Some plane truths
The crisis in Air India is not new. It started much before the merger. The behemoth can now only survive if the Centre continues to bankroll it, says R. Krishnan.india Updated: May 31, 2010 01:17 IST
The recent crash of an Air India (AI) flight in Mangalore and the flash strike by a large section of the airline’s employees soon after the mishap prove beyond doubt that all’s not well with the State-owned carrier. The rot in AI had started long ago, even before the government-approved merger of Indian Airlines and Air India in 2007.
Nevertheless, when the merger decision was announced, many expected the airline to recover lost ground. Sadly, the merged entity, Air India, fell into an even deeper abyss. It is now certain that there is no chance of its survival and revival unless the Ministry of Finance ensures a constant infusion of funds.
But should the government continue to run AI pumping in crores to keep it alive? Or should it just leave the ailing Maharaja? Former Prime Minister Atal Bihari Vajpayee explored the latter possibility via disinvestment. However, that plan was sabotaged and aborted. I still remember a conversation a few journalists had with Vajpayee in 1998. Asked about AI, Vajpayee, in his usual style, said: “Yeh badi gambhir samasya hai (It is a very serious problem).” What followed is history.
If the Vajpayee government had been allowed to divest AI at that time, his successor Manmohan Singh would not have been wasting his time today on an airline that is harming the government’s image more than ever before.
In March, I met senior government officials at the India Aviation Show in Hyderabad. One of them told me that unless the government spends Rs 5,000 crore per year on AI, the airline will not survive. This assessment, the officer said, has also been conveyed to the Prime Minister Office.
This means that AI would need a separate budget like the Indian Railways. Can you imagine the UPA launching an employment guarantee scheme for AI employees? If everything AI does is in the market’s domain, how can its problems then be fixed by the PMO or North Block?
All they can do is keep the funding lines open. Both the government and AI management know that the airline will have to fight its own battles by chalking out lucrative and competitive strategies to attract passengers. This means that the commercial department of AI will have to get passengers to fill its brand new planes. The fact that it has not been able to do this is evident from lower loads, less-than-desired revenue streams and low yields vis-a-vis competing domestic and foreign carriers.
The government has pumped Rs 800 crore into AI to shore up its equity and might inject another Rs 1,200 crore provided the airline cuts costs and increases revenue. The airline maintains that it has saved nearly Rs 743 crore in the last one year and has also increased its revenue. But this is not enough considering the huge debt it is sitting on and the losses of Rs 13,461 crore it made between 2006-10.
The airlines overdraft has touched Rs 18,500 crore and is being taken to meet working capital needs such as paying for salaries. It owes Rs 23,000 crore for its aircraft acquisition programme and this will rise further when it begins the acquisition of the Boeing 787 Dream Liner. You can cut costs only to a level. As someone said, how much cheese can you take out of a pizza and still call it a pizza. Similarly, if AI’s strategy is to reduce and rationalise its fleet and network among other things, then from where will it earn its revenues?
An airline like Continental on its non-stop US-India-US flights gets yields that are 23 per cent higher on its first and business classes compared to competing carriers that go to the US from India with a stop in Europe. In the case of AI, despite flying brand new Boeing 777-200 LRs, its yields are less than even the one-stop carriers.
If AI reduces its fleet size and the size of its aircraft, its commercial department would be the happiest since they will have much less to ‘fill up’. This is precisely the major problem AI is facing and Civil Aviation Minister Praful Patel knows this all too well.
It is true that there’s more competition on international routes. But what about domestic routes? Why is the airline failing there too? The strong action taken by the AI management, backed by the government, to break the recent strike is welcome. But they need to show similar determination in marketing their product. Arvind Jadhav, Chairman and Managing Director of AI, said on August 7, 2009, that AI would transfer five A320s of Indian to the exclusive Boeing 737-800 fleet of AI Express to enlarge its domestic footprint.
But nothing has happened. The Directorate General of Civil Aviation (DGCA) objected to AI Express flying Airbus A320s as the Airbus’ flight certification was to be given by Indian Airlines engineers who are not on the payroll of Air India Express. Unless an engineer belongs to Air India Express, he would not be allowed to transfer a different aircraft type across the platforms.
A similar issue led to the gag order earlier last week in AI which ostensibly led to the union’s strike. But the DGCA had made an exception this time that the unionised AI employees did not know about.
The national carrier suffers from serious internal disturbance: there is total disconnect between its employees and the management. Is it any wonder that in such a situation, the AI management is running after global brand managers and network specialists to help it manage the airline? Between 2008-09, it has had three CMDs. Still, all the prime minister’s horses and all the prime minister’s men have not been able to put the Maharaja together again.