Change Ringing

‘The market in India is now showing signs of stability. Today, we see an Air India which has successfully completed its merger with Indian Airlines and is building up a new fleet that forms the basis for a much improved level of service.’ — Mark Schwab

The issue of the ailing national carrier Air India joining Star Alliance came into public domain when on December 13, 2007, in Beijing, the airline was extended an invitation to join the group. Membership of this prestigious group would have opened up new opportunities for the airline as it would provide it convenient access to the large pool of international passenger traffic that Alliance controlled. It was estimated that this would enhance Air India’s annual revenue by an estimated 15 per cent and help the process of turnaround that was initiated in 2009 with massive infusion of public money. The process of integration was to be completed by July 2010.

However, in mid-2010, the Chief Executive Board of Star Alliance located in Frankfurt, vetoed the move to grant membership to Air India as in their perception, the airline “failed to meet the minimum requirements or the 87 conditions for joining that were contractually agreed upon in December 2007 and were to be fulfilled by the extended deadline of July 31, 2010”. Apparently, the issues that militated against the effort of the airline to join Star Alliance were related to the ills that afflicted the national carrier as it does most public sector establishments in India. These were consistent record of poor on-time performance, frequent labour dispute, inefficient management, undue interference by the government, unimpressive marketing strategy, financial distress and a poor brand reputation.

The Indian Ministry of Civil Aviation (MoCA) however felt that the decision by Star Alliance against Air India was actually in retaliation to rejection of demand from the Alliance to give Jet Airways the go-ahead to join the group. The opinion of MoCA was based on a written communication from Star Alliance to Air India. It is understood that on July 30, 2010, a day before the rejection of membership was made public, Gerhard Girkinger, Chief Project Manager, Star Alliance, who was responsible for supervising the process of integration with Air India, communicated to the national carrier in writing that “much of the work was done and I can confirm the status of the integration based on the attached spreadsheets. From my perspective, this means we are basically done although I need formal sign-off. All the other components depend on a joining date,” Girkinger wrote.

Views of the MoCA notwithstanding, the fact of the matter is that Air India has for quite some time been in complete shambles and this is not a closely guarded secret. As at the end of 2012, the national carrier had a crushing debt burden of Rs. 43,777 crore and cumulative losses of Rs. 27,000 crore over the past five financial years. The airline is reported to have often failed in its obligation to make timely payments to its employees. Given the lack of credibility of Air India’s business model, it is not surprising that the move to induct Air India as a member of Star Alliance was placed on hold. Star Alliance could have hardly been expected to open doors to an airline that appeared to be teetering on the verge of collapse.

Whatever be the real reason, this was the first time in its 14 years of existence that Star Alliance had rejected membership of an airline that had been extended invitation in the first place.

However, three-and a-half years after Air India’s hopes of joining Star Alliance were dashed; there have been some favourable developments. As per sources in Air India, on December 13, 2013, the 28 airline board of Star Alliance met in Vienna and voted to once again invite the national carrier to join the alliance in the next six months. The decision by Star Alliance appears to have been motivated by developments on the Indian civil aviation scene. Apart from some lobbying through and discreet pressure on Lufthansa that is an influential member of Star Alliance, the government has also been able to create conditions favourable for Air India to gain membership of Star Alliance by giving the go-ahead for Jet Airways also to join the Alliance. Besides, for Star Alliance to induct the new joint venture airline Tata-SIA, expected to be a formidable entity on the Indian aviation scene, it would be a perquisite for Air India to be a part of the alliance.

Star Alliance CEO Mark Schwab stated, “The market in India is now showing signs of stability. Today, we see an Air India which has successfully completed its merger with Indian Airlines and is building up a new fleet that forms the basis for a much improved level of service.”

Finally, the winds of change have begun to blow in favour of the national carrier.