Leasing aircraft on loss-making routes cost AI Rs. 4,234 crore

An investigation by Air India’s internal vigilance department found the airline lost a staggering Rs. 4,234.28 crore between 2005 and 2010 because it leased 16 aircraft to enhance capacity on routes that were already making losses, documents obtained by The Hindu show.

The investigation, whose findings were submitted for review by Air India’s Board on November 29, 2011, shows the leasing losses accounted for a third of the airline’s total losses of Rs. 13,835 crore.

Earlier, a report by the Comptroller and Auditor-General said the airline had also lost Rs. 68,000 crore because it committed itself to purchasing aircraft far beyond the recommendations of its own feasibility studies.

Air India officials declined to comment on the report. However, in a leaked communication to the Cabinet Secretary that became public earlier this month, the former Air India chief, Sunil Arora, alleged that key decisions had been coloured by “unprecedented” interference by the former Civil Aviation Minister, Praful Patel.

In his May 28, 2005 letter, Mr. Arora said Air India’s Board had been steamrollered into purchasing more jets than required. In some cases, Mr. Arora alleged, even seat configuration requirements had been changed to suit particular manufacturers. Indian Airlines, similarly, had been pulled out of profitable routes to make way for private operators.

Air India’s Board, a briefing note on the investigation prepared for it states, was told a variety of reasons were assigned for leasing aircraft despite the negative returns on the routes, such as protecting slots at airports and maintaining schedule integrity. However, “no viability study was carried out of these futuristic issues vis-?-vis the loss that was going to be caused, which would justify taking the aircraft on dry lease at an estimated loss.”

“From the actual operating results, it is seen that revenue earned by operating leased aircraft was about 50 per cent lesser than the revenues estimated in the Economic Viability Report,” the report states.

“In a particular case,” the note states, “[an] aircraft was taken on fresh dry lease five months before the lease period of the then operating dry leased aircraft came to a close, and that too when this route was making loss. Subsequently, operations on the same route were terminated.”

The note also records that key documents on the decision-making process are missing.