The Descent of Air India (28 page)

Naturally, then, the revenue earned by operationalising the aircraft taken on lease was far below the projections. The report estimated that the amount earned was half of that originally envisaged in the plans. Similarly, in most cases, the average passenger load factor was also much lower than the estimated passenger load factor and the average utilisation of the aircraft was less than the projected utilisation.

The committee looking into the lease deals found that not only were the projections grossly overstated, the loss perception that was clearly evident at the time the proposals were drawn up was also ignored. For instance, at the time of induction of 777-200 aircraft, it was noted that the payload of this aircraft was 26 tons—as opposed to the 31 tons that had been assumed to be its payload at the time of revenue calculation. This would lead to a loss of approximately
12 crore per annum. But ‘no corrective action was taken by the Lease Committee to avert the losses,’ the Vigilance Committee report said.

There were several instances of new leases being entered into while an old lease was still functional. For instance, the dry lease aircraft from M/s KAL was going to expire in March 2006, but the airline took an aircraft on dry lease from M/s GAP from October 2005 to October 2006, six months before the lease on the KAL aircraft had lapsed. Moreover, the Lease Committee accepted the aircraft from Globespan, which had 160 seats, with a seat pitch of 30 inches as against the stipulated 32 inches, and thus violated the technical conditions of the tender.

Even though it had been stated by the empowered committee in 2005 that the impact of the leasing arrangement on revenue and profitability should be tracked and the difference, if any, between the actual and projected figures should be reported to the board, this was not done. When the CAG questioned the leasing arrangements, Air India said that it was a ‘commercial decision to operate certain routes—despite losses—in order to maintain the market share and visibility and being the national carrier, it was not always possible to withdraw from such routes.’

The Vigilance Committee report said, ‘Total lease rentals amounting to USD75,92,766.67 was paid towards the delivery of these aircraft for which there was no Board approval.’The airline seemed to have lost all control over the plunder being perpetrated in the name of expansion and growth. It was also clear that decision makers lacked all compunctions about violating rules when it came to serving their own interests but followed them diligently when it came to matters that would help the airline curb costs and improve productivity or take decisions like that of the ordering of a passenger service system (PSS) that delayed the airline’s ability to comply with conditions set down by the Star Alliance. The policy makers were indifferent to the state of the airline. The hypocrisy on the part of those who were managing the airline during the period with respect to the adherence to rules and regulations, procedures and systems is simply inexplicable.

BIOMETRIC IDENTIFICATION SYSTEMS

In 2006, a proposal was mooted for installing a biometric passenger identification system at select domestic and international airports. A tender was issued in February 2006, eliciting 20 bids. The applicants made their presentations between May and July 2006, following which the technical committee shortlisted two Canadian agencies—IPCON and Cryptometrics—and rejected 18 others, including two public sector undertakings. Commercial bids were opened on 25 August 2006, and it was almost unanimously recommended that the contract be awarded to Cryptometrics as it was the lowest bidder.

Interestingly, the project, which required the consent of the airline’s commercial and security departments, was initially presented as a government-mandated initiative. It was only when the Commercial Director sought a written confirmation from the authorities in February 2007 that we were told it was not compulsory.

V Srikrishnan, the director of the Materials Management Department, who is currently being investigated by the CBI, and Manjari Kackar, Director Vigilance who had been given additional charge of the security department, together signed the tender committee note. The note was then handed to S. Punhani, the Director of the Finance Department, who decided to seek the opinion of his colleague, V. K. Suri, General Manager of the Finance Department and one who is known to be an upright officer, before appending his signature.

The Finance Department’s scrutiny revealed several inconsistencies with respect to procedural protocol and technical efficiency of the product being commissioned. For instance, there was a mismatch in the cost estimates for the project. According to the records, the Security Department estimate was about
75 lakh but the tender committee had, in its note, pegged the cost at
492.75 crore (the figures in rupees have been calculated using the rate of exchange prevalent in 2006). One reason for the increase in cost could have been that the period of the contract had been changed—it was being offered for a higher tenure of five years instead of the originally envisaged three years, but that alone did not justify the extent of the increase.

The Finance Department also questioned the estimates that had been made by the airline’s management about the number of passengers to be covered by the biometric scheme. The original figures were: 18.48 lakh passengers if the system was confined to the Indian and some foreign airports and 1.02 crore passengers if the entire Air India network was to be covered. However, when the tenure of the proposed contract was amended from three to five years, the numbers were revised to 37.50 lakh and 5 crore passengers respectively. The Finance Department sought an explanation for the increase and also asked whether the estimates had been calculated by the Commercial or the Planning Department of Air India. No explanation was forthcoming, which fuelled speculation that the high passenger estimates had been provided by officials who were perhaps privy to the impending merger between Air India and Indian Airlines.

The Finance Department looked into the technical evaluation report (dated 14 August 2006) wherein out of 20 bidding parties, only two had been approved. There was much that was wrong with the shortlist because IPCON, the other contender for the project, had not even submitted its bid on a formal letterhead and its quote defied economic logic. IPCON set the rate for 37.5 lakh passengers at CAD16.95 per passenger, but for 5 crore passengers, instead of bringing it down as dictated by economies of scale, it quoted CAD21 per passenger. The numbers for Cryptometrics were USD14 and USD2.10 respectively. Clearly, the IPCON bid wasn’t genuine, for how else does one explain the anomaly in the rates quoted? The officials who were in charge of the project ought to have questioned IPCON, but they were focused entirely on Cryptometrics, and the issue was never taken up.

The Finance Department also questioned why even though the Technical Committee had recommended that the shortlisted agencies be visited before finalising the deal, there was no record of such a visit. It sought an answer but there was none forthcoming at the time.

The Finance Department also asked for the inclusion of a termination clause in the contract that could be invoked if Cryptometrics failed to deliver as promised. But the company refused to accept the clause and sought the intervention of V. Thulasidas. In a letter dated 30 August 2006, Cryptometrics said that it did not want such a clause to be a part of the five-year contract. What was surprising was the fact that Cryptometrics had been allowed to get away without a termination clause, but another bidder, Electronic Corporation of India Ltd (ECIL), had been disqualified from the tendering process for asking for an exemption from the same.

The Finance Department made two more significant observations with respect to the bidding process. Its first point was that considering the value of the contract, the discussions and negotiations with the party should have been held with the heads of the respective departments, which was not done. And the second point was that there should have been a few US companies in the fray because biometric systems were a part of all major US airports under the supervision of the Department of Homeland Security. Since the project was finally estimated to cost
500 crore, and not
75 lakh as was earlier estimated, a global tender should have been issued. Finally, the project was given up because it became impossible to counter the objections being raised and explain the huge expense being incurred, especially since the airline was struggling to keep its head above water. But Air India was not as fortuitous with its other big expenditures, where rules were openly flouted and several crores of rupees wasted on awarding tenders to friends and people of influence. Barring a couple of instances—such as when the chief vigilance commissioner intervened to direct the removal of V. Srikrishnan from the position of executive director, Materials Management—the company’s own vigilance department has always looked the other way during such deals.

Several years later in 2012, the biometrics case hit the spotlight, when it made headlines in the context of a bribery case against Praful Patel. According to
The Globe and Mail
, a Canadian newspaper, Canada’s federal justice department was planning to prosecute a Canadian entrepreneur of Indian origin, Nazir Karigar, who was working on behalf of Cryptometrics on charges of corruption. The charges had been leveled at Mr Karigar by the Royal Canadian Mounted Police (RCMP). Mr Karigar was accused of trying to influence a deal worth CAD100 million for biometric identification systems in favour of his client, and it was alleged that he named Praful Patel as one of the Indian officials involved in the case and that he had paid CAD2,50,000 for getting the approval.
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Recently the Canadian courts ruled on the matter and Justice Charles Hackland said that, despite the fact that prosecutors were unable to prove that money had been funnelled to any of the Indian officials, there was a sufficient paper trail, including e-mails and a spreadsheet that was created to break down how bribe payments would be dispersed, to show that Mr. Karigar and other Cryptometrics executives intended to make illicit payments.
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