Short-term loans hurt Air India

The Comptroller and Auditor General of India (CAG) has poked holes in the government’s claim that stateowned Air India was on a turnaround path.

In its audit of the turnaround plan and financial restructuring plan of the airline, the auditor said the airline had failed to achieve many of the objectives in various functional areas mandated under the financial restructuring plan, which has provided equity infusion of ~30,231 crore till FY21.

These failures hurt the airlines’ revenue generation, leading to more short-term loans being issued. Such lending eroded the benefits of the financial restructuring plan. CAG said this might result in another financial restructuring for the airline.

According to the report, Air India earned passenger revenue of ~15,773 crore, almost 20 per cent lower than the projected ~21,297 crore, in FY16. The failure to meet the target was despite meeting load factor targets. This meant the airline lost revenue due to its own inefficiencies involving aircraft availability, faulty deployment, low utilisation of human resources and lack of ancillary revenue.

The CAG also said poor or faulty initiatives to monetise Air India’s assets — one of the primary requirements of meeting the revenue deficiency — led to a dip in the company’s revenues. The audit said the terms and conditions made it impossible to monetise five of 12 properties. The turnaround plans envisaged that ~500 crore would be earned from monetisation of 12 properties, but Air India had till February 2016 marked only six.

The audit said there was mismatch in demand and availability. There was over-provisioning of wide-body aircraft whereas it didn’t have the required number of narrowbody aircraft. A consultant had recommended inducting A320 to reduce maintenance cost. But it took the airline three years to float a global tender. It could induct only five A320s till March 2016, jeopardising the plan to reduce maintenance cost. “Such long delays point to the inefficiency of the procurement process given the urgency of the requirement,” the audit report said.