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Airlines

Controversy Surrounds Air India's 111 Aircraft Purchase

Strategic Insights

— 1 min read

The civil aviation ministry has explained to the Comptroller Auditor General (CAG) that the decision to purchase 111 aircraft in 2005 was made with the consent of the Prime Minister's Office and the Empowered Group of Ministers (EGoM), which was headed by then finance minister P. Chidambaram. The purchase was worth Rs 50,000 crore and was criticized for being done at a time when Air India and Indian Airlines were heavily in debt. The ministry claimed that the deal was necessary due to safety concerns and intense competition from private airlines, but the CAG has questioned the financing of the deal.

Key Takeaways:

  • The civil aviation ministry had consent from the Prime Minister's Office and the Empowered Group of Ministers (EGoM) to purchase 111 aircraft in 2005.
  • The purchase was worth Rs 50,000 crore and was financed at market rates, with the ministry choosing not to obtain sovereign guarantees against the loan.
  • The CAG has questioned the financing of the deal, citing the fact that the airline had to pay Rs 2,700 crore in interest premium every year.
  • The ministry claimed that the decision was made quickly due to intense competition and safety concerns, but the CAG has criticized the merger of Air India and Indian Airlines.
  • The merger, which created the National Aviation Co India Ltd (NACIL), has been described as a financial, administrative, and operational disaster.
  • A Parliamentary committee had described the merger as "a marriage between two incompatible individuals" and the ministry's claim that the merger would result in a net benefit of Rs 600 crore was proved wrong.

Statistics:

  • The purchase of 111 aircraft was worth Rs 50,000 crore.
  • The airline will pay Rs 2,700 crore in interest premium every year.
  • 43 Airbus A-320 and 68 Boeing planes were purchased.
  • The price range for each plane was between $37.34 million and $143 million.
  • 40 Boeing planes have been inducted into the fleet, while all Airbus planes have been delivered.

Sources:

  • Reproduced From India Today. 2011. LMIL. All rights reserved.

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