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Corporate Aug 7, 2011

CAG points finger at AI for huge losses under Praful Patel's leadership

By Firstbiz Staff

In the recently tabled report in parliament, the Comptroller and Auditor General (CAG) has found that AI and erstwhile Indian Airlines lost close to Rs 2,000 crore in large aircraft deals negotiated during UPA-I -- "through faulty purchase and bridge loan deals and also avoidable expenses incurred by delay in returning leased planes once new ones started joining the fleet" says The Times of India.

The CAG report has looked into the period, between 2005-2010, when Praful Patel was the Civil Aviation Minister.We had written earlier that Praful Patel had virtually destroyed Air India by loading it with debt.

Air India has denied the CAG's claim that the defective contracts led to the losses. And predictably, AI also points to Empowered Group of Ministers (EGOM) as the body that cleared the decisions to buy aircrafts.

The report also says

"The proposal to expand capacity was not warranted in view of intense competition and inability of IAL (Indian Airlines Ltd) to handle competition." The CAG report also hauled up the airline for borrowing from IDBI at a higher rate of interest (11.75%) when it had the option of back stop financing (an arrangement where the airline comes up with a small down payment and the manufacturer covers the rest) at a modest 4% with the supplier, Airbus.

This led to the national carrier suffering a loss of Rs314.66 crore till March, 2010, and "a "loss of Rs 2,459.79 crore would further be incurred in future."

by Firstbiz Staff

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