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Huge traffic rights to gulf hit AI

BS Reporter  |  New Delhi 

The Comptroller and Auditor General (CAG) on Thursday criticised the civil aviation ministry for granting “massive increases” in bilateral air traffic rights to Gulf nations in 2004-05, despite Air India’s (AI) “strong reservations”, as this was its most profitable international sector. Between May 2007 and March 2010, the Dubai sector saw the number of seats per week rise from 18,400 to 54,200.

The government’s apex auditor said as a result of liberalisation of the bilateral rights, Indian carriers did not get any increase in the number of destinations in the Gulf countries, while airlines from that region got the right to operate to 14 destinations in India, four more than before.

“Despite repeated protestations of AI on the lack reciprocity and the funnelling of the sixth freedom traffic by Emirates through Dubai from interior locations in India, even change of gauge facility was not adequately pursued, nor linked to additional benefits.

This resulted in vague commitments for such facility, not at Dubai airport, but at the upcoming Jebel Ali Airport (an impractical solution for AI and other Indian carriers) and that too with distant time frames between 2012 and 2018,” the CAG said in its report placed before Parliament on Thursday.

The CAG said the ministry should put a freeze on bilateral entitlements to countries and airlines predominantly utilising sixth freedom rights (notably those in the Gulf). These rights allow an airline to book passengers from one country via the base country of the airline for a third country.

The ministry needs to keep this bar in place till “India has its own effective and efficient hubs and AI/other Indian carriers are able to exploit them effectively (say within three to five years)”. It recommended the ministry to consider options for rolling back excess entitlement granted beyond genuine traffic requirements.

The CAG recommended the ministry to have a total ‘hands-off’ approach from the day-to-day professional management decision of AI and suggested the government to immediately intervene in the form of a bail-out package.

“AI has to function in a level playing field. While it may be a public sector undertaking, with the government infusing equity into the entity, it should be allowed the same autonomy with regard to commercial and operational decision as those enjoyed by any private airline,” said the report.

It said the airline should be headed by a professional who has a stake in the success of the airline and advised the airline management and staff to keep their personal interest aside.

THE MAHARAJA MESS
THE OBSERVATIONS
* Acquisition of aircraft was entirely funded by debt, which should have raised alarm bells in the ministry, Planning Commission and PIB
* Key assumptions underlying the revised project report for 50 long-range aircraft were flawed. The assumption that increase in capacity would automatically increase Air India’s market share was not validated
* An acquisition programme, which was under consideration from 1996 and took eight years to progress upto the government level for purchase of 28 aircraft, suddenly picked up speed and the contract was signed in seven months
* No benchmark for costs of the aircraft was set before negotiating with the manufacturers
* The MoU signed between erstwhile Indian Airlines and Boeing was flawed and became a meaningless exercise, reflecting poor performance and ensuing lack of effective accountability
* Government followed liberalised policy towards bilateral entitlements for international air travel without giving adequate time to AI or IA to set their houses in order
* The potential benefit of the merger would have been far higher had this been undertaken before finalisation of the massive fleet expansion exercises by AI and IA 
* Financial case for merger was not validated. There was a huge delay in the actualisation of the merger and HR integration for 98% of the employees had still not taken place 
RECOMMENDATIONS
* Freeze on bilaterals to countries predominantly using sixth freedom rights like Emirates
* If possible subject to diplomatic and other considerations, roll back excess entitlements granted beyond genuine traffic requirements
* Infusion of government equity and prompt payment of government dues
* Maximise PLF in business and first class
* Relocate operations from the city to the airport
* Productivity-linked incentive, which employees get, should focus on time performance
* Real time revenue management 

First Published: Fri, September 09 2011. 01:37 IST
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