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‘Maharaja is dying a slow and certain death’

State-run Air India is slipping into a “slow and silent decline” and unless drastic steps are taken the airline would slide into a “point of no return”, consulting firm Booz & Co. said in a presentation to the company’s board recently. Tushar Srivastava reports.

business Updated: May 21, 2010 01:34 IST
Tushar Srivastava

State-run Air India is slipping into a “slow and silent decline” and unless drastic steps are taken the airline would slide into a “point of no return”, consulting firm Booz & Co. said in a presentation to the company’s board recently.

The presentation — circulated to the board of National Civil Aviation Company of India Ltd (NACIL) that runs the national carrier — has blamed a host of factors including an incomplete integration between flag carrier Air India and domestic airline Indian for the precarious state of finances.

“The current business model is not self-sustaining and will require ongoing infusion of funds,” the presentation said, a copy of which is with Hindustan Times. “The majority of flights are not profitable and the fleet structure is not aligned to a hub-and-spoke model. Produc-tivity is low and the airline is overstaffed in multiple areas.”

The company is saddled with an accumulated loss of Rs 7,200 crore with a debt burden that is estimated at Rs 15000 crore. “Though the report contai-ning inputs provided by the airline, was circulated amongst the Board, there was no detailed discussions way forward,” NACIL said in an email reply to HT. “The report talks of various situations and one of them is a slow and silent decline of NACIL if certain remedial measures are not implemented. This was not the only suggestion.” Booz & Co. refused to comment on the report.

NACIL, formed by merging Air India and Indian in 2007, is groping for options to stay afloat as it finds itself caught between a deepening liquidity crisis and falling market share.

With a fleet size of 148 aircraft and 31,000 employees, the airline has an unusually high employee-aircraft ratio of 209:1. The industry average is about 150 employees per aircraft.

Booz & Co. was hired by Air India to prepare a turnaround and recovery plan in November 2009.

NACIL, the presentation said, “will soon have passed a point of no return after which a successful recovery of the airline, even through a severe restructuring, will be highly unlikely”.

It also said the “current initiatives to improve performance, reduce cost and enhance revenues as well as a return to a positive market environment will not suffice to reverse the downward spiral”.