North Block quizzes IA on Airbus fleet cost

Best price condition for govt guarantee to airline.

The fleet acquisition plan of Indian Airlines may be delayed as a section in the government is of the view that the state-owned carrier's deal with Airbus should be re-examined to explore the possibilities of further price reduction.

In fact, the finance ministry has asked the civil aviation ministry to certify that the Airbus offer to Indian Airlines is the best that any airline has received. This has been made a pre-condition for issuing a government guarantee to the carrier to raise funds.

The development comes after several parliamentarians wrote to the government, pointing out that some international airlines had managed better deals with Airbus.

Officials told Business Standard that the expenditure department was of the opinion that there was scope for further price reduction in the deal.

Incidentally, Airbus had caused considerable discomfiture in the government by calling for a probe into Air-India's recent decision to buy 60 aircraft from rival Boeing for Rs 30,000 crore. The European consortium had said it had received "unfavourable" treatment from Air-India at the evaluation stage.

The Indian Airlines-Airbus deal, cleared by its board three years ago, was for 43 A-320 aircraft for Rs 9,475 crore.

The Public Investment Board, headed by the expenditure secretary, had cleared the proposal earlier this year following which Indian Airlines had managed to negotiate a marginally better deal with the European aircraft manufacturer in terms of deliveries and other benefits.

The civil aviation ministry last month circulated a Cabinet note which, among other things, requires the government to issue a sovereign guarantee to help the domestic carrier raise debt to fund the acquisition.

In any case, finance ministry officials said, the Indian Airlines deal with Airbus was unlikely to go through this year, as was indicated by the civil aviation ministry in the Cabinet note sent for comments to the departments concerned.

Civil aviation ministry officials said the response of various ministries was being received and that the proposal would be sent to the Cabinet shortly.

While admitting that there was scope for further negotiations, Indian Airlines executives added that the proposal was almost ready to go to the Cabinet.

An Airbus spokesperson said he had no knowledge of the development and refused to comment.

Both Airbus and Boeing have been battling for a lead in the Indian aircraft market, which has been projected as one of the largest in the world for aircraft makers. It has been projected that Indian carriers will buy about 200 aircraft over the next 12-18 months.

The story so far

Indian Airlines board in 2002 clears purchase of 43 Airbus A-320 aircraft for Rs 9,475 cr

The Public Investment Board clears the proposal in 2005

IA negotiates better deal in terms of deliveries and other benefits

Aviation ministry circulates a Cabinet note in May on a sovereign guarantee to help IA to raise debt

MPs point out other airlines have managed better deals with Airbus for the same craft