi refused to comment. "Let us wait
for the CAG report," he said.


S. Kalyanaraman

Indus script cipher: Hieroglyphs of Indian linguistic area (2010)

Member, Action Committee Against Corruption in India (ACACI)

End of forwarded message from S. Kalyanaraman

Jai Maharaj, Jyotishi
Om Shanti

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