Shady players, aviation scam and the boom and bust of airlines in India

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Lalit Shastri

The fate of now closed Kingfisher Airline, Air India’s huge debt burden and the latest grounding of Jet Airways raises several burning questions.

The merger of Indian Airlines with Air India and the reckless acquisition of aircraft by these airlines ahead of their merger and many related issues has put the former Union Civil Aviation Minister Praful Patel and many bureaucrats connected with civil aviation under the scanner of the Central Bureau of Investigation (CBI).

The probe by the principal investigating agency will eventually lead to the prosecution of those prima facie guilty but even as the enquiry against the “unnamed accused” is on, one should not lose track of the fact that the previous Congress regime, led by Manmohan Singh, was at the centre of the huge aviation scam.

  • Sunil Arora, now Chief Election Commissioner of India, after enjoying his tenure as Chairman/Managing Director Indian Airlines, kept quiet for long and before returning to his parent cadre, apparently to save his skin, wrote a letter to the Government alleging the Civil Aviation Minister’s interference.  In his letter, he had underscored that the then Civil Aviation Minister Praful Patel was forcing the airline Board to take financially unviable decisions. Arora had alleged that he was under immense pressure to comply with the Minister’s orders.
  • Arora was CMD Indian Airlines between 2002 and 2005. He also served as a joint secretary in the Ministry of Civil Aviation from 1999 to 2002
  • Syed Nasim Ahmad Zaidi was Election Commissioner of India from 2012 to 2015 and Chief Election Commissioner of India from 2015 till 2017. Earlier, he was Secretary in the Ministry of Civil Aviation and Director General of Civil Aviation. He was also in the International Civil Aviation Organization (‘ICAO’) for four years as resident Permanent Representative of India on the ICAO Governing council.
  • Along with other directors of Jet Airways, Zaidi presided over the grounding of the cash starved airline
  • Another ex-bureaucrat also a director in Jet Airways is Ashok Chawla. He was Secretary in key ministries of the Government of India, including Finance, Economic Affairs & Civil Aviation. He also served on the Boards of the Reserve Bank of India and the Insurance Regulatory and Development Authority. He has at different points in time, been India’s Executive Director on the International Fund for Agricultural Development and Alternate Governor for India at the World Bank & Asian Development Bank.
  • Vishwapati Trivedi, former Union Secretary, was Chairman-cum-Managing Director of Indian Airlines. He became joint MD of the new company after the merger of Indian Airlines with Air India. His stint (2006-2008) was cut short in the midst of allegations of corruption linked to upgradation of the airlines’ product portfolio in 2007. Trivedi also raked in huge incentive payouts and a large number of first or business class passages. When it came to drawing huge performance linked incentives, Trivedi was in league with a couple of other bureaucrats who have headed the airline.

Indian airlines which was a state monopoly went down when VP Singh grounded all A320s for a year-and-half after the Bangalore crash. This was compounded when Praful Patel merged Indian Airlines with the profitable Air India to ensure both nose-dived and Jet and Indigo benefited. The low fares came on low cost airlines and were at break even point. Of course the unsustainable North-East routes were compulsory. Air India now sits on a debt of about Rs. 40000 crores.

To understand the genesis of the decline, one would have to zoom in and take a closer look at the controversial decision that had been taken to bypass the letter of intent that had already been issued to procure Boeing aircraft for Indian Airlines and shift the choice of aircraft leading to the A320 purchase agreement at the initiative of Prime Minister Rajiv Gandhi in June 1989.

When Indian Airlines was in utter mess with the grounding of A320s in 1990 in the wake of the Bangalore crash, Naresh Goyal took advantage of the Open Skies Policy of Government of India to set up Jet Airways to offer scheduled air services on domestic sectors in India. Jet Airways commenced commercial operations on May 5, 1993.

Goyal had taken full advantage of the Government of India policy that allowed foreign direct investment in the airline sector and when Jet Airways was at the take off stage in 1994, 60 per cent of its shares were with Goyal while the remaining 40 per cent were held equally by Gulf Air and Kuwait Airways. After establishing his airline, Goyal managed to waive off all competition obviously by pulling strings at the Government of India level to alter the policy to bar foreign airline investment in any domestic carrier. This was not difficult for him considering his close association with top Congress leaders. Consequently no airline could take the same route as Jet Airways to establish itself. It is an entirely a different matter that even Jet Airways had to offload the foreign stakeholders when the GoI policy had been changed but by this time his airline had already established itself and there was no competition on the horizon till 2012 when the Indian Government took the decision to allow 49 per cent holding in a domestic carrier by a foreign airline and 100 per cent by an NRI.

This was the period when the airline sector was being treated as the grazing ground for politicians and bureaucrats. The trend continues even to this day.

The moment Praful Patel became the Civil Aviation Minister in 2004, during UPA-I led by Manmohan Singh, he had spearheaded the decision to merge the two airlines – Air India and Indian Airlines – and gave a huge order to purchase aircraft – both to Boeing as well as Airbus.

Of the eight Boeing 777-200LR acquired by Air India after Patel took over, five of these grossly under-utilised aircraft were sold to Etihad Airways for $336.5 million in December 2013 as a part of the “financial restructuring” exercise. After the Comptroller and Auditor General of India slammed the national carrier for selling the aircraft at a loss and below the market price, Air India took the defence that the indicative sale price was not available.

The merger of the two Public sector airlines has been criticised continuously by those in knowledgeable circles as one profit making airline was merged with a loss making airline. The propelling idea behind this decision was that there would be a common infrastructure. In the end, neither the personnel policies, nor the engineering policies or the routes matrix gelled and nothing worked.

On 11 January 2006, Air India announced an order for 68 jets – 8 Boeing 777-200LR, 15 Boeing 777-300ER, 18 Boeing 737-800 and 27 Boeing 787-8 Dreamliners. After the merger in 2007, Air India inducted the biggest member of the A320 family, the A321, to operate mainly on international short haul and medium haul routes. Simultaneously, Air India also leased the Airbus A330s to operate on medium-long haul international routes (ref: wikipedia).

There is another big question: When the loss making Indian Airlines could be merged with Air India, why Kingfisher, an airline with 100 aircraft that was flying both on domestic and important international routes, was allowed to collapse? This airline was going bad mainly because of Aviation Turbine Fuel (ATF) prices and global recession. The government could have taken over Kingfisher, removed Vijay Mallya as chairman and merged it with Air India – given the fact that so many jobs and what not was involved. Air India was having only about half of the total fleet of aircraft that was at Kingfisher’s disposal.

While the previous UPA Government allowed Kingfisher to collapse, it went whole hog to save Jet Airways by closing down Air India’s lucrative international routes to favour Jet Airways. Even the time slot on the domestic sectors were allegedly approved to favour private carriers. According to insiders, all this was done at the behest of Praful Patel, known in political circles as the “Maharaja of Gondia”.

Praful Patel got Arvind Jadhav- a 1978 batch IAS officer, as CMD Air India in 2009. He was known to be a blue-eyed boy of RV Deshpande, Minister for Large and Medium Industries of Karnataka. Deshpande and Patel are related.

During the corresponding period (August 2003 to 8 June 2009), high-profile bureaucrat, Rajesh Kumar Singh was initially Director and then joint Secretary in the Civil Aviation Ministry. At the Joint secretary stage, he took premature retirement from the IAS and opted for a lucrative assignment with a commercial airline. Here one can’t help questioning how bureaucrats who have held important posts in the Civil Aviation Ministry are given waivers to join the very airlines they had official dealing with.

The dust raised by the merger of the national carriers, has led to the registration of a series of FIRs by the CBI. The first case has been registered under Section 120-B read with 420 of Indian Penal Code and Section 13(2) read with 13(1)(d) of Prevention of Corruption Act, 1988 against Air India, “unknown” officials of Union Ministry of Civil Aviation and others to investigate the allegations relating to purchase of 111 aircraft for national airlines costing about Rs. 70,000 crore to benefit foreign aircraft manufactures. Such a purchase caused an alleged financial loss to the already stressed national carriers.

The second case has been registered under Section 120-B read with 420 of PC and Section 13(2) read with 13(1)(d) of PC Act, 1988 against “unknown” officials of Ministry of Civil Aviation, NACIL, Air India and private companies and unknown others to investigate the allegations of leasing of large number of aircraft without due consideration, proper route study and marketing or price strategy. It was also alleged that the aircraft were leased even while aircraft acquisition programme was going on.

The third case has been registered under Section 120-B read with 420 of IPC and Section 13(2) read with 13(1)(d) of PC Act, 1988 against “unknown” officials of Ministry of Civil Aviation, National Aviation Company of India Ltd. (NACIL) – the entity formed by the merger of Air India and Indian, Air India and other unknown private persons and companies to investigate the allegations for giving up profit making routes and profit making timings of Air India in favour of national and international private airlines causing a huge loss to the national carrier.

A Preliminary Enquiry has also been registered against unknown officials of Ministry of Civil Aviation and unknown others to enquire into the allegations relating to the issue of merger of the two national carriers -Air India and Indian Airlines – causing loss to the national exchequer.

Corporate lobbyist Deepak Talwar, who was extradited from Dubai on 30 January 2019 along with Dubai-based businessman Rajeev Saxena, was brokering aviation sector deals for his foreign clients during the UPA regime. It is alleged that he received kickbacks in his Singapore based company Asiafield Limited from Emirates, Qatar Airways and Air Arabia. During investigation into cases registered by the CBI, he may spill the beans that would expose the role of bureaucrats and politicians in the aviation scam that has plagued the airlines in India.

On the grounding of Jet Airways, AIR India CMD Ashwini Lohani has said:

“The closure of Jet even if temporarily is definitely a setback to Indian aviation. It is indeed a sad day for all those in the business of flying in the country to witness a fine airline closing shop. While sustained mismanagement definitely contributed, the fact remains that in the entire aviation eco-system, it is the airline that invariably remains at the receiving end while all other stakeholders make money. We have in the past witnessed many airlines shutting shop and it is time to appreciate that the razor thin margins which airlines are forced to operate with in a competitive environment, results in a scenario that encourages unsustainability. The issue has no easy solutions, yet a solution would need to be found.”

Lohani is right in saying “Airline operations world over is a razor thin business”. Riding piggy back on this razor thin business is the Government, especially through GST, the oil marketing companies, the airport authority, service providers and the airline honchos, they all stand to gain.

In order to make an airline a successful business proposition, you have to work with cost cutting, aviation Turbine Fuel should be declared as goods and airlines allowed to import ATF. What needs to be noted is that ATF is not under GST and each state levies huge taxes, cess etc in addition to central excise duties, making it very costly. User development fees should be rationalized, operational slots and routes given equitably and rationally.

Lohani, despite his close links at the top government level that has helped him get a second stint as CMD Air India, too has not done anything for policy. As far as mismanagement goes, private and government airlines’ management has had great perks, it siphoned off money into promoter or politicians’ pockets while letting airlines collapse. Air India is no exception to this rule. It gave up lucrative routes, operated politically sponsored routes, bungled in fleet acquisition etc. Air India could have become asset light and nimble which it did not. Jet operated in shady back rooms and milked the banks much like Kingfisher but Naresh Goyal got away giving controls into the hands of the SBI Chairman and the consortium of lenders to seal the bidding process for Jet Airways. Goel rejected offers from Tatas, Delta and Indigo that entailed his stepping down. His not doing so and his mismanagement led to jet’s downfall.

Also read: Audit reveals how the aviation sector has been mismanaged and exploited in India

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