World | India

Air India airline cruising well below altitude

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

  • By Pamela Raghunath, Correspondent
  • Published: 21:22 November 8, 2012
  • Gulf News

  • Image Credit: AP
  • 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.

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.

Comments (7)

  1. Added 17:24 November 9, 2012

    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 Air India 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 the antiquated 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, Ringgold, United States

  2. Added 16:53 November 9, 2012

    The airline which has always created headache for the passengers in the Gulf sector for many years. One of the worst airlines in the world.

    Bijish, Sharjah, India

  3. Added 16:47 November 9, 2012

    The airline has become so bad that we reschedule our travel plans to avoid flying Air India. The attitude of the staff is pathetic, they behave as if they are doing us a favor. They have made no efforts to keep up with the competition and take their passengers for granted. Budget airlines give better service compared to them.

    Shakib, Dubai, United Arab Emirates

  4. Added 16:03 November 9, 2012

    Sir, The financial collapse of Air India, the national carrier of India is attributed to many causes. The authority is averse to modernization not only in terms of carriers but work force also. The carriers are not managed in a professional way. The route selection and operations are not scientific. Punctuality in operation is unknown to Air India. As we all know, we cannot serve two masters at a time. The Air India has reached a dilemma where the government wants to allow private operators to flourish their business on one hand and at the same time it [Air India] wants to retain its supremacy for the sake of its own employees. Passengers are not happy with the level of service they receive from the carriers and known punctuality. Trade unions always needed to retain old aged crew and the federal government is not ready to finance and streamline the operation of Air India with a view to help private carriers indirectly. The only way out for the rescue of ill fated carrier is to induct young crew and new carriers in to its fleet coupled with world class operation.

    Girish R Edathitta, Dubai, United Arab Emirates

  5. Added 15:59 November 9, 2012

    Ever since India engaged the philosophy of economic liberalization, which guaranteed the dominance of private players and FDI, the time-honored public sectors have felt the heat and many of them ceased to operate. Meanwhile organizations like Air India are conspicuous in retaining its public sector culture (infamous in India) which lacks ability to understand the values of customer service. Also the dynamics of regional chauvinism, unique style of Indian bureaucracy, played a prominent role making Air India a beck and call institution to their (group who control AI) choice regardless of the damage afflicted on the organization or the inconvenience to the public at large. The Strategic or policy decision are hinged on the whims and fancies of the bureaucrats and the minster, frequent revolving positions, rather than on pure commercial ground. The prime minister and the finance minister both are vowed to promote the interest of private players/FDI are muted on the subject. Soon it is expected that the carrier will be grounded and its take of will be far from any one&rsquo's expectation, unless there is a political to make turn around form the currents state of affairs

    Salim Panthodi, Abu Dhabi, United Arab Emirates

  6. Added 13:24 November 9, 2012

    In spite of having a Pravasi Minister, who hails from the state of Kerala from where majority of the Gulf workers coming from, the administration fails to provide best of its services in terms of air travel. Air India has proved that it is no more a reliable option to choose for Indians when they plan their holidays. There is lot more to do for an overall revival of the airline. The minister responsible must step in and should be able to realise the key issues the airline is facing, rather than simply promising alternatives. First of all, the airline staff themselves are not happy, their wages are frequently delayed, there were no training sessions for them to provide better services to customers etc are a reality. Many of the recent decisions of Air India have proved that the airline is led by incompetent team of officials. Without realising the ground realities, strategies have been formed with no clear objectives to retake its lost glory. I have been flying on Indian Airlines until its merger with the flagship carrier, the airline was very prompt in following its schedules and crew members were very pleasing and assisting throughout. Since then I never travelled on Air India. And what I have been hearing from my friends and colleagues that either Air India or Air India Express has been taking all the advantages of passengers travelling from Gulf states and is more a reliable airline to choose from. I fail to understand the management's approach to India’s great Maharaja. By the way, who is responsible for the current financial crunch of the airline, which is at loss financially as well as service-wise since years? In the current state of affairs, no one can expect an immediate return of the airline to a dependable option for the Gulf travelers. The minister responsible for overseas Indian travel to Gulf often and pledge only promises for a revival of the airline and sorting out all their problems. Nothing happened. Bad politics and unhappy workforce have spoiled the reputation of the airline. We are yet to see someone who is aggressive and forward thinking at the helm of responsible ministry. It is a challenge for the entire team to take Air India forward with flying colours, prior to which they must sort out all its internal issues.

    Ramachandran Nair, Ruwi, Oman

  7. Added 13:15 November 9, 2012

    The worst airline in the universe.

    Roy, Dubai, United Arab Emirates

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