The Descent of Air India (27 page)

Several of Air India’s leased aircraft had Avio seats, and the experience was poor. There were recurring technical problems and the support service was substandard. The engineering team had approached Avio but failed to procure spare parts when needed. The poor choice has come to haunt the airline now. Air India has been trying to lease its B777-200LR aircraft for more than a year but has found no takers and one of the reasons cited by other airlines for their refusal is the quality of seats in the aircraft.

In another similar example, when the order for B777s and B787s was placed, Air India decided to appoint the Alia Group to design the aircraft interiors. While it was commendable that a professional design company had been hired, the problem lay in the manner in which the choice was made. It was unilateral, and as always, there was no attempt to draw upon the experience of those who were aware of the airline’s furnishing requirements and knew the do’s and don’ts of such an exercise. It did not take long for one to realise that the Alia Group, then headed by Sanjeev Malhotra, had been thrust into the limelight from the top. He made no attempt to hide his association with the minister and the chairman and would unabashedly drop their names whenever there was a difference of opinion between him and Air India officials. And in cases of divergent opinions and unresolved discussions, he would get Mr Thulasidas to intervene in his favour and overrule objections. His rates were prohibitively high, and unlike the regular advertising and design agencies, his company was charging Air India on an hourly basis. So strong was his influence that his company was also given a project to redesign the airline’s web site. He quoted
50 lakh for the project. From the scope of work outlined by the airline, this was regarded by all of us, including the three executive directors, representing IT, finance, and corporate communications, as too high. He dropped the charges to
25 lakh, which was also considered to be too high for the cosmetic changes planned. As was his manner of working, he reported the matter to Mr Thulasidas, who called up the director of the Finance Department, S. Punhani, to say that the deal was finalised at
15 lakh and that he should be allowed to start work. The payment was made and the web site created, but it was generally agreed that it was not much of an improvement over the previous site.

Such misadventures contributed in a big way to crippling the airline. Consider the way in which Air India went about introducing new uniforms for its cabin crew and ground staff when new aircraft were being inducted in 2007. We invited the country’s best known fashion designers and based on their presentations, a committee specially constituted for the purpose drew up a shortlist. However, the exercise was suddenly called off. The designers protested—particularly JJ Valaya and Tarun Tahiliani—but their objection notwithstanding, the job was entrusted to Ritu Beri, a Delhi-based designer. Ms Beri had been rejected in the first round of approvals, but she offered to waive the designing fee, and the tendering process was disbanded midway. How Ms Beri was compensated for her efforts makes for an even more interesting story. Mr Thulasidas deputed a team of Air India officials to her farmhouse on the outskirts of Delhi. The team comprised a member each from the in-flight services, finance and materials management departments. Initially, she offered to supply the sarees at
4,000 each, but that was way more than the amount that we were paying our existing vendor—‘1,600 per saree. When the team brought that to her notice, she agreed to drop the price to
3,600. She sourced the uniforms from one of our existing vendors, and we ended up paying an additional amount of
2,000 per saree. Worse—the sarees couldn’t be introduced across the airline at the time of the launch of the new aircraft in August 2007 because they were delayed also and for a variety of other reasons. J. J. Valaya and Tarun Tahiliani took Air India to court for wasting their time and effort and were reimbursed all costs in an out-of-court settlement later.

THE LEASING IMBROGLIO

Aircraft leasing has traditionally been prone to misuse, especially with respect to Air India. The contracts are usually signed between the airline and a vendor, and in most cases, for Air India, the order for a new deal would emanate from the minister’s office, which would hardly ever be challenged by the airline’s management. It did not matter whether Air India needed more aircraft or whether a new route was viable and needed new aircraft to service it. In my years of service, I have found that if a minister so desired, a new route would be identified and the departments in charge would be asked to come up with a proposal that justified the lease. Ideally, this would be the point at which the officers in planning, commercial and finance departments raised their concerns and advised the airline in favour of or against the lease. But the management had grown so weak that a minister’s wish had begun to be considered as a command. Consider, for example, a first-hand account of how Air India discussed dry leasing plans in its 99
^th
board meeting held in Mumbai on 17 July 2004. Prior to this meeting, the minister spoke to Sunil Arora a board member and told him that since he and the Secretary for the Ministry of Civil Aviation were satisfied about the correctness of the plans, these should be expressly endorsed during the board meeting. When Mr Arora pointed out some issues, he was curtly asked to back the proposal and a counter-question was posed, ‘When the minister and the secretary himself are satisfied, what more is there for them to see?’V. Subramanian, another board member, confirmed that he had received a similar call.

In the majority of cases the projections made prior to the rolling out of routes operated with leased aircraft were never met. And since the decisions were taken at the ministerial level, no enquiry was ever conducted to fix accountability or seek an explanation as to why the numbers estimated before the leasing of the aircraft were at variance with the actual figures. However, in the wake of mounting losses, the board, in a meeting held on 28 September 2010, sought an enquiry. The Vigilance Department carried out a detailed study, and the results were startling. Some of the observations made in the report are as follows:

•  The study of 16 dry/wet leasing agreements of the National Aviation Company of India Limited (NACIL), the company formed at the time of the merger between Air India and Indian Airlines and which was subsequently renamed Air India Limited, revealed that all leases had led to losses during the period 2005–10.

•  In the case of all the leased aircraft, the actual revenues realised had been lower than the projected revenue.

•  Leased aircraft were deployed on routes on which Air India-owned aircraft were operating and were already making losses. In a particular case, a replacement 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 generating a loss. Subsequently, operations on the same route were terminated.

•  The passenger load factor and aircraft utilisation, in some cases, were estimated to be nearly 50 per cent higher than the actual figures. There was no monitoring by Air India officials of the projected performance of the leased aircraft vis-à-vis the actual performance.

•  Lease rentals were paid for the aircraft even when the leased aircraft were not deployed.

The report also stated that the leasing arrangements accounted for over 30 per cent of the total cumulative loss that Air India had incurred during the period 2005–10. It castigated the management for taking decisions on leasing on facetious premises. It said, ‘Aircraft were taken on dry/wet lease despite showing negative returns for reasons such as protecting the slots or maintaining the integrity of schedule.’ It also said, ‘The economic viability report was prepared on the basis of estimated revenues based on actual yields achieved in the preceding year and ignoring the net operating result of the route on which the leased aircraft was proposed to be deployed—which gave an incomplete picture of the viability of the project.’The Vigilance Committee report was scathing about the manner in which the viability of operations was ascertained and established. It said, ‘The economic viability report did not take into consideration the cost of borrowing funds which would have given a more realistic estimate of the net result for evaluating the viability report.’