Delayed flight

With the ministry of finance raising questions on the planned purchase by Indian Airlines of 43 Airbus A-320s for Rs 9,475 crore, it is almost certain the aircraft will not be available in a hurry.

The finance ministry has asked the ministry of civil aviation to certify that the offer is the best received by any airline, and only then will the ministry issue the guarantee that will make it possible for IA to raise the required funds.

Such a certificate is difficult to give since airlines get different offers depending upon the time they buy, the numbers they buy, the specific aircraft configurations, and so on. So it is possible that Indian Airlines, which over the years has lost valuable market share to rivals like Jet Airways owing primarily to the shortage of aircraft, will once again suffer.

The delay is especially ironic since it was the promise that Indian Airlines would be allowed to buy more planes that was used to get political parties to agree to support the open skies policy.

Perhaps the finance ministry's objections are the result of letters written by various members of Parliament, alleging that other airlines have got a better deal, and newspaper reports have mentioned one particular deal with Singapore. If so, the ministry is right to ask for an examination of the two deals, to the extent this is possible. What it should avoid is an all-encompassing sweep of aircraft deals.

This brings into focus the system of public sector purchases. Once the board of a state-owned enterprise clears a purchase proposal, it goes for pre-Public Investment Board (PIB) approval, which is conducted by the financial advisor of the ministry concerned.

The proposal is then sent to the finance ministry and the Planning Commission, and for PIB approval, where the expenditure secretary (from the finance ministry) conducts the proceedings, and finally to the Cabinet (for deals above a certain size).

This makes it clear that the finance ministry had opportunity to raise its objections and seek clarifications earlier in the decision-making chain. Indeed, it was only after getting PIB clearance that Indian Airlines negotiated further with Airbus (the lowest bidder) to try and get a better deal.

The problem is that while the entire process is usually supposed to be got over in 4-6 months, Indian Airlines first came up with the proposal in 2002, and PIB approval was given in 2004.