CAG raps AI for it’s financial mess

The Comptroller and Auditor General (CAG) of India today tabled a report in the Parliament of India stating that the Civil Aviation Ministry’s decision to change it’s order book from the initial 18 smaller capacity and 10 medium capacity aircraft in January 2004, to 50 medium and long range planes worth about $7.2 billion, and 18 more for Air India charters in November 2004 has imposed an “undue long term financial burden on the carrier”

The report comes at a time when AI is already saddled with high debt caused due to inefficient processes and high interest payment on the accumulated part of which was to fund the buying of these planes. Also the botched up merger of AI-IA has caused a huge strain on the company balance sheet in terms of bloated manpower which needs to be trimmed at the earliest.

The key takeaways from today’s report were:

  1. The total loan liability of National Aviation Company of India Limited (NACIL) is $9.5 billion, including $4.76 billion of long term loans earmarked for fleet acquisition.
  2. AI has been consistently making losses ever since the merger and the majority of the losses are currently from the non-stop Indo-US route which contributed between 41 percent and 90 percent of Air India’s total operating losses during the period 2005/06 to 2009/10. Currently all it’s International routes are loss making.
  3. AI has been heavily dependent on debt and the government should promptly infuse more equity in a timely fashion to bring down the debt-equity level to industry standards.

I must say I’m not very surprised by the findings of the report which have stated the obvious in terms of numbers, AI under it’s needs to act fast and take up some drastic measures in order to ensure that it regains it’s lost reputation as one the finest airlines and also start making some money. Does this mean that AI will restructure it’s orders? Given that the Star Alliance deal is all but gone now, How does AI plan to justify the investment? All said and done i don’t have much hope though given that the current political bosses lack the will to ensure a turnaround at the State owned carrier. The future for AI seems to bleak as of now.

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