The Descent of Air India (26 page)

BLIND EYE

It did not need an investigator to bring out the aberrations mentioned above; a glance through the airline’s 2006–07 annual report would have sufficed. Interestingly, the airline’s annual reports are approved by the board members before being sent to the Ministry of Civil Aviation, which subsequently places it on the floor of the Parliament. The question is—how did the numerous transgressions in accounting procedures escape the attention of so many people in different positions of authority? It was also odd that neither the board nor the ministry stepped in and asked for an explanation for the accounting anomalies. The chairman should have been questioned about the manner in which revenue estimates were being resized to suit the need of the hour, and the relevant departmental heads should have been pulled up for coming up with unrealistic projections to justify or conceal irrational expenses. Instead, the chairman and the board became active collaborators to create a world of make-believe.

On the one hand, revenue figures were being exaggerated and costs understated to show lower losses, and on the other hand, there was talk and promises of expansion and growth. The period saw not only the launch of the ambitious aircraft acquisition programme but also numerous other expensive ventures. I wonder what it was that prompted Mr Thulasidas to undertake projects of this magnitude which the airline could ill afford. And even if he was acting under pressure from the ministry, should he not have consulted the rest of the airline and voiced his apprehensions?

Mr Thulasidas would also tend to deal directly with the media on behalf of Air India. Journalists met him often and on several occasions, instead of seeking greater clarity on the way the airline was managing its expenses, unquestioningly reported what he said. An example of the manner in which the media reported on the airline is best illustrated in the way an article was written on Air India’s plans to buy a Serbian airline called Jat Airways. On 31 May 2007,
The Times of India
published a report that quoted a ‘source’ as saying, ‘Because of the merger (Indian Airlines and Air India), the matter (acquisition of Jat Airways, a Serbian carrier) was on the back burner for a while. But now, we are actively working on it.’

Where was the money to buy the Serbian airline? More importantly, why was a potential acquisition plan revealed to the media when such discussions are conventionally not made public till the deal is sealed? It belied all logic, unless the intent was to create a perception that all was well with Air India and to boost the image of the chairman. I had been transferred out of the public relations department by then for reasons never clearly stated, and hence, I can only surmise that it must have been due to my unwillingness to publicise the chairman’s initiatives. This was also perhaps why Mr Thulasidas felt the need to appoint an external public relations agency at the cost of
1.75 lakh a month even though we had a full-fledged department within the airline.

Mr Thulasidas’s behaviour has raised many questions about the way he conducted his business. While it may be true that he was under tremendous political pressure, his attempts to mislead us on the health of the airline indicated that he he may have been complicit in the political manoeuvre. He was keen to establish the perception that the airline was being managed well and that its performance was well above the mark, when the reality was very different. He was rewarded with an extension of his term and the perk of a lifetime of free flights to all destinations that Air India flew to—a benefit that no other bureaucrat-chairman has enjoyed.

By keeping the true state of the airline under wraps, the people in charge also ensured that none questioned the high-value orders and projects being placed and undertaken during the period. In 2006, the cabin interiors of six B747-400s were refurbished and upgraded at a cost of
400 crore. The aircraft had been inducted by Air India in 1993–96 for deployment on the India–Europe/USA sectors. It was a massive project—one that was not justified, given that the aircraft were soon to be grounded. The matter was discussed during the 101
^st
meeting of Air India in Mumbai held on 13 September 2004, where approval was sought for the refurbishment expenditure for six Boeing 747-400 aircraft that were 8–11 years old and eight Airbus A310 aircraft that were 14–18 years old. There was no budgetary approval for this expenditure at the time. No cost-benefit analysis of the proposal was presented. In fact, the agenda item for the meeting blatantly mentioned that this exercise was being undertaken at the behest and suggestion of the Minister of Civil Aviation. The overhaul commenced on 1 February 2007, even though Air India had ordered B777s in 2005, which were to be delivered starting July 2007. When the refurbishment project was called off even before work on the last of the six aircraft was initiated and the refurbished aircraft were not deployed on prime routes since new B777s replaced them, it therefore came as no surprise. Some of the aircraft have now been kept aside for the president and prime minister to travel in, and Air India continues to bear a huge maintenance bill for keeping them flight-worthy. Given the haste with which it was done, it seemed that refurbishing the aircraft was not the primary aim of the entire exercise, but running up high bills may well have been the hidden agenda.

The refurbishment project was just one in a string of extravagant expenses that the airline undertook during its toughest financial downturn. A similar attitude was on display when Air India decided to re-enter the cargo business in 2006–07. Way back, between the years 1986 and 1988, Air India had acquired eight A310 aircraft. The planes were mostly used to operate flights to the Gulf and Southeast Asian countries, and for a couple of years, these were also flown to destinations in Europe. Twenty years later, around 2006–07, we were about to decommission the aircraft, when it was decided that four A310s would be converted into freighters. Air India had found it difficult to break into the cargo market in the past, having tried and failed three times. Its marketing efforts had been weak; the cargo business demanded an aggressive approach towards customer acquisition and product service, which the airline had not been able to provide. Moreover, in the early years, inbound cargo traffic had been low while the majority of cargo traffic was outbound from India, which made the business unviable. The only difference between the attempt being made then and the previous ventures was that this time, Air India would be using its own fleet as opposed to leased aircraft to transport cargo.

Praful Patel, the minister of civil aviation, and V. Thulasidas, chairman and managing director of Air India, were optimistic about the business. Four A310s were sent to the European Aeronautic Defense and Space Company N. V. (EADS) for conversion into freighters. At a cost of USD7.95 million for each aircraft, the conversion involved the restructuring of the interiors, removal of seats, strengthening of flooring and removal of windows and others such changes. The first refurbished freighter was inducted amidst great fanfare by Praful Patel, and soon thereafter, on 27 June 2007, he flagged off Air India’s first dedicated freighter aircraft to Europe. Speaking on the occasion to the press, he stated, ‘This is a major milestone achieved not only in Air India’s history, but also in the history of Indian civil aviation. Cargo is one of the key components of the nation’s economic growth. Our vision is to make Air India a preferred cargo carrier in the years to come, and to this end I assure that the government will provide its full support.’

Addressing the media at the same event, Mr Thulasidas said, ‘Post the merger, cargo is going to be one of the most important strategic business units for Air India.’ Within 18 months of the induction of the first freighter and less than six months after the last of the four was inducted, the aircraft were grounded and the business was termed unviable. After spending close to USD36 million, the A310s were put on the block. Finally, Air India sold its A310s in 2012, receiving USD4 million each for those that had been converted into freighters and an average of USD2.68 million for the four others. The cargo venture was launched without studying the market and despite its past history of failure.

There were several such instances. One that got the attention of the Vigilance Department in 2005 was the procurement of 500 portable entertainment assistants (PEA) for first and business class passengers. These cost the airline
5.6 crore and would lead to an additional annual expenditure of
7 crore, which the airline would have to pay as content management and licensing fees. The devices were bought even as the B777s, which were fitted with in-arm video systems, were due for induction. The Vigilance Department found that each unit was acquired at a price that was way above the market rate. The report criticised the deal on several counts, including its pricing. The PEAs were purchased at ‘USD3000 per piece, reduced from the original offered price of USD3600 per piece during negotiations, even though the same was available in the market at USD300–500 per piece’ the Vigilance report said. The departmental charge sheet issued to V. Srikrishnan, the director of Materials Management, based on the enquiry stated, ‘You have committed certain irregularities in the procurement of portable entertainment assistant from Messrs North Star Aerospace Inc.’ It further said that even though there were alternatives available in the market, the product was declared as proprietary to circumvent the global public tendering process and further alleged the involvement of middlemen and fly-by-night operators whose association with the product was not supported by any authorisation documentation from the manufacturer. Even though the investigations proved the guilt of the people involved, the airline issued a formal charge sheet to those involved in 2011, by which time Mr Thulasidas a co-accused in the Vigilance Department report had long retired and Air India’s incumbent chairman, Arvind Jadhav, closed the case and absolved Mr Srikrishnan of any wrongdoing. But the CBI took up the case in 2012 and raided Mr Srikrishnan’s premises. Will the defaulters be taken to task? Doubtful, because of the role of strong lobbies in the entire operation.

Another questionable approach adopted by the airline was for the selection of the seats for B777 aircraft. Seats are an important component of an aircraft, and airlines take great care in their procurement. Most appoint a senior person to oversee the entire process. But V. Thulasidas put himself in charge; he visited vendor establishments across the globe, personally chose the supplier and even supervised the order. This was unusual, not just because it had never happened in the history of Air India but also because the airline was beset with problems at the time and that ought to have been his immediate priority. The cost of seats for the 23 B777s was more than USD50 million (
220 crore at the time). But instead of running the purchase through routine internal checks, corporate sector stalwarts and socialites were invited to sample them. People such as Ratan Tata, S. Ramadorai, Deepak Parekh, A. K. Krishna Kumar, Shobhaa De, Yash Birla and Tina Ambani were called in and their opinion sought. The entire exercise did not last for more than half an hour, and the vendor that was finally chosen was the one whose seats had found the most takers. While there was nothing wrong with seeking the opinion of Air India’s fliers, it should not have been the dominant criterion since they were spending no more than a few minutes on the seats that had been laid out in the Air India building. Besides, this should not have been allowed to substitute for a regular tendering and selection process, but that was what finally happened, and the contract was awarded to an Italian company, Avio Interiors.