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Business Commentary/ Vir Sanghvi

Flight of fancy: Caretaker govt displays unseemly hurry to buy ATR-42 aircraft for Indian Airlines

Fortunately for politicians, the public has a short memory. How many people remember that the Chandra Shekhar government tried to buy Boeing 747s for Air-India in 1991 after it had lost its parliamentary majority? The deal was on the verge of going through when the then President, R Venkatraman, intervened. There would be no aircraft purchases by a caretaker government, decreed Rashtrapati Bhavan, Air-India could wait till after the elections.

Not only has the public forgotten this incident but both the civil aviation ministry and Rashtrapati Bhavan seem to be suffering from the same kind of memory lapse. For all of the last month, the ministry has been urging Indian Airlines to purchase the ATR-42 aircraft. The airline has complained that the purchase makes no sense. It doesn't need the aircraft. It doesn't like the aircraft. It can't afford the aircraft.

So what, retorts the ministry, we like the aircraft, and that's what matters. As yet, there has been no official protest from Rashtrapati Bhavan though apparently, the President, K R Narayanan, did call the managing director of Indian Airlines in for a chat. Nevertheless, the President has still to stop the purchase.

As inexplicable is the attitude of the rest of the Cabinet. Say what you will about the Bharatiya Janata Party government but the fact remains that there has been no major corruption scandal during its term. And even Atal Behari Vajpayee's worst enemy will tell you that he is a decent and honest man who has no interest in money.

So why is nobody leaning on the aviation ministry to stop it from going ahead with this strange purchase? Doesn't the BJP realise that this could well become a major corruption scandal? Isn't the government concerned about its caretaker status? And why, in god's name, is it unwilling to wait till October -- when the new Lok Sabha will be constituted -- before buying the planes?

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You don't have to be a genius to work out why politicians like aircraft purchases. But even a genius would be hard pressed to explain why the rest of the Cabinet is letting the aviation ministry get away with its buy-the-plane-before-the election stand.

The saga of the ATR is a curiously sordid affair. There has long been a case for purchasing a small (50- to 60-seater) aircraft to service the feeder routes in the interiors of the country and, in particular, in the Northeast. The trick is to buy the right aircraft. When India has bought small planes, we have often made the wrong decision. The classic example is the Dornier, an uncomfortable and probably unsafe aircraft that Vayudoot was landed with in the Eighties. Nevertheless, even the Dornier's critics concede that it could have been an economically viable choice, if properly managed.

ATR is a French company that has long been pushing its ATR-42-500 aircraft on Indian Airlines. Last year, the Indian Airlines board -- which then included such luminaries as Deepak Parekh, Ajit Kerkar and Inder Sharma --examined the proposal and came to the conclusion that the plane would only be viable at a load factor of 150 per cent. If you put up fares very substantially -- say, you doubled them -- then it was possible to break even on the plane but even then it would be difficult. Of course, there was no question of putting in the fares at all -- the aircraft would be deployed in the Northeast and in other such sectors where fares are already kept artificially low.

Accordingly, the board made it clear that the ATR-42 was completely unsuited for Indian Airlines. Shortly after this recommendation was made, the board was suddenly dissolved late at night on a weekend. The ministry denied that the decision to sack the board -- and with it, the managing director, P C Sen -- had anything to do with the aircraft purchase. But when it reconstituted the board, it took care to pick only government servants and to steer clear of aviation, finance and tourism experts from the private sector.

The sacking of the board caused a predictable outcry. Manmohan Singh got up in Parliament to ask whether the dissolution had to do with the board's unwillingness to buy the ATR-42. After rumours swept New Delhi to the effect that kickbacks were involved in the ATR purchase, the government suddenly went slow on the deal. It was suggested that the Prime Minister had got involved and that now, there would be no question of an obviously unviable aircraft being bought for Indian Airlines.

Fortunately for the airline, the ministry laid off and its new managing director, Anil Baijal, was given a free hand and did a good job launching such initiatives as the metro shuttle. Then, just as the government was falling, the deal was revived.

Unfortunately for the aviation ministry, Baijal, like Sen before him, refused to play ball on the ATR purchase. Indian Airlines made it clear that it was completely opposed to the choice of aircraft.

Moreover, it said, the purchase of the six ATR-42s that the ministry was pushing for would cost it around Rs 4.4 billion and this was money that it did not have.

It was the aviation ministry's attitude to the financial question that provoked even more curiosity. Fine, it said, if you don't have the money, we'll give it to you. And where would this money come from? Well, the government had promised to inject new funds for replacing Indian Airline's ageing A 300 and Boeing 737 fleet. If Indian Airlines did not replace these aircraft (some of which are 23 years old), then it would certainly lose the battle with the private carriers. Now, said the ministry, we've decided that you don't really need to buy the Airbuses or the Boeings. Why don't you spend the money on the ATR-42?

This was bizarre enough. But it was not enough. Indian Airlines pointed out that the problem was not just that it didn't have the money to buy the ATR, it was also that it did not want to buy the aircraft because it was unviable. The airline's projections estimated the loss of the ATR project at Rs 11.68 billion. Even if the government helped finance the acquisition, it would still mean a project loss of Rs 7.28 billion because of the unviability of the aircraft. Moreover, if the money earmarked for fleet renewal went into six ATR-42s, then Indian Airlines could not buy the Airbuses and Boeings that it needed.

At a meeting of the Public Investment Board, the Indian Airline's management eloquently and forcefully opposed the purchase of the ATRs on these grounds. This resulted in anger on the part of the ministry, which in turn, led to leaks to the media from Indian Airlines -- and so on.

Whichever way you look at it, two things are clear. One: Indian Airlines does not want to buy the aircraft because it does not want to be stuck with a plane that will cause it to lose tens of billions. And two, despite Indian Airline's objections, the aviation ministry is determined to make it buy the aircraft.

The ministry's problem is that there are no grounds on which to justify the purchase. Desperate for some argument, it has fallen back on lies. It has been suggested that even Jet Airways has bought the ATR-42. This is not true. Jet has gone for the more economical ATR-72 and even then, it has only leased the aircraft. The ministry has also tried to get Alliance Air, an Indian Airlines subsidiary, to run the planes because Alliance has lower over-heads than its parent. This would bring down the losses marginally. But would not make a significant dent in the total loss figure of Rs 11.68 billion.

I have seen no argument that justifies buying the ATR-42. It is no accident that every single aviation expert of consequence, an independent Indian Airlines board and two successive managing directors all share this view.

But assume for a moment that all of us are wrong. Perhaps the big spenders at Rajiv Gandhi Bhavan are right and the ATR-42 is the kind of aircraft that Indian Airlines needs. Even then, a big question remains: what is the hurry?

Why is the caretaker government so eager to spend Rs 4.4 billion of taxpayers' money before the election? Why can't it do the decent thing and wait for an elected government to take the decision?

The aviation ministry has offered no answer to the Indian people. Perhaps the ministry will have one ready by the time the President calls for the file.

Vir Sanghvi

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