CHAPTER 4
MINISTRY OF CIVIL AVIATION

Airports Authority of India

4.1.1    Loss due to unnecessary borrowing of funds

Unnecessary borrowings by the Authority vis a vis its requirement resulted in interest loss of Rs.10.35 crore.

As per instructions issued (December 1994) by the Department of Public Enterprises (DPE), “funds should not be invested by a Public Sector Enterprise (PSE) at a particular rate of interest for a particular period of time while it is resorting to borrowing at an equal or higher rate of interest for its requirements for the same period of time”. This is also in line with prudent commercial principles.

Despite this, Airports Authority of India (Authority) invested since April 1995, Rs.217.10 crore in fixed deposits with various banks at interest rates ranging from 8.55 per cent to 12.50 per cent. Between April 1995 and March 2000, it borrowed Rs.55 crore at 15 per cent to 16 per cent per annum. The investments grew to Rs.984.72 crore by 31 March 2000 and borrowings increased from Rs.32.72 crore in 1995-96 to Rs.57.35 crore by the end of 1999-2000. On this matter being pointed out (April 1999) by Audit, the Authority repaid Rs.30 crore to the Government during July-August 2000. It also repaid (June 2001) Rs.25 crore to the Government after borrowing Rs.10.25 crore at an interest rate of 14.50 per cent in March 2001.

Thus, it was seen that the Authority had been borrowing funds at a rate higher than the one at which investments were made despite availability of surplus funds. This violation of the directives of DPE as well as prudent commercial principles resulted in a loss of Rs.10.35 crore to the Authority for the period from April 1995 to March 2001.

The Authority stated (July 2001) that the funds were borrowed to meet expenditure on account of infrastructure development and enhanced expenditure on the induction of the Central Industrial Security Force (CISF).

Contention of Management is not tenable, as the Authority has refunded Rs.55 crore during 2000-2002 out of borrowings of Rs.57.35 crore at the end of March 2001. Moreover, these borrowings constituted only a fraction of the funds invested by the Authority and would not have significantly affected their capital commitments met primarily by foreign loans. Besides, the Government had already allowed the Authority to increase passenger service fees to meet the cost of induction of CISF.

In summary, therefore, unnecessary borrowings by the Authority vis a vis requirement resulted in interest loss of Rs.10.35 crore.

The matter was referred to Ministry in July 2001; their reply was awaited (September 2002).

4.1.2    Loss of revenue

The Authority issued (November 1991) directions that fixation of licence fees for land and other non-residential accommodation in the premises of 28 airports, including Hyderabad airport, should be carried out only with the approval of the Headquarters office. Accordingly, based on the recommendations of the Southern Region, the Headquarters office approved (March 1998) a rate of Rs.4818 per square metre per annum in respect of licence fees for non-residential accommodation in the old terminal building of Hyderabad airport. The Headquarters office subsequently (March 1999) revised the above licence fee to Rs.5304 per square metre per annum to be made effective from 1 April 1999.

It was observed in Audit that M/s. Institute of Aircraft Maintenance Engineering (IAME) set up under the Companies Act, 1956, approached (October 1998) the Airport Director of Hyderabad airport for allotting building space to establish an aircraft engineering workshop and a multi-education centre at the airport. The Airport Director allotted (October 1998) an old quarter near the Old Terminal Building (OTB) having an area admeasuring 216.26 square metres to M/s. IAME for three years at a licence fee of only Rs.300 per square metre per annum, based on the recommendations of a locally constituted Commercial Advisory Committee, in total disregard of the licence fees approved by the Headquarters office. He also allotted (February 1999) an area admeasuring 820.85 square metres in the form of three sheds adjacent to the old quarters near the OTB for a period of three years to the same licencee at the same rates with similar terms. Consequently, due to undercharging of licence fees, the Authority suffered a loss of Rs.1.62 crore during the period from November 1998 to March 2002.

It was also observed that the licensee had occupied without authorisation (August 2000) an area of 16942.94 square metres of land which was contiguous to the area allotted to them. Though the Authority had instructed (October 2001) Hyderabad airport to recover damage charges at the rate of Rs.1575 per square metre per annum for the area unauthorisedly occupied by the licencee, action to recover the same, totalling Rs.4.45 crore, during the period from August 2000 to March 2002 had not been initiated so far.

Management stated (September 2001) that there had been no revenue loss as the licence fee being charged from the licencee was based on the recommendation of the local Commercial Advisory Committee. They further stated that proceedings under the Public Premises Eviction Act, 1971 had been initiated for unauthorised occupation.

The reply totally evades the issue that the authority for fixation of licence fee in this case rested with the Headquarters office who had issued necessary direction in that regard and as such, the licence fee rates previously fixed by them were mandatory. The exercise carried out by the local Commercial Advisory Committee was, therefore, futile since the rates in force which were previously approved by the Headquarters office were already available with Hyderabad airport. Further, laxity on the part of Hyderabad airport led to unauthorised occupation of land and subsequent initiation of proceedings under the Public Property Eviction Act, 1971, besides non-recovery of damage charges from the licencee. These aspects seem to require detailed investigations from the vigilance angle also.

Thus, failure to charge licence fee at the rates fixed by the Headquarters office of the Authority coupled with non-recovery of damage charges for the area unauthorisedly occupied by the licencee, resulted in a loss of Rs.6.07 crore to the Authority.

The matter was referred to Ministry in May 2002; their reply was awaited (September 2002).

4.1.3    Under billing of revised electricity charges

Indira Gandhi International Airport of the Authority draws power from the Delhi Vidyut Board (DVB). The airport utilises the power supplied by DVB for its own requirements and also supplies the same to various government and private agencies operating at the airport premises. From its user agencies, the Authority had been recovering the tariff charged by DVB together with service charges, based on a fixed percentage of the DVB tariff. The Authority decided (September 1996) to enhance the service charges from 27 to 46 per cent of the tariff levied by DVB, with effect from 1 April 1995 as overheads incurred by it in making the electricity available to consumers had increased. However, due to omission, implementation of the enhancement in service charge was not effected.

As a result, the billing and recovery of the same continued at the earlier rate of 27 per cent instead of 46 per cent on the cost of electricity paid to DVB. Consequently, the Authority could not recover Rs.3.80 crore during 1997-98 to 1999-2000.

Management stated (July 2002) that the data was being verified and that the bills would be raised against the various user agencies.

The fact remains that the Authority had not raised (July 2002) the revised bills although the omission was pointed out by Audit in March 2001. The chances of full recovery of the extra charges due to enhancement of the rates at this stage appear to be remote as a number of airlines/agencies who had operated at that time have wound up their operations and the others, being governmental agencies may dispute a retrospective increase in charges.

Thus, the Authority suffered a loss of Rs.3.80 crore due to its failure in raising of bills at the correct rate punctually as approved by the Authority.

The matter was referred to Ministry in July 2002; their reply was awaited (September 2002).

4.1.4    Loss of revenue

Hyderabad Unit of the Authority allotted (February 1999) an area measuring 337.5 square metres located at Hyderabad airport on lease. This land was to be used by M/s. Sumanasa Finance Private Limited (licencee) for setting up of an officers’ club meant, among others, for the benefit of executives of the Authority without accruing any monetary benefit to the Authority but to certain officers of the Authority who became the members of the club.

Despite the fact that the club was to run on commercial lines, the Hyderabad Unit of the Authority granted the licence at an annual licence fee of Rs.300 per square metre with 15 per cent escalation for every year against Rs.1302 per square metre per annum fixed by the headquarters of the Authority. Headquarters office did not take any punitive action against the delinquent official even after Audit brought this matter to its notice in February 2001. Consequently, the Authority suffered a loss of Rs.11.74 lakh up to the time of expiry of the contract on 31 March.2002 due to under-charging of licence fee.

In addition, the licencee occupied area measuring 7110.5 square metres unauthorisedly and constructed a restaurant, a marriage hall, a swimming pool etc on it. Headquarters of the Authority directed the Hyderabad Unit in October 2001 to recover damage charges in respect of this land under the licencee’s unauthorised occupation @ Rs.1575 per square metre per annum. However, no action was taken against the illegal encroachment.

Management stated (July 2001) that lower rate was charged from the licencee because the quarter allotted was 40 years old and was in a dilapidated condition. In respect of illegal encroachment, Management further stated that proceedings had been started against the licencee for eviction in April 2001.

Management’s contention is not tenable as the rate of Rs.1302 per square metre fixed by the headquarters of the Authority was in respect of land and as such, the condition and age of the building had little relevance to the rental rate so fixed.

Thus, the Authority had to forego revenue to the tune of Rs.2.17 crore by allotting space at a lower rate and allowing the same licencee to illegally occupy adjacent land that too without payment of any licence fee.

The matter was referred to Ministry in July 2001; their reply was awaited (September 2002).

4.1.5    Loss due to delayed decision

Delay in award of a work resulted in a loss of Rs.95.89 lakh to the Authority.

The Authority invited (March 2000) tenders for grant of a licence for 5 years for operating a departmental store with multiple accessories at Chhatrapati Shivaji International Airport, Mumbai. The reserve licence fee for the departmental store was advertised as Rs.4.75 lakh per month. The validity of the tenders was three months from the date of opening i.e. up to 5 July 2000. Two bids were received which were opened on 6 April 2000. M/s. Global Enterprises, the higher bidder, quoted a rate of Rs.11 lakh per month for the first 12 months, with 10 per cent compounded escalation every year. The Authority conveyed the approval (29 August 2000) of the award in favour of M/s. Global Enterprises by almost two months after the expiry of the validity period. The bidder, however, withdrew its offer (September 2000) on the plea that the validity period had already expired. The Authority negotiated with the other bidder, M/s. Bombay Swadeshi Stores and awarded a contract (December 2000) to them for 5 years at a licence fee of Rs.9 lakh per month for the first 12 months with 10 per cent compounded escalation every year. The delay at the Corporate Headquarters of the Authority in deciding the issue resulted in a loss of Rs.95.89 lakh (till May 2002) and a potential loss of Rs.1.10 crore for the remaining period of the contract.

Management accepted (July 2001) the delay.

The matter was referred to Ministry in May 2002; their reply was awaited (September 2002).

4.1.6    Loss of revenue due to delay in finalisation of agreement

The Authority invited quotations for the award of a contract for two snack bars for its terminal buildings in Goa airport. After receipt of quotations Regional Office, Mumbai negotiated with the highest bidder and recommended (May 1997) Headquarters to accept the same. The highest bidder agreed to increase the offer of licence fee to Rs.2.53 lakh per month for the first year, Rs.4.34 lakh per month for the second year and Rs.5.81 lakh per month for the third year. However, the Headquarters of the Authority came to the conclusion (November 1997) that the highest bidder was not capable of running the snack bar and directed the Regional Office, Mumbai to go in for fresh tenders for granting a consolidated lease of the snack bars at the terminal buildings along with a restaurant with a Minimum Reserve Licence Fee (MRLF) of Rs.4 lakh per month.

As there were complaints from passengers about the absence of a snack bar in the airport, the Authority awarded (February 1998) the contract for running the snack bar to M/s. P. K. Traders (a party which was running a snack bar in the parking area of the airport) on ad hoc basis, for 3 months from 1 March 1998, at a monthly licence fee of Rs.1.10 lakh. This was done despite the fact that the second highest bidder (M/s. Hotel La Paz) had offered to run the snacks bar on payment of licence fee of Rs.2.52 lakh per month in the first year, Rs.2.77 lakh per month in the second year and Rs.3.05 lakh per month in the third year.

However, notice inviting tenders (NIT) issued in July 1999 by the Regional Office, Mumbai had to be cancelled as NIT did not contain the stipulation of MRLF and highest offer was Rs.3.30 lakh per month. As there was no response to the second NIT issued in January 2000 with MRLF of Rs.4 lakh per month, another NIT was issued in June 2000 with the reduced MRLF of Rs.3 lakh per month. Against this, only one party (the one who was already running the snack bar on an ad hoc basis) responded. Accordingly, the party agreed to pay licence fee at the rates ranging from Rs.3.11 lakh per month in the first year and Rs.4.61 lakh per month in the fifth year. In between, the Authority allowed M/s. P. K. Traders to continue with the ad hoc arrangement up to December 2000 at the original licence fee of Rs.1.10 lakh per month allowed in March 1998.

Management stated that the highest bidder refused to start work immediately on ad hoc basis but did not explain why the snack bar was allowed to be run on ad hoc basis by a contractor. Reasons why the Authority did not negotiate the rate with the second highest bidder were also not explained to Audit.

Thus, the Authority had to forego revenue of Rs.57.64 lakh from 1 March 1998 to 31 December 2000 due to appointment of an ad hoc contractor without accepting the offer of the second highest bidder.

The matter was referred to Ministry in March 2001; their reply was awaited (September 2002).

4.1.7    Loss of revenue due to non acceptance of an offer for extension of contract

Non-acceptance of an offer for extension of a contract for advertisement rights at Coimbatore airport led to advertisement sites remaining vacant for 21 months with consequent loss of revenue of Rs.52.50 lakh to the Authority.

The Authority awarded (August 1995) a contract for exclusive advertisement rights to M/s. TDI International India Limited (TDI) at Coimbatore airport for a period of 3 years with payment of monthly licence fees ranging between Rs.3.75 lakh and Rs.4.81 lakh. As business was adversely affected due to a bomb blast at Coimbatore airport in February 1998, M/s. TDI, before the expiry of the contract in July 1998, offered (April 1998) to continue the existing contract for a further period of two years at a reduced monthly licence fee of Rs.2.50 lakh. The Regional Executive Director (RED), keeping in view the reduced business potential recommended (October 1998) renewal of the licence at the reduced licence fee of Rs.2.50 lakh per month and allowed M/s.TDI to continue on an ad hoc basis at the reduced monthly licence fee of Rs.2.50 lakh till March 1999. The above proposal was also endorsed (February 1999) by the Commercial Directorate of the Headquarters, but was not accepted by the Commercial Advisory Board of the Authority, which decided (March 1999) to invite tenders. As a result, the contract was terminated (March 1999) and M/s. TDI vacated the sites on 1 April 1999.

There was no response after the first issuance (May 1999) of the notice inviting tenders (NIT). Only one bidder (M/s. TDI) responded (June 1999) to the second NIT, offering rates for a three-year period, ranging between Rs.1.31 lakh and Rs.1.98 lakh per month. When the NIT was issued for the third time, again only M/s. TDI responded, offering rates for a three-year period, ranging between Rs.1.33 lakh per month for the first year and Rs.1.69 lakh per month for the third year. Ultimately, the Authority issued (May 2000) another NIT without stipulating any Minimum Reserve Licence Fee (MRLF). Against this NIT, two offers were received (May 2000) with M/s. TDI offering higher rates for a three-year period that ranged between Rs.1.71 lakh per month for the first year and Rs.3.40 lakh per month for the third year. The Authority accepted (November 2000) the offer of M/s. TDI and the licencee took over the sites from January 2001.

Consequently, the Authority had to forego revenue of Rs.52.50 lakh as the sites remained vacant from April 1999 to December 2000.

Management stated (July 2002) that it had made constant efforts by inviting tenders with the expectation of getting higher revenue. However, they could not succeed due to the lower rates being offered by the tenderers.

Contention of Management is not tenable as normal business prudence would demand that while inviting tenders they should have considered the recommendations of the RED/Commercial Directorate particularly when it was in their knowledge that various airlines had withdrawn their services at Coimbatore after the bomb blast and M/s.TDI suffered a loss of Rs.1.11 crore during the currency of the existing contract and there was a provision in the earlier contract for the renewal of the contract for a further period of two years with negotiated terms and conditions.

Thus, the fact remains that the Authority had to forego revenue of Rs.52.50 lakh as the advertisement sites remained vacant from April 1999 to December 2000.

The matter was referred to Ministry in July 2002; their reply was awaited (September 2002).

Indian Airlines Limited

4.2.1    Loss due to non-delivery of an aircraft to the buyer

The Company incurred a loss of Rs.4.83 crore due to its premature deal for delivering an aircraft to the buyer.

The Board of Directors (Board) of Indian Airlines Limited (Company) decided on 20 December 1999 to dispose of one A-300-B2 aircraft (VT-EDW) due to its old age and high maintenance cost. However, the aircraft in question had been hijacked on 24 December 1999 on its flight from Kathmandu to Delhi and was restored to the Company under ‘superdari’ (Safe custody for production before the Court as and when required) of the Court being a material object in the hijacking case. Thus, prior permission of the Court was essential for sale of the aircraft. But the Company filed a petition to the Court only in September 2000 and finalised a deal to sell the aircraft to Aviation Systems International (ASI). As per the deal the aircraft was to be delivered by the end of October 2000 after inspection and documentation. However, as the Court did not allow the sale on 2 November 2000 the Company sought the intervention of the High Court on 14 November 2000 and ultimately got the permission of the Court on 31 January 2001 to dispose of the aircraft. Meanwhile, as ASI had already utilised their production and parking slots on other aircraft it expressed its inability to accept the aircraft on 5 February 2001. Thus, the aircraft could not be delivered to M/s. ASI to realise negotiated rate of US$ 2.42 million.

Consequent upon failure of the Company to sell the aircraft the Board decided (December 2001) to cannibalize the aircraft and utilise its engine and spare parts. After adjustment of earnest money not returned by the Company and an estimated saving of Rs.6.06 crore on account of cannibalization, loss on account of failure to deliver the aircraft worked out to Rs.4.83 crore.

Management stated (May 2002) that the Company proceeded to secure the release of the aircraft from ‘superdari’ immediately on receiving the approval of Ministry, which was imperative before moving the application in the Court and therefore, no time was lost.

Contention of Management is not tenable as, being aware that it would require the Hon’ble Court and Ministry’s permission, it should have proceeded to procure the same before attempting to conclude a deal with any party for selling the aircraft.

Ministry, while endorsing the views of Management, stated (September 2002) that the loss worked out based on the estimated savings of Rs.6.06 crore on account of cannibalization was not correct as they were yet to complete the work of cannibalization and therefore, the expected savings would be more. Ministry, however, did not furnish the additional expected savings on account of cannibalization.

Thus, the Company suffered a loss of Rs.4.83 crore due to delayed action to take permission of the Court to sell the aircraft, which was the property of the Court.

4.2.2    Loss of revenue due to providing of deficient passenger handling services

Indian Airlines Limited (Company) had been providing ground handling as well as traffic handling services to Oman Air flights since 1993. With the introduction of wide-bodied aircraft by Oman Air, a new ground handling agreement was signed (June 1999) effective from 1 April 1999 although they had pointed out many deficiencies in handling services provided by the Company. Oman Air further stated that they would like to review the agreement in six months time in case the Company was not able to improve their ground handling services. Inspite of this, the services were not improved to the satisfaction of Oman Air and complaints from them continued. Finally, Oman Air served (March 2000), 45 days’ notice to Indian Airlines to rectify a detailed list of deficiencies in services provided at Mumbai and indicated that the relationship could be continued if services rendered by the Company improved. In May 2000, Oman Air expressed its intention to take over passenger and baggage handling services. Accordingly, it took over (August 2000) the function relating to handling of baggage and passengers of its flights from Chennai, Mumbai and Thiruvananthapuram with the reduction of charges ranging from US$ 170 (for A 320 and B 737 aircraft) to US$ 520 (for A 300 and 310 aircraft) per flight. This resulted into a revenue loss of US$ 0.32 million (Rs.1.50 crore) for the period from August 2000 to September 2001.

Management, while accepting (August 2001) that Oman Air was not fully satisfied with their passenger handling services, stated that the decision of Oman Air was a policy decision necessitated more out of the competitive atmosphere prevailing in the airlines industry and had little to do with the standard of services provided by the Company. Contention of Management that taking over of passenger handling services was a policy decision overlooks the fact that withdrawal of passenger handling services from the Company arose out of poor passenger services rendered by the Company to the Oman Air for over a year even though outsourcing of services is recognised as a cheaper option.

Thus, the fact remains that the Company’s failure to provide satisfactory ground handling services to Oman Air resulted in a loss of revenue of Rs.1.50 crore.

The matter was referred to Ministry in June 2002; their reply was awaited (September 2002).

4.2.3    Avoidable expenditure on hiring of hotel accommodation

The Company incurred avoidable expenditure of Rs.63.48 lakh on hiring of hotel accommodation for its engineers at Doha Station by not availing of residential accommodation which was to be provided by the general sales agent.

For the sale of passenger tickets and providing facilities for transportation of cargo, the Company had been appointing general sales agents (GSA) at its foreign stations. Accordingly, the Company entered into (July 1995) a Memorandum of Understanding (MOU) with M/s. Trans Orient Travel and Tourism Centre as its GSA for the Doha territory. As per the terms of the MOU, the GSA was required to provide 3 furnished, free accommodations at Doha for the officials of the Company. This was revised to 4 furnished free accommodations (September 1998). Despite the fact that the Company had posted its officials ( 2 on permanent basis and 2 on temporary basis on 15 day's rotation) at Doha Station from August 1995 to March 2002 the Company actually availed itself of this facility for only 2 permanently posted officials. Consequently, engineers and the technicians who were posted to Doha on rotational basis for checkup and maintenance of its aircraft were provided hotel accommodation by the Company and incurred an avoidable expenditure of Rs.63.48 lakh from September 1998 to March 2002.

Management, in its reply, stated (July 2002) that the GSA was required to provide accommodation for 4 officials posted at Doha which they were prepared to do but declined to bear hotel charges for persons on temporary posting staying in hotels as it was costlier. The reply fails to answer as to why the Company did not insist on getting fully furnished accommodation at the cost of the GSA, which had already been built into the commission paid by the Company. This omission whether by design or by oversight, costed the Company unnecessary avoidable expenditure of Rs.63.48 lakh during the period from September 1998 to March 2002, besides extending undue benefit to the GSA.

The matter was referred to Ministry in July 2002; their reply was awaited (September 2002).