Call it over-exuberance or singular hype. Officially, we are told that the country’s civil aviation sector is on a high growth trajectory, valued at $16 billion and all set to become the world’s third largest aviation entity by 2020. However, there is a huge deception in this happy story — national carrier Air India is in a pathetic shape, gasping for breath as it stares at a debt running upwards of Rs 55,000 crore and accumulated losses of more than Rs 30,000 crore, leading to shrill demands that it should be privatised.
How did all this happen? Who should be held responsible for the crash landing of the Maharaja? The story is long, but if one were to limit one’s vision to the past decade or so of extensive misuse, it will be obvious that the men at the top of the heap — the politicians, the bureaucrats and the businessmen — have all combined in administering the bitter pill.
The story throws copious light on how misgovernance and sleaze can reduce a market leader to cipher.
As one-time civil aviation secretary MK Kaw writes, “It is a fascinating saga of benami ownership of airlines, demands for bribes, destruction of all rival airlines one by one, unwarranted purchase of aircraft, mismanagement by bureaucrats and politicians, free jaunts and subsidised travel for many categories of travellers… the story of shameless exploitation and ruthless corruption which underscores the fact that the country does not have a civil aviation policy… it is the considered view of many experts in civil aviation that FDI will not be allowed until it is okayed by the powerful owners of Jet Airways.”
Kaw has graphically illustrated how aviation has become an epitome of crony capitalism.
The story of the aviation sector’s contemporary travails begins from the time that Praful Patel came to the civil aviation ministry as a minister of state holding independent charge in 2004. At the time he took over, Air India happened to be the market leader with 42 percent market share. This was also the period when a proposal had been mooted by the preceding NDA regime to augment the fleet of Air India by 28 but the deal had not been inked. When the proposal came to Patel, he raised the number to 68 with one stroke of the pen and raised the cost to Rs 50,000 crore.
The intriguing thing that has confounded several, including former CAG Vinod Rai, is that this was done when there was neither a revenue plan nor even a route map as to where the additional aircraft would be deployed.
The beneficiary of this extraordinary piece of largesse was Boeing, from whom 27 Dreamliners were supposed to have been bought. The Dreamliner had not even reached the production stage, and it must be kept in mind that additional secretary V Subramanian, who was also financial adviser, was summarily transferred for having raised his voice on the issue.
The question remains unanswered: Why did an airline with a turnover of Rs 7,000 crore place orders of Rs 50,000 crore, and that too without having any idea of how it will use the planes? That this would only put a huge debt burden on the airline and damage it badly was practically nobody’s concern.
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The CAG said about the deal: “The acquisition appears to be supply driven… the increase in number does not withstand audit scrutiny.” The report referred to the non-existent market requirement, and questioned the commercial viability of the acquisition.
Patel did not stop at that. He also authored the merger of Air India and Indian Airlines, which virtually rang the death knell for Air India. The argument given at the time was that the merger would create a much larger aviation entity that would compete better. Nothing of the sort happened. The two quizzical decisions remain a puzzle until this day.
Furthermore, the airline was forced to give up on lucrative routes so that foreign airlines or others such as Jet stepped in. A few years ago, Air India decided to opt out of the Kozhikode-Doha-Bahrain route. This was one of the most profitable revenue-earner sectors, which was, in fact, 500-odd seat short every week.
Is it any wonder that Air India is all but dead, groaning under a massive debt burden and suffering huge losses? The merger of Air India and Indian Airlines was questioned by Parliament as well, as a standing committee chaired by CPI (M) leader Sitaram Yechury failed to understand how two major avowed objectives of the merger — ‘economies of scale’ and ‘increased leverage’ — would be met without proper synergies being in place.
As a result of the failed merger, after enjoying a monopoly until the 1990s, Air India today has just 17 percent of the market share and ranks low on the pecking order.
The most deadly blow to Air India and Indian Airlines came from Patel’s decision to parcel out bilateral flights to select foreign airlines such as Emirates and Lufthansa. The merger was the single-most important factor behind the ruin of the national carrier. And the sale of their assets — the bilaterals to foreign airlines when the national carrier had been left in no position to face the competition — confounded the matter further. In its report, the CAG related Air India’s plight to the bilateral air service arrangements and made telling points about how foreign airlines derived disproportionate advantage out of traffic rights.
There is a view that civil aviation bosses projected misleading demand for seats in opening up routes for foreign airlines. The creation of Air India Express during Patel’s tenure eventually destroyed the first and business class traffic of Air India and Indian Airlines to the Gulf and Southeast Asia. Some of the other blunders included giving Air Arabia and Lufthansa a disproportionate access to the large Indian market, which analysts believe were accorded without going through the established route of bilateral consultations, which involve other departments such as the Ministry of External Affairs.
However, it would be a tad too pat to put the blame entirely on one man.
Air India has lost out on its Southeast Asia, the European Union and the US routes monopoly as part of the liberalisation process, and there are those who say that the carrier cannot claim these routes as its birthright. Such logic may be partly right, but it militates against the facts that so resoundingly assert that the Maharaja’s terminal woes are a result of the hold of crony capitalism.
An index of the overall loot can be had from the manner in which privatisation of airports saw land being sold to the developers for a pittance. For instance, land at Mumbai and New Delhi airports was sold much below their prevailing market value under the guise of public-private partnerships. The beneficiaries of these sweetheart deals were GVK Power & Infrastructure and GMR Industries, respectively. Reportedly, the Airports Authority of India did not conduct either a cost survey or price evaluation of the land before entering into privatisation agreements.