Air India paid ‘avoidable’ ₹ 43.85 crore penalty for non-compliance with contractual timelines: CAG

Air India shelled out an “avoidable” penalty of ₹ 43.85 crore to Boeing for non-adherence with the contractually stipulated timelines under the agreement for an aircraft component service programme, according to CAG.

The penalty amount was paid in August last year for the July 2016 to December 2019 period.

The Comptroller and Auditor General (CAG) has mentioned about the penalty in a report tabled in Parliament on Tuesday wherein it said that “avoidable payment of penalty due to delay in return of removed components” was made by Air India.

In December 2015, the airline had entered into an agreement with Boeing for Rotable Exchange Programme related to servicing of 787 aircraft component and the pact came into effect from July 2016.

As per the agreement, Air India was required to return the removed component along with the component information to Boeing within 10 calendar days after Boeing delivered the serviceable exchange component and in case of failure to do so, then delayed return fee is payable to the aircraft maker.

The national carrier defaulted on the concessional late return fees/ penalty for the period from July 2016 to December 2019, following which Boeing served a letter, in July 2020, intimating suspension of the programme if payment was not received by July 31, 2020. Subsequently, Boeing served six months’ notice of termination and withdrew the discounts offered earlier.

During the July 2016 to December 2019 period, CAG said there were several instances of delayed return of removed component by Air India over and above the stipulated time limit of 10 days.

Citing audit analysis, CAG said that during the initial period (July 2016 to December 2017), there were 170 instances of delayed return and in 88 instances, the delay was more than 30 days with a maximum of 214 days.

“… due to non-adherence to the timeline for return of removed parts as stipulated in the Agreement, Air India Limited paid penalty of $ 5.87 million (₹ 43.85 crore) to M/s Boeing,” the report said.

The apex auditor’s findings are part of the report ‘Union Government (Commercial) (Compliance Audit Observations) for the year ended 31 March, 2020’.