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Wednesday, January 29, 2020

Air India lost Rs 4,324 cr due to poor leasing decisions

Vigilance dept says even 50% of revenue targets was not met

Written by Smita Aggarwal | New Delhi | Published: May 29, 2012 1:07:39 am

The vigilance department of Air India has recommended action against the airline’s leasing committee. The department says that the airlines lost at least Rs 4,324.28 crores between 2005 and 2010 due to poor decision-making of the committee.

It noted that all the 16 lease agreements examined by it weren’t able to achieve even 50 per cent of the revenues and aircraft utilisation targets which were projected ahead of leasing.

The report,which was submitted to the Air India Board in November last year,found several irregularities in the leasing of around 50 aircraft during 2005-2010,accounting for nearly 31 per cent of the Rs 13,835 crore losses incurred by the airline in the period .

The airline,in its response argued that some of these aircraft were deployed to protect their slots or maintain integrity of their schedules or for expansion.

The committee failed to take corrective action despite noticing violations of lease tender in at least two cases. The report was referred back to the department by the Board stating that the report did not fix any accountability for the losses,said a senior airline official.

According to the report,the vigilance department has specifically recommended action in three instances.

In the first instance,the airline dry leased aircraft from M/s GAP from October 2005 — six months ahead of requirement. In the second instance,it accepted aircraft from Globespan violating the tender’s technical conditions. In the third instance,it paid lease rental of $7 million (Rs 37 crore) towards delayed aircraft delivery without any Board authorisation.

The department has recommended that apart from setting a minimum benchmark rate of return,the aircraft should be leased only if it guarantees a “minimum rate of return”. The benchmark rate should be at least one per cent above the rate of interest incurred on borrowing funds for the same.

The report enlists the glaring lapses found in the lease agreements in both the pre-merger Air India and Indian Airline. In case of Air India,the panel said that there was no monitoring of the performance parameters by the officials.

In case of Indian Airlines,no feasibility study was carried out prior to leasing of aircraft but it noted that Rs 325 crore was spent on refurbishing 17 leased aircraft after they were pulled out of operations.

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