Former Comptroller and Auditor General (CAG) Vinod Rai has essentially confirmed what we wrote more than three years ago: that former Civil Aviation Minister Praful Patel was a major cause of Air India’s downfall.
In his interview to Times Now, Rai confirmed that Patel “nudged” Air India’s board to increase its order for planes from 28 to 68, causing it to sink under debts. He said that at the Air India board meeting of 2 August 2004, Patel asked it to take a "longer-term perspective". When the board asked what exactly he meant by longer-term perspective, Rai mentions that it boiled down to the government telling Air India, “look, you must buy a larger number of aircraft. Now, we found this strange.”
Some of Vinod Rai's suspicions have found mention in his forthcoming book,Not just an Accountant: The Diary of the Nation's Conscience-Keeper.
Once the board succumbed to Patel’s pressure, it was all downhill for the airline. What follows is an edited version of what we wrote in July 2011 on Patel and the damage he did to Air India.
When Patel took over as Minister of State for Civil Aviation in 2004, the domestic carrier (then Indian Airlines) was market leader with a 42 percnet share, but slipping. Today, it is No 5 - behind Jet, Kingfisher, IndiGo and SpiceJet. (the failure of Kingfisher, troubles at Jet, and a government bailout have since helped Air India up the league, to No 2 behind IndiGo again, but airline is not out of the woods yet).
Here's how Praful Patel did it - ruin Air India that is.
First, load it with debt so high that it can never raise its head again. It is now clear the Air India's financial problems began in 2004 when Praful Patel chaired a meeting of the board after which the airline suddenly inflated its order for new aircraft from 28 to 68 without a revenue plan or even a route-map for deploying the aircraft, says an India Today report. An airline with revenues of Rs 7,000 crore was being asked to take on a debt of Rs 50,000 crore (including pre-existing debt).
Second, Patel presented a merger of Air India with Indian Airlines as the panacea for all ills. It is surprising how often ministers suggest mergers when public sector companies head for ruin. When telecom company MTNL was sliding, then Communications Minister Dayanidhi Maran was suggesting a merger with Bharat Sanchar Nigam Ltd. That didn't happen, but both MTNL and BSNL are in the sick bay anyway. Praful Patel used the losses of Air India and Indian Airlines to push for their merger, claiming there would be cost savings from synergies. Worldwide, mergers usually destroy value. The Air India-IA merger has been the biggest man-made disaster in aviation history - thanks to their varying cultures and employee costs.
Said Gustav Baldauf, former COO of Air India who fell foul of Patel's successor and had to quit: "The management never resolved the pending human resource (HR) issues related to the merger. I had warned the Chairman-cum-Managing Director and the Aviation Ministry of the consequences of introducing a single code without resolving issues first. But they never listened," he told Mid-Day.
Third, Patel seemed to be batting as much for Air India's rivals. He handed over lucrative routes to private players. Though Air India had no birthright to every lucrative route, Patel's overnight manoeuvres in this regard suggested that he had a clear conflict of interest by being both Aviation Minister and board member in Air India.
A Tehelka report quotes Capt Mohan Ranganathan, an aviation expert, as saying that the airline handed over "flying rights on lucrative sectors in the Gulf to foreign airlines, including Etihad Airways, Qatar Airways, Air Asia, Singapore Airlines and several others..." One glaring instance of a sudden handover could not have come without Patel's nod. Tehelka says that in October 2009, the airline sent "letters...to its stations in Kozhikode, Doha and Bahrain stating that it was withdrawing operations on the route" - a route in which the airline was making money hand over fist. Very soon, Jet and Etihad stepped in to fill the gaps, and so did Emirates.
Fourth, Praful Patel's own airline preferences made it clear who he favoured. According to replies received under the Right to Information Act by one Jagjit Singh, Patel used mostly private airlines. Between June 1, 2009 and July 2, 2010, 26 of the 41 flights he took between Delhi and Mumbai were with Kingfisher. "It is intriguing that the minister who stresses the need for revival of the national carrier himself chooses to ignore it," said Singh. And this happened just when the Finance Ministry was asking all government employees to use Air India for their official travel to help revive the carrier.
Patel's haughty reply when asked about this preference of private airlines: "I am the Union Civil Aviation Minister and not the minister in charge for Air India. As a minister, it is not binding upon me to fly only one particular airline. I fly according to my convenience." But when he ordered so many places for Air India, was he acting as Minister or superboss of the airline?
Fifth, Patel used his clout with Air India often for personal ends. Another RTI query showed that Patel's kin used the Air India Managing Director's office to regularly upgrade from economy to business class. Business class is a cost Patel's family, which is rolling in wealth, can easily afford. So what does this say about Patel's attitude to the airline?
The lesson from Patel’s dubious interventions at Air India show that ministries should not have administrative control over public sector undertakings. Their job is making policy for the whole sector, not running a company impacted by this same policy.
The government's best bet now is to separate policy-making from ownership of the public sector. Boards need managerial autonomy – and this exactly what Praful trampled on and set Air India into a tailspin.
In his interview to Times Now, Rai confirmed that Patel “nudged” Air India’s board to increase its order for planes from 28 to 68, causing it to sink under debts. He said that at the Air India board meeting of 2 August 2004, Patel asked it to take a "longer-term perspective". When the board asked what exactly he meant by longer-term perspective, Rai mentions that it boiled down to the government telling Air India, “look, you must buy a larger number of aircraft. Now, we found this strange.”
Some of Vinod Rai's suspicions have found mention in his forthcoming book,Not just an Accountant: The Diary of the Nation's Conscience-Keeper.
Once the board succumbed to Patel’s pressure, it was all downhill for the airline. What follows is an edited version of what we wrote in July 2011 on Patel and the damage he did to Air India.
When Patel took over as Minister of State for Civil Aviation in 2004, the domestic carrier (then Indian Airlines) was market leader with a 42 percnet share, but slipping. Today, it is No 5 - behind Jet, Kingfisher, IndiGo and SpiceJet. (the failure of Kingfisher, troubles at Jet, and a government bailout have since helped Air India up the league, to No 2 behind IndiGo again, but airline is not out of the woods yet).
Here's how Praful Patel did it - ruin Air India that is.
First, load it with debt so high that it can never raise its head again. It is now clear the Air India's financial problems began in 2004 when Praful Patel chaired a meeting of the board after which the airline suddenly inflated its order for new aircraft from 28 to 68 without a revenue plan or even a route-map for deploying the aircraft, says an India Today report. An airline with revenues of Rs 7,000 crore was being asked to take on a debt of Rs 50,000 crore (including pre-existing debt).
Second, Patel presented a merger of Air India with Indian Airlines as the panacea for all ills. It is surprising how often ministers suggest mergers when public sector companies head for ruin. When telecom company MTNL was sliding, then Communications Minister Dayanidhi Maran was suggesting a merger with Bharat Sanchar Nigam Ltd. That didn't happen, but both MTNL and BSNL are in the sick bay anyway. Praful Patel used the losses of Air India and Indian Airlines to push for their merger, claiming there would be cost savings from synergies. Worldwide, mergers usually destroy value. The Air India-IA merger has been the biggest man-made disaster in aviation history - thanks to their varying cultures and employee costs.
Said Gustav Baldauf, former COO of Air India who fell foul of Patel's successor and had to quit: "The management never resolved the pending human resource (HR) issues related to the merger. I had warned the Chairman-cum-Managing Director and the Aviation Ministry of the consequences of introducing a single code without resolving issues first. But they never listened," he told Mid-Day.
Third, Patel seemed to be batting as much for Air India's rivals. He handed over lucrative routes to private players. Though Air India had no birthright to every lucrative route, Patel's overnight manoeuvres in this regard suggested that he had a clear conflict of interest by being both Aviation Minister and board member in Air India.
A Tehelka report quotes Capt Mohan Ranganathan, an aviation expert, as saying that the airline handed over "flying rights on lucrative sectors in the Gulf to foreign airlines, including Etihad Airways, Qatar Airways, Air Asia, Singapore Airlines and several others..." One glaring instance of a sudden handover could not have come without Patel's nod. Tehelka says that in October 2009, the airline sent "letters...to its stations in Kozhikode, Doha and Bahrain stating that it was withdrawing operations on the route" - a route in which the airline was making money hand over fist. Very soon, Jet and Etihad stepped in to fill the gaps, and so did Emirates.
Fourth, Praful Patel's own airline preferences made it clear who he favoured. According to replies received under the Right to Information Act by one Jagjit Singh, Patel used mostly private airlines. Between June 1, 2009 and July 2, 2010, 26 of the 41 flights he took between Delhi and Mumbai were with Kingfisher. "It is intriguing that the minister who stresses the need for revival of the national carrier himself chooses to ignore it," said Singh. And this happened just when the Finance Ministry was asking all government employees to use Air India for their official travel to help revive the carrier.
Patel's haughty reply when asked about this preference of private airlines: "I am the Union Civil Aviation Minister and not the minister in charge for Air India. As a minister, it is not binding upon me to fly only one particular airline. I fly according to my convenience." But when he ordered so many places for Air India, was he acting as Minister or superboss of the airline?
Fifth, Patel used his clout with Air India often for personal ends. Another RTI query showed that Patel's kin used the Air India Managing Director's office to regularly upgrade from economy to business class. Business class is a cost Patel's family, which is rolling in wealth, can easily afford. So what does this say about Patel's attitude to the airline?
The lesson from Patel’s dubious interventions at Air India show that ministries should not have administrative control over public sector undertakings. Their job is making policy for the whole sector, not running a company impacted by this same policy.
The government's best bet now is to separate policy-making from ownership of the public sector. Boards need managerial autonomy – and this exactly what Praful trampled on and set Air India into a tailspin.
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