Alliance Air
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A background of the decline
As in 2024 June
June 18, 2024: The Times of India
Alliance Air began as a feeder airline to small towns to boost Air India’s network. It has always had financial problems. Now an explosive email from a whistleblower alleging corruption could make matters worse
Just before Covid hit India, Uttar Pradesh chief minister Yogi Adityanath called Alliance Air officials to come see him in Lucknow. The priest-turned-politician was concerned about the poor air connectivity in his state. He wanted more flights.“He was very straight-faced and said whatever support you need will come directly from the chief minister’s office. He also deputed an IAS officer to specifically liaise with us, regulators and local authorities,” recalls CS Subbiah, the then CEO of Alliance Air.
Soon enough, and with the help of viability gap funding provided under the central government’s UDAN scheme, Alliance Air started flights from Lucknow to Dehradun, Patna, Jaipur, Bhopal and Gorakhpur when nobody was willing to do so.
Not just these.
Keshod. Rupsi. Tezu. Jothat. Pasighat. Do these names ring any bells?
Small, dusty and sometimes damp, these little towns are present firmly on the Indian map but not quite within India’s consciousness. On May 28, Alliance Air, the small-town feeder service airline, was allotted these routes, which had been non-operational. And now Alliance Air has the honour of investing capital to start flight services under the UDAN scheme.
Founded in 1996, as a part of the then Air India, Alliance Air has always been beleaguered financially. No surprises there. When airlines working in the big cities with bright lights are struggling to pay bills and pension deposits, it stands to reason that an airline that serves places that are much smaller (much less traffic) will struggle even more.
Misery loves company. This month, a top Alliance Air official has become a whistleblower alleging corruption and malpractices at the 20-aircraft airline which has just a 1% share of the domestic market and has swallowed nearly ₹3,000 crore of taxpayers’ money in the past two years alone.
Before you get a glimpse of the financial morass, as alleged in the complaint, here are some financial factoids that should get you among the giggles.
1. In the 15-month period from April 2022 to June 2023, the airline carried a total of around 1,500 passengers in the Northeast costing around ₹100 crore to the taxpayer or ₹60 lakh per passenger, tickets for which it typically sells for just ₹900.
2. Alliance Air has sometimes been carrying only three passengers on some of its flights in an entire month and billing the exchequer an astonishing ₹6 crore — in effect flying a passenger for ₹2 crore each and seeking viability gap funding over and above the finance ministry allocated funds, according to an aviation ministry letter reviewed by ET Prime.
3. This, together with debts from the Air India days, has forced the finance ministry to allocate around ₹1,900 crore to the airline in the past fiscal alone and another ₹1,200 crore is earmarked for this year. Given that the airline has been limping despite this support has not gone down well with industry observers.
4. Naturally then, Alliance Air made a loss of around ₹400 crore each in 2021-22 and 2022-23 on revenues of around ₹1,200 crore. It is estimated to have posted a loss of around ₹250 crore in the year ending March 2024.
Allegations of a new scandal
A storm hit Alliance Air and aviation ministry inboxes on June 6, when its head of personnel, Vimal Tripathi, sent an email to aviation secretary Vumlunmang Vualnam, joint secretary Asangba Chuba Ao, director Pranjol Chandra and vigilance officer Ajay Gupta alleging wrongdoings by the airline’s chief financial officer (CFO) Ashish Kumar Mondal.
“Mondal has siphoned funds to the tune of ₹55 lakh for his personal gains in the name of payment to the SAP vendor by forging signatures of IT head which was brought to the notice of CEO by the IT head but no action was taken against CFO till date due the kind patronage of the CEO, which is a serious issue and requires deep probe,” he wrote using his official Alliance ID which was reviewed by ET Prime and verified by two people marked on that mail.
Not just siphoning, the email went on to say. “The CFO has got a huge salary increase without the approval of the board and has been pressing [sic] me to increase salary of deputy CFO more than head of the department without any approval, which I have not agreed to as per rules for which he is blackmailing me that he will throw me out of the job and threatening me with dire consequences which is causing me mental harassment due to which I’m on medication presently,” he wrote.
There was more. “Mondal has allowed most of the parties in engineering on nomination basis for his gainful purposes” and even “lied before the board that he has got insurance for the assets which were destroyed in the recent fire incident”.
He is also “causing distress amongst pilots by cutting their flying allowance and then after that releasing [flying allowance] at his whims and fancies which is the most single point of discontent amongst crew of Alliance Air. As a result of this, the company has lost many pilots resulting in revenue loss” and the “implementation of SAP HR Module got delayed resulting in full and final of employee (problems) because of undue coverage being given to SAP vendor by CFO for his vested interest”, said the email.
Mondal did not respond to calls and messages seeking comment for the story. Aviation secretary Vualnam has taken note of the letter after ET Prime brought it up to him. Tripathi did not respond to multiple calls and messages. Alliance CEO Vineet Sood confirmed the allegations and said he has constituted an internal committee, which will submit its report in a month.
How bad can this get?
How seriously should one take Tripathi’s email?
To an outsider, the email, at first, may look like an outburst by an aggrieved top manager against the other but conversations with officials in the airline indicate there may indeed be more going on than what meets the eye.
“I would say 75% of what is in this email is true,” another top Alliance Air leadership executive who had reviewed the mail told ET Prime.
This official offered more insights.
“Five of our planes have been grounded on a rotation basis from last June onwards while Fly91 planes are not having any so-called supply chain issues, why?” he asked, pointing to whether there is a manufactured engineering crisis at play.
The Directorate General of Civil Aviation (DGCA) also needs to do a full audit, he said, to check if the parts being used for ATR planes are from original equipment manufacturers (OEMs) like Pratt & Whitney or from some other dubious vendors.
Dubious ‘deals’ via grounded planes
In an airline, the engineering procurement process is often considered an area where potential corruption is the easiest to channel because it is a highly technical area and most aircraft parts are made abroad.
The modus operandi is usually to keep multiple planes AOG (aircraft on ground) and then seek parts for them on an emergency basis by nomination. Parts ordered on an emergency basis cost 3x the normal price and are supplied often by shady firms. This procurement can run into hundreds of millions of dollars.
Alliance Air has also witnessed strange events recently. There was a fire at its office at Delhi airport in April, for example, and some airline officials fear engineering records and procurement details may have been gutted in the process. These could cost millions to the airline.
When an aircraft lessor takes its leased plane back, it will want all the records in place, and getting such documents from scratch requires many regulatory and manufacturer clearances. Alliance Air had paid around $6mn to get everything in place for an aircraft, which had similar issues a few years ago.
Need for rigorous inquiry
Former CEO Subbiah says from whatever he has been hearing from inside the airline and now this letter, he would take these charges “very seriously”.
“I will take it very seriously because when laid down procedures are given, how can this even happen? That means there are many people involved in this. If the Alliance management thinks it is fiction, then they have to see how money has gone from accounts only on a nomination basis to a particular vendor. I will ask an external auditor to do a thorough investigation. Guilty must be punished,” he says. “It is not just a corruption issue but an air-safety issue, too.”
Ironically, Tripathi also may get into trouble. An airline official said Alliance Air is considering taking action against him for not writing this email first to the CEO but going directly to the aviation ministry. But Subbiah said this could be because he did not have faith in the system. However, he added that Tripathi does not need to worry because there is a detailed approved whistleblower policy at Alliance Air.
Competition is also heating up
Private rivals are all gearing up for the UDAN opportunity. Fly91 is increasing its foothold in the regional space and planning to add five planes a year over the next five years. Star Air is launching more flights with its Embraer regional jets and Air India Express is expanding its footprint to smaller airports like Hindon. Alliance Air will find its path ahead strewn with even more complications if Tripathi’s allegations are proven right.
Prime Minister Narendra Modi monitors the UDAN scheme very closely and Alliance Air is one of its biggest beneficiaries. For new civil aviation minister Ram Mohan Naidu, who has in his first statements said his priority will be to focus on steep airfares being sold by the airlines over the past two years, Alliance Air “siphoning” too may become one of his first key tests.
“If the government wants to break the IndiGo-Air India duopoly, a privatised Alliance Air can be that instrument,” says former Air India chairman Rohit Nandan. Only more competition can bring down fares. “If you can have a duopoly, then why not a monopoly? But if you need to think about passengers then more pillars are needed.”
To circle back, while Alliance Air did connect Lucknow to many cities after that focused meeting with CM Yogi, its situation turned for the worse six months later. IndiGo added the much bigger Airbus A320 planes on some of those routes making ATR plane (which has fewer seats) operations unviable.
Alliance Air pulled out flights from Dehradun and Patna. Yogi has since been seen flagging off many IndiGo flights out of Lucknow.
