In stormy weather
Air India’s net worth is negative; overdrafts have topped Rs 16,000 crore; employee morale is at an all-time low; and the government seems in no mood to bail out the airline that once thrived on state protection, reports Samiran Saha.india Updated: Sep 28, 2009 23:56 IST
Air India has now embarked upon a 36-month turnaround plan that entails sprucing up its planes and services, improving on-time performance, replacing old aircraft with fuel efficient ones and shutting down loss-making routes. But few believe the national carrier will actually make a comeback, at least in its current form.
And of the changes, many analysts ask “why now.”
The state-run airline is going through a phase — the worst in its 77-year history — that many other airlines have gone through and some have survived.
Its net worth is negative; overdrafts have topped Rs 16,000 crore — more than its annual revenues of Rs 14,000 crore; employee morale has hit an all-time low; and the government seems in no mood to bail the airline that once thrived on monopoly and state protection.
The crisis hit a new low on Monday as striking pilots forced Air India to suspend operations for 15 days. Starting Tuesday, the airline will not take any booking until October 14, an Air India official said.
The development left many to wonder if this could be the beginning of the end of India’s legacy carrier.
“It is a fight for survival,” Air India Chairman and Managing Director Arvind Jadhav said in a letter to employees shortly after taking charge in May. A career bureaucrat, Jadhav is the third chairman in less than two years. The other two also were bureaucrats.
The airline, say analysts, needs to be run by a team headed by a technocrat.
Jadhav’s “fight for survival” could not have been more prophetic.
In 2008-09, thhe public sector behemoth, formed by merging Indian Airlines and Air India two years ago, suffered a loss of Rs 7,200 crore, according a statement made by Civil Aviation Minister Praful Patel in Parliament.
The situation worsened in June, and the airline was forced to defer its salaries — Rs 350 crore — by 15 days.
“We are looking very closely at AI’s finances. It has been drawing liberally from its working capital, which has risen from Rs 2,000 crore three years ago to Rs 16,000 crore now,” said a senior civil aviation ministry official, who did not want to be named because he is authorised to speak to media.
Industry observes say the airline will turn around — but not fast, and not without some hard measures.
“The airline should be privatised in the next three to five years through a series of financial processes and the government should avoid playing an interventionist role,” said Kapil Kaul, director of aviation consulting firm Centre for Asia Pacific Aviation.
“The airline should be brought under a special administration, and has to be a board run company with three main independent directors — commercial, financial and strategic planning,” Kaul said.
Air India, which has recently advertised abroad for a chief operating officer, has been headed mostly by bureaucrats — unlike its peers that are headed by aviation professionals.
Airlines across have done their bit to keep flying. Air India, experts say, needs to draw lessons from them.
Earlier this year, Singapore Airlines pilots agreed to one day’s compulsory unpaid leave per month, and managers and administrative officers have agreed to take one day’s unpaid leave a month.
British Airways has cut costs by 6.6 per cent in the past year and shed 1,400 jobs since March this year.
It has been trying to wring pay cuts from its workforce and has even axed meals on some short-haul flights, Last November, Hong Kong-based Cathay Pacific Airways asked all 17,000 employees to take up a month’s unpaid leave, while reducing passenger and cargo capacity by 8 per cent and 11 per cent respectively.
Air India asked 130 of its senior managers to forgo salary in June. This marked the first tentative step toward a possible turnaround plan.
The recent board decision to slash productivity linked incentives and flying allowances in case of pilots has triggered protests leading to the imbroglio.
Behind the decision lies a story of mismanagement and bonuses of up to Rs 1,400 crore (enough to buy four new Airbus A-321s) to its employees over three years while the airline — founded in 1932 by Tata doyen J.R.D. Tata —was making losses.
Air India has also decided to phase out old and leased aircraft and pull out of unviable routes. It could also lease some of its prime properties across India.
The International Air Transport Association (IATA) says the global aviation industry is expected to lose $10.4 billion (Rs 50,000 crore) this year, while the Centre for Asia Pacific Aviation (CAPA) estimates that the Indian aviation industry will incur around $2 billion (Rs 10,000 crore) in losses during this period.
“The current financial crunch needs to be viewed in the global context as the aviation industry worldwide has been passing through turbulent times,” Jadhav said in his June letter to employees of the airline.
For Jadhav and his ailing Air India, however, there is no easy way out of the current impasse.