REVEALED: Rajiv Gandhi's role in Boeing deal

The recent Kissinger Cables released by Wikileaks might have suggested that former prime minister, Rajiv Gandhi, could have been an "entrepreneur" for Swedish aircraft manufacturer Saab-Scania for its Viggen fighter aircraft. But, Gandhi was, perhaps, more than just that.

A Business Standard investigation reveals Gandhi's name also figured in the decision-making process that led to the controversial purchase of three Boeing 737 aircraft by Indian Airlines in 1976-77.The purchase and Gandhi's role in it have been described in the report of the Justice J C Shah Commission, which probed the excesses during the Emergency imposed by Indira Gandhi for almost 21 months from June 26, 1975.

The Boeing deal, concluded in February 1977, was valued at Rs 30.55 crore (Rs 305.5 million). The Kissinger Cables, containing American diplomatic messages, had assessed only Gandhi's "family" connections as valuable in aircraft procurement deals.

The Shah Commission report, on the other hand, in the section dealing with the Boeing aircraft purchase, goes a step ahead to point out that "the visit of Rajiv Gandhi to the office of the chairman of Indian Airlines where he was shown the financial projections by the director of finance, apparently under the instructions of the chairman, was a procedure which was totally outside the ordinary course of business".

The report notes Gandhi was ushered into the office of the IA chairman as an "Avro Commander" and "son of Indira Gandhi". He was then working for IA and joined politics much later - after the death of his brother, Sanjay, in 1980. The procedure for procurement of the three Boeing aircraft broke all standard rules and requirements, the commission had concluded.
Not only was the decision to zero in on three Boeing 737 aircraft - at a total cost of Rs 30.55 crore - taken without the mandatory "system study", the letter of intent was also sent to Boeing, and an order placed subsequently, after the Cabinet overruled objections raised by the Public Investment Board.

The commission records from the affidavit of N K Mukarji, the then civil aviation secretary, that "Prime Minister (Indira Gandhi) was under the impression that the ministry of tourism and civil aviation was obstructing the purchase of the Boeing 737 aircraft". Then on, efforts were made to "haste(n) in rushing through the deal".

The story begins in May 1976, when a special group was constituted to study how to augment the IA aircraft fleet.

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The tentative timeline fixed for induction of the aircraft was from October 1976 to March 1979. Boeing's competitors were the F-27 and British Aircraft Corporation's BAC111, which had completed route testing, whereas "Boeing 737 was considered on the basis of technical data supplied by the manufacturer but without any route testing".

In August 1976, therefore, it was decided that an Interline Committee would go into the details and study these proposals. However, in September 1976, even before the committee could come up with its findings, a meeting took place in the office of A H Mehta, the then acting chairman of IA, where Rajiv Gandhi was present. Also present were Kirpal Chand IA's director (finance), and A M Kapoor, IA's director (operations).

The commission observed there were "conflicting versions as to how Rajiv Gandhi happened to be there at the meeting". According to the IA chairman, it was Kapoor who rang him up requesting to bring along with him an "Avro Commander" to discuss certain technical and maintenance problems. However, he (Mehta) noted the Avro Commander who accompanied Kapoor happened to be Capt Rajiv Gandhi.

But Kapoor gave a slightly different version of the meeting, according to the commission. According to that submission, "Rajiv Gandhi was already in the room of the IA Chairman when Kapoor walked in" and was shown financial projections by the director (finance) Kirpal Chand.

The Shah Commission report also brings out another set of conflicting versions on the sequence of events. Chand, while testifying before the commission as a witness, said he had shown the financial figures to Gandhi at the instance of the IA chairman. In his submission, however, the chairman said he "did not remember having given any such directions to the director (finance) to show the financial projections to Gandhi".

It is significant that Kapoor, who according to Mehta brought Gandhi along with him to the meeting, was reported to have said that "he did not understand why there was so much delay in the progress of the case dealing with the purchase of the Boeing aircraft, which... were operational and technically superior".

Gandhi's presence in the procurement process ends at this point, according to the account of the Shah Commission. But that the deal came under political pressure was clear from subsequent recording of witnesses in the commission's report.

On October 29, 1976, N K Mukarji received a phone call from P N Dhar, secretary to the prime minister, Indira Gandhi. The Interline Committee had not finalised its views by then, though the September meeting in Mehta's room, where Rajiv Gandhi had been shown the "financial projections", had already taken place.

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According to Mukarji, Dhar had "conveyed to him that it was the prime minister's impression that the tourism and civil aviation ministry was obstructing the purchase of Boeing 737 aircraft by Indian Airlines".

Mukarji wrote back to Dhar the same day that there was no proposal about the purchase of aircraft by IA pending with the ministry, but the matter had been referred to an Interline Committee and that it had been decided at a meeting chaired by Raj Bahadur, the then civil aviation and tourism minister, earlier the same day, that the deadline for the Boeing offer would be extended from the end of October to December 31, 1976.

The same day, Bahadur called Mukarji to attend a meeting where Mehta and Chand were also present. While the meeting was on, the civil aviation & tourism minister received a call from R K Dhawan, then additional private secretary to the prime minister; and the minister was heard saying: "Yes, Dhawan sahib, I am going into the matter with my officers, who are with me."

This was the meeting where Mehta suggested a letter of intent be placed on Boeing before its latest offer expired on November 1, 1976. Not surprisingly, the following day, the IA management sought permission to issue a letter of intent to Boeing for the purchase of three Boeing 737 aircraft, pending the receipt of the recommendations of the Interline Committee and the final decision by the IA board.

"This letter was actually handed over to the secretary at a meeting held on October 30, 1976, and it was agreed after discussion that the requisite letter of intent could be issued, subject to the condition that it did not involve any commitment for purchase of aircraft," the commission's report observed.

But things moved really fast; just three days later, on November 3, the Interline Committee recommended the purchase of Boeing 737 aircraft. And, by the third week of the same month, the IA board, too, had approved the selection and sought the government's approval.

However, trouble started thereafter. Already, Nitin Desai, consultant in the Project Appraisal Division of the Planning Commission at that time, had insisted on a system study report on the suitability of Boeing 737 aircraft for IA. At the meetings of the Public Investment Board on January 10 and 13, 1977, it was decided a system study should be undertaken and completed by IA by the end of February 1977.

This upset the top management of the airline and also the new civil aviation and tourism minister, K Raghuramaiah, who had taken charge of the ministry on December 24, 1976.

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The Shah Commission report notes that Raghuramaiah, was "visibly annoyed over the postponement of the decision to purchase the Boeing aircraft".

Raghuramaiah also admitted to the commission that he had been directed by Dhawan to look into the matter urgently and what emanated from Dhawan was taken as "emanating from the prime minister". He went on to add that as minister in charge of parliamentary affairs in his earlier role, he had "obtained the resignations of Uma Shankar Diskhit, Swaran Singh, Raj Bahadur" and a number of other ministers just because Dhawan had told him to do so".

He took what Dhawan had said as coming from the prime minister herself, notes the commission. Raghuramaiah did not wait very long after PIB's rejection of the Boeing proposal on January 13. By the first week of February, he had already overruled Mukarji's suggestion to implement PIB's recommendation to conduct a system study and sent the proposal to the Cabinet.

The Union Cabinet met on February 5 to clear the proposal. Three days later, on February 8, 1977, Raghuramaiah informed Kirpal Chand that the Cabinet had approved the proposal to buy three Boeing aircraft. The "contract was signed immediately", on February 9, 1977, in which Boeing gave a discount of $15,000 per aircraft.

The Shah Commission notes the "infirmity" that the "delivery schedule limit given by Boeing company had expired on February 7". For a deal that was rushed through all along, why was there a delay of three days between the Cabinet clearance and the communication to the IA management to sign the deal?

Raghuramaiah says in submission before the Shah Commission that after the Cabinet meeting, Indira Gandhi told him about "a report that had appeared in the Wall Street Journal about some deal with the Boeing Company". She had asked him to wait before the purchase order was placed. Three days later, she told him to "go ahead, place the order".

Dramatis personae

Rajiv Gandhi: Avro Commander and son of Prime Minister Indira Gandhi

A H Mehta: Acting chairman of Indian Airlines

Kirpal Chand: Director (finance), Indian Airlines

A M Kapoor: Director (operations), Indian Airlines

N K Mukarji: Secretary, civil aviation ministry

Raj Bahadur: Civil aviation and tourism minister (succeeded by K Raghuramaiah)

K Raghuramaiah: Civil aviation & tourism minister from December 24, 1976

P N Dhar: Secretary to PM Indira Gandhi

R K Dhawan: Additional private secretary to PM Indira Gandhi

Nitin Desai: Consultant, Plan panel

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Sequence of events

May 1976: Special group constituted to study how to augment the Indian Airlines aircraft fleet.

August 1976: Indian Airlines board decides an Interline Committee would study the details of the proposals of aircraft in contention - the BAC 111, F-27 and Boeing 737.

September 1976: A meeting is held in the room of A H Mehta, where Rajiv Gandhi is present. Kirpal Chand and Capt A M Kapoor also present. Rajiv Gandhi is shown the financial projections by Chand.

October 29, 1976: P N Dhar calls N K Mukarji conveying the PM's displeasure with the civil aviation ministry for obstructing Indian Airlines' purchase of the Boeing 737. The same day, Aviation Minister Raj Bahadur holds meeting with the aviation secretary and I A chairman. The minister assures R K Dhawan the "matter" is being looked into.

October 30, 1976: Letter of Intent to Boeing Company for three 737 aircraft handed over to the aviation secretary. The offer is to expire on Nov 1, 1976.

November 3, 1976: Interline Committee recommends the purchase of Boeing 737 aircraft.

November 24, 1976: The Indian Airlines board approves the management's decision to seek government approval for purchase of Boeing 737.

January 10 and 13, 1977: It is decided at Public Investment Board meetings that a 'system study' should be undertaken and completed by the Indian Airlines by the end of Feb 1977. Minister K Raghuramaiah is "visibly annoyed over the postponement of the decision to purchase the Boeing aircraft".

February 5, 1977: The minister overrules the secretary and Union Cabinet clears the proposal for purchase of Boeing aircraft. As a news report on Boeing appears in the Wall Street Journal, PM Indira Gandhi advises Raghuramaiah to hold on.

February 8, 1977: Indira Gandhi gives the go-ahead; the civil aviation ministry sanctions purchase.

February 9, 1977: Indian Airlines signs contract with Boeing, obtaining a discount of $15,000 per aircraft.