Air India defends the sale of Boeing 777 planes to Etihad

Defending itself against the criticism of the Comptroller and Auditor General (CAG), Air India has defended the sale of five Boeing 777-200 LR planes to Etihad, saying it was the best option to check loss and reduce debt.

The CAG has criticised Air India for selling the aircraft below its indicative market price, under-reporting its losses and poor initiatives to monetise its real estate.

Air India inducted eight Boeing 777-200 Long Range aircraft in 2005 to serve the US with non-stop flights but the operations turned loss-making because the airline was unable to generate the expected loads and yields. In 2014 Air India sold five of the planes to Etihad for $336.5 million ($67.3 million per aircraft). While the CAG has rapped the airline for selling the aircraft at a loss, Air India has said the benchmark of the sale price was not available at the time of the transaction.

“There are very few operators of Boeing 777-200LR and no sale of aircraft had taken place in the secondary market. Thus, the benchmark of the sale price was not available. Even in the reports of valuers, it was apparent that the market price of $86-92 million per aircraft was indicative in nature,” said Air India’s Advisor (Finance) S Venkat.

Till date, Boeing has sold only 59 Boeing 777-200LR planes and globally these are flown by only 12 airlines. In contrast, 777-300ER variant has been successful and Boeing has sold over 800 units of the type.

Market demand and lease rates for the Boeing 200-LR aircraft have been declining with the induction of newer fuel efficient planes. Air India itself had to call for bids at least thrice with tenders attracting a single bidder on two occasions.

In its latest report on the airline CAG has observed that Air India incurred a book loss of Rs 671.07 crore on the sale of these planes and paid Rs 324 crore of debt attached to the aircraft following the deal.

The auditor said the price of $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 observed that these reports were not made available to it for scrutiny.

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 $72 million per aircraft.

"The actual benefit form the sale of the aircraft have been huge in terms of loan, interest and maintenance cost which Air India would have incurred had the airline kept the aircraft in the fleet," Venkat said.