Air India sold its five Boeing planes to Etihad Airways at a "significantly" lower cost than the "indicative" market price of the aircraft, CAG said in a report tabled in Parliament today.
Air India sold its five Boeing planes to Etihad Airways at a “significantly” lower cost than the “indicative” market price of the aircraft, CAG said in a report tabled in Parliament today. The government-owned Air India sold these five Boeing 777-200 LR planes to the Gulf carrier Etihad for USD 336.5 million ($ 67.3 million per plane) in 2013 against USD 86-92 million per aircraft obtained from two parties –M/s AVITAS and ASCENT, the Comptroller and Auditor General (CAG) observed in its report ‘Turnaround Plan and Financial Restructuring plan of Air India Ltd’ (AIL). In its latest report on the airline, the CAG also observed that AIL incurred a book loss of Rs 671.07 crore on the sale of these planes and payment of Rs 324.67 crore towards interest on loans availed for procurement of these aircraft.
The aircraft were delivered to Etihad Airways during the period from January 2014 to April 2014. According to the CAG, two parties –Etihad Airways of UAE and German Aviation Capital, Frankfurt — responded to open tender floated by Air India in May 2013. “The offer of Etihad for a sum of USD 336.5 million for five aircraft (Rs 2071 crore) was highest and was approved by Board (October 2013),” it said.
“Audit observed that the price (of USD 67.3 million per B-777-200 LR aircraft) at which the five aircraft were sold to Etihad Airways was significantly lower than the indicative market price of $ 86-92 million per aircraft obtained by the company from two parties, M/s AVITAS and M/s ASCENT before initiating the sale process,” the CAG report stated. According to the CAG, after opening the financial bid, Air India obtained another valuation of the aircraft from Aviation Specialist Group (ASG) who estimated the then market value at $ 93 million to 96 million and the realisable value to be between $ 65 million to USD 72 million per aircraft.
“Considering that the price offered by Etihad Airways ($ 67.3 million) was within this range of realisable value, AIL accepted the offer. However, it needs to be appreciated that the basis of acceptance was a valuation exercise carried out after opening the financial bids and that the market value of the aircraft could not be realised in the sale,” according to the report. However, Air India Management in its reply to the CAG said, “After much deliberation it was decided that it was ‘in order’ to sell five B-777-200 LR aircraft so that the outstanding loans on these aircraft could be repaid out of the sale proceeds of the aircraft.”
“By doing so, AIL was able to save not only on interest and repayment obligations but also avoided the cost of maintenance of these aircraft in the future,” the management said. The Ministry of Civil Aviation also elucidated and reiterated the views of the management on the offers received on the sale of B-777-200 LR aircraft.