The setting could not have been more dramatic. It was the launch party of Vijay Mallya's Kingfisher Airlines in Mumbai. As Civil Aviation Minister Praful Patel walked in he bumped into Dinesh Trivedi, Rajya Sabha member. As Trivedi greeted him, Patel kept his smile but uncorked a bottle of sarcasm: "I am still figuring out the percentages. As I count the zeros I wonder what I will do with the money." The allusion was clearly on Trivedi's letter to the prime minister, alleging wrongdoing in the Rs 30,000 crore Air-India-Boeing deal. The sarcasm was not lost and Trivedi suggested that Patel not take things personally but "share the wealth with friends". Patel obviously didn't reach for his chequebook. Elsewhere in the room Nigel Harwood, vice-president (sales), Airbus Industrie, had reason to be happy since Kingfisher had ordered 30 A320s but the presence of Dinesh Keskar, senior vice-president (sales), Boeing, somehow took the fizz out of the bubbly. Just last month Boeing-with the 50-aircraft Air-India order-walked off with the biggest deal in Indian civil aviation history.

The acrimony, the chill in the air despite the bonhomie and the biting sarcasm were not without reason. The A-I proposal is the single biggest order placed by any Indian entity (public or private in civil or defence procurement) to a single company. The French disappointment was understandable. Having sunk over $12 billion in its 555-seater A380 aircraft project, it needed orders. Unfortunately in the past 12 months, Boeing has worsted Airbus. As Keskar crows, "Airbus has consistently come up short of the competition." Boeing has sold 255 Boeing 787s to 20 customers as against Airbus' 154 Airbus A380s to 15 carriers. It also lost out on recent big deals with Korean Air and Air Canada. Not surprisingly, even the cool diplomatic types lost their shirt. French Ambassador to India Dominique Girard went on to suggest that "factors other than 'commercial' had played a role" in Boeing bagging the deal-only to be pulled up by Indian Foreign Secretary Shyam Saran. The suggestion was that the US Government had managed the order.

Prima facie, as Patel says public procurement in India is institutionalised (see interview). So much so that indecision has become the safest policy. In fact, this is the third proposal by the A-I board for fleet acquisition since 2002. Twice the board had endorsed Airbus aircraft (see graphic) for its fleet upgradation. As late as November 24, 2004, the A-I board approved floating of tenders to invite offers for acquisition of 50 aircraft from the Airbus stable, including A340-500, A340-600 and A330-200. So what has changed between November 24 and April 26, 2005 is what Trivedi is asking. As is Airbus. "Business environment," says A-I Chairman and Managing Director Vasudevan Thulasidas. "The airline reviewed its fleet requirement with emerging trends in traffic growth and passenger needs. We needed 250-seaters to fly non-stop to the US, 350-seaters for long-haul flights and 250-seaters for other destinations. So A-I called for new RFPs (request for proposal) and Airbus did bid along with Boeing," he adds.

BILLION DOLLAR SPAT Global air war has reached the Indian skies in a big way

Airbus says... Air-India chose Airbus in November 2004. Reviewed it for non-commercial reasons. A-I did not consider A350 aircraft. Comparing Boeing 787 with A340 is not fair. The 787 will be delivered only after the 2007 deadline. Seat configuration was changed to nine abreast to favour B787. Airbus was not allowed to make a presentation of its A350 aircraft. ... Air-India counters Review needed because of traffic growth and changed business environment. A350 was not in existence but A-I did consider new versions of A340, A330 and A380. The aircraft was available for choice. It specified only width of seat-17 inches-not any configuration. They asked for a review of evaluation process which is abnormal. The other deal Indian Airlines: 43 aircraft. 19 A319, 4 A320 & 20 A321, Cost: Rs 9,475 crore. Charge: "Airbus is charging Indian Airlines $2 bn for 43 aircraft as against $1.2 bn it charged Air Asia of Malaysian Airlines for 40 aircraft." V. Narayanaswamy, cong MP Counter: "We have already asked Airbus to clarify and explain its position." Praful Patel, Union civil aviation minister

The fact is that it is not only the business environment that has changed. Since his re-election in November 2004 George W. Bush has been pursuing and pushing the next step in strategic partnership first discussed during the NDA regime in 2003. Between the installation of the UPA Government in 2004 and April 2005 there have been several high-level meetings between India and the US, including a visit by US Secretary of State Condoleezza Rice and Transportation Secretary Norman Y. Mineta, with trade as one of the cornerstones. Mineta revealed during his India visit on April 14 that "President Bush had spoken to Manmohan Singh about the aircraft deal and the subject was raised again when Praful Patel visited the US in January". Clearly the case for Boeing has been well argued for by the Bush regime. Also, India's concerns on the backlash against outsourcing in the last US polls have led to some re-thinking on the matter. It also helped that for sometime now all government procurement exceeding Rs 100 crore has to pass through the Cabinet Committee on Security (CCS). Even at the WTO, India has opposed transparency in government procurement since its stated policy is to use its market size effectively as an instrument of conducting geopolitics. Changing geopolitics clearly helped Boeing's cause. But then as is the convention in India when it comes to public procurement, conspiracy theories abound even as lobbyists play conscience keepers to the nation. So, in Parliament and outside figures and percentages were bandied about as possible kickbacks. One lobbyist even had the exact figure of Rs 1,800 crore plus Rs 450 crore as the possible commission even though the deal is yet to be signed and has to pass through three more filters before it is inked.

PICTURE SPEAK

TRADING TIES: Manmohan with Bush

But that hasn't stopped politicians from trading letters. Last week even as the parliamentary consultative committee on civil aviation flayed Airbus for its utterances, MPs (Trivedi and seven others) shot off letters to Manmohan and Congress President Sonia Gandhi. It helps that some Congressmen, battling the NCP (of which Patel is a leader) in Maharashtra, suspect Patel's boss Sharad Pawar of trying to engineer a Third Front. Patel scoffs at such fears but is concerned: "I told the prime minister that I don't want my name sullied and asked for the oversight committee and reference to the CVC and the CAG before any order is placed."

As the two sides and lobbysts battle it out AI and IA run the risk of failing to upgrade their fleet yet again. Half of AI's fleet is on lease and the 10-year-old Boeing 747 Velha Goa is the youngest aircraft owned by Air-India. Through the 1990s the noxious mix of politics and corporate lobbyists thwarted five A-I chiefs and six civil aviation ministers from getting the airlines new wings. Such is the national carrier's fate that it earns nearly Rs 300 crore a year for not flying as it earns from code-sharing agreements with 45 airlines which operate 235 flights a week (that is 12,220 flights a year). Ditto has been the fate of IA. It last bought aircraft in 1986 and has to compete with Jet Airways and Sahara with aircraft that are over 20 years old.

Hopefully this time around as geopolitics helps economics thwart politics, IA and AI may just yet find the wings to take off once again.

INTERVIEW | PRAFUL PATEL

"It's a fair commercial deal" Union Civil Aviation Minister Praful Patel found time between a briefing by ministry officials and a visit by India's Ambassador to the US Ronen Sen to speak on the litany of charges and counter-charges. Q. There are charges that A-I's decision to acquire Boeing aircraft is not based on economics but on politics. A. Absolutely not. Let us accept that the A-I board takes its own decisions. The decision was taken on the basis of techno-economic assessment and on evaluation of financial bids. Q. The French ambassador has alleged that factors other than commercial have played a role. He seemed to suggest the US Government influenced the deal.... A. I assert that there was no geopolitical consideration. It is purely a commercial transaction based on what is best for the airline. Q. Your colleagues in Parliament are charging that the deal is tainted. A. Rubbish. Any decision in the government, whether it is for the purchase of a pin or a plane, is institutionalised. The boards of Air-India and Indian Airlines follow a well-established procedure. Q. MPs cutting across parties have written to the prime minister. A. I was well aware that these kind of baseless charges are traded whenever acquisition programmes are taken up by the government which is why no plane has been bought since aircraft were ordered by the late prime minister Rajiv Gandhi. I had requested the prime minister to appoint an oversight committee to look into the deal. We have also forwarded the papers to the CVC and the CAG to look into the decision and the due process. If any wrongdoing is found or brought to my notice before the transaction is signed, I reassure you that I will take proper action. Q. There are allegations that you are too close to certain players. Some MPs allege you have attended parties thrown by them. A. I do know all the players. I went to Naresh Goyal's party at the air show, the Sahara wedding and the Kingfisher launch. Is it a crime to know people? Q. If it is all squeaky clean, why is there such a hullabaloo? A. Acquisition has always been an acrimonious issue with rivals trading charges. This phenomenon is not just in India but is seen worldwide. On one side we deprive our carriers of newer fleet and capacity and on the other we expect them to compete with the best. This contradiction must end. I am willing to give up this responsibility of acquisition of aircraft to any agency as long as my airlines get their aircraft.

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