Who Crippled Air India?
The integration of Air India and Indian Airlines, far from saving overall costs through synergies, has made the merged AI a white elephant with unserviceable debt
Photo Credit : Reuters
During the initial years of UPA 1, India’s GDP growth soared. Between 2004 and 2008, the economy grew at an average annual rate of over 7.5 per cent. The aviation sector was a collateral beneficiary. Airlines like Jet Airways made full use of a booming economy. One airline though was about to face headwinds: Air India.
Praful Patel of the Nationalist Congress Party (NCP) was the minister of state (MoS) for civil aviation between 2004 and 2011. There was no union minister of civil aviation. Patel was the boss. In 2006, I interviewed Patel at his residence in Mumbai which he would visit frequently though he was based in Delhi. Patel is an affable man. He spoke enthusiastically about Indian aviation and the great plans he had to make it world class.
It was around this time that privatisation of India’s shambolic metropolitan airports began. Mumbai, Delhi, Hyderabad and other cities soon had gleaming new modern airports run by private sector infrastructure companies like GVK and GMR with the Airports Authority of India (AAI) retaining a minority stake in a private-public-partnership (PPP) model.
Plans were also drawn up to merge Air India with domestic carrier Indian Airlines. The logic was superficially seductive: economies of scale, higher profitability, integration of engineering and pilot resources, and route rationalisation. Not everyone was convinced that the AI-IA merger, approved by an empowered group of ministers in February 2007, was a good idea. But with India fast becoming a large aviation market, “route rationalisation” took on a new meaning. Gulf-based carriers like Emirates and Qatar Airways were keen to increase flying rights from India to the Gulf. Over three million Indians live and work in the UAE alone. The India-UAE, India-Qatar and other Gulf routes were Air India’s bread and butter. Indian Airlines too had profitable flying rights on several Gulf routes.
Following the AI-IA merger those lucrative flying rights should have all gone to the merged entity. Right? Wrong. Most were instead allocated to Emirates and other Gulf carriers in an extraordinary act of generosity by India’s civil aviation ministry. The AI-IA merger was already attracting severe criticism. Now the give-away of profitable Gulf flying rights to foreign airlines in 2008 drew even greater criticism.
By now though, the global economy was tanking. Lehman Brothers collapsed on September 15, 2008 and a financial meltdown spread across the United States and Europe. India’s relatively closed economy was insulated from the worldwide recession in 2008. But for the AI-IA merger, badly implemented in fits and starts, the downturn couldn’t have come at a worse time.
Not only had AI-IA lost many of their profitable Gulf flying rights, the recession had hit overall profitability. Air India’s problems began to mount. After the merger, things became rapidly worse for AI. Debt spiralled. Service suffered. The airline, long used for free junkets by bureaucrats and their families, began the slow slide to the bottom.
Fast forward to the present. According to a report on March 31, 2019 in the Hindustan Times, “Investigative agencies are actively looking into the roles of some ministers of the United Progressive Alliance (UPA) in awarding favourable air traffic rights to some West Asian airlines in 2008-09 that damaged the interests of the state-run Air India, government officials said, echoing a statement issued by the Enforcement Directorate (ED). Agencies, including the ED, the Central Bureau of Investigation (CBI) and the income-tax department, are processing vital clues in this regard, provided by lobbyist Deepak Talwar, currently in judicial custody, the officials added, requesting anonymity. It has been revealed that accused Deepak Talwar illegally engaged in liasoning/lobbying with politicians, ministers, other public servants and officials of the Ministry of Civil Aviation for airlines such as Emirates, Air Arabia and Qatar Airways for securing undue benefits for them. He illegally managed to secure favourable traffic rights for these airlines during 2008-09 at the cost of the national carrier, Air India, ED said in a statement on Saturday.”
On the same Saturday, March 30, 2019, the ED filed a prosecution complaint against Talwar for “causing a huge loss to Air India by favouring the foreign airlines.” The ED’s allegations are serious. It told the court that the Gulf carriers paid middleman Deepak Talwar Rs. 272 crore “in lieu of securing favourable traffic rights.” It has provisionally attached the hotel Holiday Inn in Delhi’s Aerocity, alleging that the hotel was built with a portion of the “proceeds of crime” that can be traced back to Talwar who remains in custody.
If a middleman like Talwar received Rs. 272 core from foreign carriers as the ED alleges, the amount received by those who engineered the deal in the civil aviation ministry would be many multiple times higher. The case has, not surprisingly, been weakened – as the defence lawyer pointed out – by the fact that the ED has not questioned any serving or former officials from the civil aviation ministry, nor any current or former civil aviation minister: Praful Patel (2004-11), K. Vyalar Ravi (January 2011-December 2011), Ajit Singh (2011-2014), Ashok Gajapathi Raju (2014-18) and Suresh Prabhu (2018 onwards).
The Comptroller and Auditor General (CAG) reported in 2011 that the civil aviation ministry’s decision to massively expand bilateral entitlements hampered Air India. The report added: “As an illustrative case of the liberalisation of bilateral entitlements, the sequence of events relating to the Dubai sector, covering the period from May 2007 to March 5, 2010 [when the seat capacity was increased from 18,400 seats/week to 54,200 seats/week and points of call in India were increased from 10 to 14], clearly demonstrates the one-sided nature of benefits to Emirates/Dubai through enhancement of entitlements and additional points of call in India.”
The integration of Air India and Indian Airlines, far from saving overall costs through synergies, has made the merged AI a white elephant with unserviceable debt. Air India, crippled by design, flies on, overstaffed and weighed down by huge debt. Was the AI-IA merger in 2007 merely a device to free up and sell flying rights to Gulf airlines in 2008-09? Punishment for the guilty in this great crime on India’s aviation sector awaits denouement.