The Air India’s management could have saved `4324.28 crore between 2005 and 2010, had it followed proper procedures, exercised financial wisdom and put in place a
performance evaluation mechanism while leasing aircraft, a recent report by the airline’s vigilance department has revealed.
This amount constitutes 31.25 per cent of the total loss (`13,835.22 crore) incurred by the airline during the same period. The report studied aircraft leasing procedures for Air India and Indian Airlines after their merger, and was prepared on September 28, 2010.
Report highlights:
The report focuses on dry and wet leasing of aircraft by the two airlines before and after the merger. Incidentally, both airlines were following their own rules and procedures even after the merger, and a uniform policy was completely absent.
Wet leasing is a practice where a plane is leased along with the cabin crew, maintenance staff and insurance expenses for a short period of time. Like-wise, dry leasing only incl-udes leasing of the aircraft.
Leasing is primarily undertaken to temporarily expand the fleet and widen operations in order to protect the market share.
The report pointed out several flaws ranging from unrealistic estimates of revenue and loss, questionable decisions of deploying planes on loss-making rou-tes and most importantly faulty or no economic viability reports (EVRs) (see box), which thereby led to losses of over hundreds of crores to the company.
“From the actual operating results, it seems that revenue earned by operating leased aircraft was about 50 per cent lesser than the revenue estimated in the EVRs,” the report observed. Similarly, the average passenger load and average utilisation of aircraft, was lower than what the EVR estimated.
Further, the report clearly suggests that the AI failed to undertake periodic reviews and monitor performance of leased aircraft. In other words, the operational system remained unchanged for years together with mounting losses.
The report also made several observations about “questionable and loss-making” leasing decisions. In one instance, during the induction of Boeing 777-200A aircraft, the lease committee had observed that the aircraft’s payload was 26 tonnes, when it should have been 31 tonnes (to generate revenue). However, no corrective action was taken by the airline, which caused losses of approximately `12 crore per year.
In another case, the management failed to report to the Empowered Commi-ttee, the impact on revenue, when it changed patterns of operations and route deployment of planes as proposed in the lease agreements. The EC had requested prior intimation about such changes, during their 11th meeting on March 28, 2005.
Observations for the Indian Airlines, on the other hand, have not been very adverse, except that the IA management spent over `325 crore on 17 leased aircraft, even after they were returned to the leasing companies. “This is more than 33 per cent of the actual rental paid to these companies, during the lease period,” observed the report. Despite a questionnaire being emailed to Air India over a week ago and repeated attempts being made to contact its spokesperson, the airline has refused to comment on the issue.