 Hello and welcome to NewsClick. Today, we are going to discuss Air India's crisis and the ED's investigations into possible problems with earlier Air India decisions to buy aircraft as well as lease aircraft. Raghur Profil Patel is under the scanner. He has been so for quite some time. Supreme Court has also earlier asked for this investigation to be concluded within a certain period of time. Now, the questioning has started. But if we look back at the fact that Air India is also facing a crisis after Kingfisher, after Jett, third non-budget airline, so to say, which is the crisis, what are the major decisions which have driven Air India to this pass? Well, there were two major problems and both of them, unfortunately, can be traced back to when Profil Patel was Minister for Civil Aviation. So, he was at the helm of affairs. He was at the helm of affairs. It was the UPA government at the time, which was also doing two things. One was that it was pushing for privatization and in that process, devaluing existing major public sector entities, such as Air India and Indian Airlines, Airports Authority of India and many others, which are not germane to our discussion today. While on the one hand that was going on, on the other hand, Profil Patel as Minister for Civil Aviation had the unenviable task of boosting the fortunes of Air India and Indian Airlines, both of which in different ways were in decline. But Indian Airlines was still a profitable company. So now, two things happened here. One is the privatized airlines were already eating into the market share of Air India and Indian Airlines. One answer that Profil Patel had to this, dropping market share was to boost the capacity of both these airlines by buying more aircraft. So, that is one decision. The second decision that he took was to merge Air India and Indian Airlines, thinking to boost the fortunes of these. On the second one, the merger, aviation experts, financial experts are almost unanimous in their opinion that it was an extremely bad decision. That effectively, Indian Airlines, which was at that point that profit making was functioning in a way which it could compete with the private airlines at the point of time. That landed itself with the losses of Air India and made both of them down. So, as a consequence, the financial problems of the combined airlines actually was more than what Indian Airlines would have. And the problem of saving Air India would have been a much smaller task than to try and remove both of them. And to compound this problem, when a decision was taken to buy a 111 new aircraft, 60 or 68 from Boeing and 43 from Airbus, in order to bolster the carrying capacity and new aircraft in the fleet, this added to the financial woes because in order of that size, in one go, makes the servicing of those loans extremely difficult. So, let's get this clear. This was drop-bottom loans. It was on a base of 115 aircraft that Air India and Indian Airlines had. The number of aircraft was almost doubled and the passenger capacity was actually much more than twice. So, you really added a huge amount of capacity on the basis of loans. And of course, the financial viability of the airlines then is the ability to pay back the loans. So, any exercise was done which showed that these loans could be paid back or this was sort of shall we say top of the head calculation by the minister. It is not very clear, but the CAG report of that time was severely critical of this decision. Both the decision to merge the two airlines as well as the decision to buy so many aircraft at one go. I think that was another problem that to put it in perspective, if you look today at the major private carriers Indigo and Spicejet, they are placing orders for equal number if not more aircraft. Their primary method of expansion today Indigo is 40% market share. And as it keeps increasing and servicing its market share, it keeps buying more aircraft so that the number of flights it operates per day increases. So, today they are coming close to a fleet of about 400 plus aircraft. So, per se it is not a bad idea to have an expanding fleet. The question is how do you do it? What is the mix of bought out or leased aircraft and how do you stagger the acquisitions of the aircraft in order to keep your books okay? Consider the fact that when Air India, the combined airline did this in 2006 when the airlines merged, they both together were running an operating loss of about 100 odd million dollars per year. By 2010-11, this had gone up to one billion dollars of operating losses. And by 2011, operating losses had mounted to 3.2 billion accumulated with a debt of 6.2 billion dollars. You can't survive that. So, you are really looking at a huge overhang of loads which you are unable to service. Which you are unable to service at a time when your operating losses were mounting. And what are the reasons operating losses are mounting because you are adding the debt? So, each is worsening the other. So, effectively Air India had two options at the time or shall we say if they had merged, let's accept that there was a bad decision to merge, but one time merger happened. Let's look at the combined issue of Air India in their airlines after the merger. That even with that, the acquisition of the aircraft should have been slower and it should have focused more on the domestic sector where there were profits rather than going after international sectors where they had much stronger competition. And essentially, this aircraft they bought more for the long hop or long haul, medium haul routes then for the domestic sector. Just one third factor to be added to this was the mix of purchased and leased aircraft. I think that was an option which today's airlines are taking more and more is to buy aircraft on leases with options to purchase and to place orders for new aircraft with options so that you stagger your purchases while your operating costs get balanced out. Now, as for the domestic and international airlines, it's true that Indian Airlines was still holding its own while Air India was clearly fighting a losing battle and the huge investments on Air India could be taken as throwing good money after bad. So maybe a restructuring of Air India separately would have been a better way to go than to throw money at a rather poorly managed loss making operation. And of course, Indian Airlines also had the distinction at the point of time and even today of servicing routes which private airlines do not want to service. So they are being forced to service those routes now but initially it was entirely Air Indian Airlines which are servicing those routes. So in spite of that they were not badly off at that point and they're still putting up the coat and good good fight till they got landed with these twin problems. Coming back to the issue of Praful Patel and the charges against him as I said, we can't really talk about what is evidence or not evidence is not being there. We don't know any of it but on the face of it very difficult to understand the financial logic of a decision like this more than doubling the capacity at one go, largely loan based acquisitions, the amount of repayment burden was such it is very difficult to foresee how it could be paid from the operating profits which are actually operating losses at the point of time. So this financially there is really very little logic to think of it like this. I can even understand running a loss making external airlines as a kind of say India wants to show its flag kind of thing. And you know when your vice president, president, prime minister go, Air India actually used to provide the aircraft. So all of those things even now in fact we are buying aircraft on a loss making Air India's behalf for prime minister, vice president and president's visits. But it's really very difficult to understand what would be the logic of Mr. Patel's decision like this. Yes, it's difficult to understand all right and as I said the CAG also pointed to the rather strange nature of these decisions and questioned the financial benefits and wisdom of these decisions but there were also other things that were going on in parallel which was in the international side the handing over of many profitable routes. What I was going to come to and the surrender of those two foreign airlines. Also to domestic airlines but also to foreign but also to foreign airlines and there was a similar process on on the domestic side as well the choice routes the choice timings went to jet and there were a lot of whispers even in those days about money changing hands but as you said this is something which evidence will tell. Yeah so basically again very little commercial sense in the kind of decisions the Air India seems to have taken with respect to handing over profitable external routes and of course also the way it handed over what I would call as prime slots to other airlines of course this handing over was really done supposedly by the civil aviation ministry so it is not entirely their call but nevertheless it does seem to indicate that the public sector undertake must put a disadvantage in all of this and again giving up say your international routes to domestic players one can even understand after all domestic players are also Indian airlines but giving it to international players doesn't seem to make any sense whatsoever this is really handing over shall we say like the spectrum handing it over the spectrum free this equivalent would be handing over routes free to other countries other international players both of these again we don't have any explanation so these are the shall we say the imponderables of why apparently decisions which do not help the Air India or the Indian aviation sector was taken and the minister the help was Profil Patel and of course we will see what the ED comes up with but this have been questioned that the unions have also earlier raised the Indian Airlines I remember the unions were very much on this on the war path of this privatization mergers loans not privatization on the issue of the mergers and as well as on handing over routes on the kind of expansion all this the unions had questioned and we'll have to see what further happens absolutely thank you very much Raghu for being with us and as the things unfold and if they do then we'll continue to talk keep on talking with you on this this is all the time we have for news click today do keep watching news click for this and other issues