Air India airline cruising well below altitude

A combination of bad decisions and a bloated workforce have seen government prop up beleaguered carrier

Image Credit: AP
Bad decisions have made thisairline totally dependent onpublic money. The airline’s latestrevival plan calls for a staggeringRs300 billion (Dh20.27billion) infusion from governmentover the next eight years.
07 Gulf News

Mumbai: Plagued by controversy and criticism over the last two decades, very little is said in favour of state-owned carrier Air India (AI) today.

So many questions have been asked through the years, following management blunders committed by government-appointed chiefs imported from the Indian Administrative Service and with very little hands-on aviation experience.

Far worse is political interference and a bloated workforce, which has often described as inefficient and apathetic towards customers, especially when flights are delayed or cancelled.

Today, this very workforce is genuinely disgruntled — something caused by staggered and late payment of wages and the merger of Air India and Indian Airlines (IA), which has seen issues related to salaries, allowances and career progression remain unresolved.

Bad decisions have made this airline totally dependent on public money. The airline’s latest revival plan calls for a staggering Rs300 billion (Dh20.27 billion) infusion from government over the next eight years.

However, if ever there was question as to what went wrong, the answer would stare one in the face.

Making the case is a report by the Comptroller and Auditor General (CAG) which criticised the 2007 merger of the two state-run carriers, Air India and Indian Airlines.

The report described the merger as “ill-timed” and pointed out that the “financial case for [a] merger was not adequately validated prior to the merger.”

According to the CAG report, this led to significant financial woes, “which continued to multiply manifold, resulting in acute cash flow and working capital problems”, and forcing Air India to approach the government repeatedly seeking financial support.

The CAG also come down heavily on the national carrier’s acquisition plan of 111 new aircraft for both Air India and Indian Airlines.

The entire acquisition was to be funded through debt (to be repaid through revenue generation) except for a small equity infusion of Rs3.25 billion for Indian Airlines.

Recipe for disaster

“This was a recipe for disaster,” the CAG stated “and should have raised alarm signals in the Ministry of Civil Aviation, Press Information Bureau and Planning Commission.”

In May 2011, months before the CAG report came out, former Civil Aviation Minister Rajiv Pratap Rudy, a member of the Bharatiya Janata Party (BJP), wrote in the Business Today magazine that the merger was a big mistake.

As for acquisitions, he said: “When an airline buys expensive aircraft such as the Boeing 777 that Air India acquired, route and fleet planning often starts six months before the aircraft starts arriving. Instead, we had an extraordinary situation where Air India could not take delivery of three aircraft that had to remain parked at Boeing’s factory for more than three months as Air India did not have enough trained pilots and cabin crew.”

It has also been reported that Air India only has four pilots trained to fly the newly-acquired Boeing 787 Dreamliner and this could make it difficult for the airline to include it in its busy winter schedule.

Having faced flak, the government a few days back approved the formation of a new aircraft acquisition committee which will consider proposals by airlines on how to meet traffic demand.

Endless committees, revival plans

Committees and revival plans are the order of the day for this ailing carrier.

In October 2009, Air India selected global consultancy firms Booz Allen & Company and Rothschild to guide the national airline to devise strategies on cost-rationalisation and debt-restructuring.

In December 2010, Deloitte was appointed to review the turnaround plan drafted by SBI Caps. The financial advisory firm suggested a slew of measures that included a freeze on any increase in pay or the promotion of its 31,000 employees for the next three years.

The airline’s annual wage bill amounted to Rs31 billion and the report said as many as 2,600 employees would retire during the period.

It also recommended the company to cut spending on aviation turbine fuel (ATF) by Rs3 billion yearly by negotiating more aggressively with suppliers for domestic routes.

But within the next few months Deloitte was doubtful of Air India’s efforts and criticised the airline’s assumption that fuel costs, which account for nearly 40 per cent of the airline’s operating expenses, would not rise.

This proved costly for the airline as in September this year, the price of jet fuel was hiked in India by a steep 7.6 per cent — taking the ATF price to an all-time high of Rs72,282 per kilolitre. This brought on a fresh burden on the cash-strapped airline which already owed huge sums of money to airport operators, oil companies, vendors and even employees.

If this was not bad enough, “even the lucrative of routes of Indian Airlines to the Gulf sector, from which 40 per cent of the revenues came, were stopped and given to private airlines,” says J.B. Kadian, general secretary of Air Corporation Employees Union that has 12,000 non-technical employees as members.

“The trick was to give all the earlier operations to the Gulf to the then newly-formed Air India Express, which has smaller aircraft and can only operate point to point,” Kadian said.

The CAG, too, also pointed out that the “massive expansion of bilateral entitlements in respect of several countries (notably in the Gulf, South East Asia and Europe) has facilitated several foreign airlines in tapping the vast Indian market and funnelling such traffic over their hubs to various destinations in the US, UK, Europe and elsewhere”.

Between May 2007 and March 2010, the CAG states that the seat capacity was increased from 18,400 seats per week to 54,200 a week in the Dubai sector and points of call increased from 10 to 14.

Though it evoked protests from Air India, the Ministry of Civil Aviation failed to obtain appropriate quid pro quo concessions, the CAG said.

Hope against all odds

Amidst this depressing scenario, Kadian, working as an office superintendent, for the last 32 years with this airline, has hope for the future.

“The present Civil Aviation Minister Ajit Singh is now reviving several routes, including to Bangkok. He is telling us big, big things — that the company will improve.”

On October 9, 2012, Air India in a statement said that its “restructuring programme is on track, with the airline achieving the milestones set under the turnaround plan. Its on-time performance was nearly 86 per cent in September 2012 and the passenger load factor has shown an upward trend to 71.8 per cent.”

In its progress towards revival, it got an approval from the Ministry of Finance for an unconditional guarantee for Air India’s non-convertible debenture (NCD) bonds for Rs74 billion.

The proceeds will be used to repay the short-term working capital facility availed by Air India from 19 banks.

“Air India is expected to tap provident/pension funds, financial institutions, employee provident fund organisation and other sources to raise the money,” the Air India statement said.

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With the highest percentage of passengver/employee ratio,Air India ranks way down in customer satisfaction. I have flown Air India more than three decades back due to my extra patriotism, but the inconvenience-frustration and unfriendly service became the routine nature of Air India, so I was forced to nail down my patriotism in flying Air India. How many people of the Indian origin are flying AirIndia as loyal customers from the U.S. and European countries? As the article has indicated, the department of aviation will put an IAS officer to run Air India. What that person knows about business, especially the aviation business? Even though Air India is injecting more capital and introducing modern aircrafts of comfort, as long theantiquated and stubborn service mentality of the employees are not totall eradicated, Air India can't survive while faced with tough competition from many friendly airlines around Air India.

A. Sam Mathew

9 November 2012 17:28jump to comments
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