Air India – Emerging from the Doldrums!

Air India, the flag carrier of the nation, emerged in its present shape after what turned out to be the illconceived merger in 2007 of the domestic national carrier Indian, erstwhile Indian Airlines, and the international carrier Air India. The merger was supposedly a strategy formulated by the then Minister of Civil Aviation Praful Patel ostensibly to make the new entity more financially efficient through elimination of duplication and better utilisation of its combined resources. Nearly eight years have gone by, but the process of merger is yet incomplete. Analysts have always held that in fact, many of the problems that the national carrier is afflicted with today, are attributable to the merger. Most notably, the market share of both the carriers taken together that was once above 60 per cent, dropped sharply after the merger.

The national carrier has been in the news frequently, most of the time for the wrong reasons. As a public sector undertaking, the airline is afflicted with all the associated ills such as political interference, bureaucratic meddling, policy inaction, patronage of vested interests, a bloated workforce, poor work culture, lack of discipline, mediocrity, frequent labour disputes with perpetual standoff between the unions and the management, total lack of accountability, indifferent customer service, poor on-time performance and problems with aircraft serviceability especially with even the newly acquired fleet of the most modern Boeing 787 Dreamliners.

Most analyst as well as the unions themselves are of the view that apart from the merger, the financial mess the airline is in, has been compounded by a number flawed decisions or strategic blunders by the management over the last few years. These include placing bulk orders for 111 airliners for a whopping Rs. 50,000 crore at a time when the airline’s paid-up capital was a mere Rs. 150 crore, underutilisation of wide-body passenger jets and withdrawing from profit making international routes. Other factors in the hostile business environment that made things difficult for Air India also applicable to all other carriers have been the constantly rising price of aviation turbine fuel (ATF), exorbitant airport and other charges, high cost of human resource, heavily taxed maintenance, repair and overhaul facilities and so on. Also Air India is one of the two full service carriers operating in the country, the other being Jet Airways and both competing against the low-cost airlines IndiGo, SpiceJet and GoAir. A newly emerging competitor in the Indian skies is the Tata-SIA joint venture Vistara, a full service carrier the entry of which in the recent past is set to elevate competition to a new level.

Apart from a host of problems the national carrier faces as a matter of routine, its finances are in disarray. It carries a massive debt burden of Rs. 40,000 crore as well as cumulative losses that are humongous being in excess of Rs. 36,000 crore at the end of the last financial year. The airline is currently engaged in a turnaround plan with the help of a lifeline by way of equity infusion of Rs. 30,000 crore provided by the government out of the taxpayer’s money. This bailout package disbursement of which commenced in the financial year 2012-13, is to be spread over a period of nine years. In fact, payment of salary for the month of January 2015 to the 22,000 employees of the airline was possible only after the airline received an instalment of Rs. 200 crore equity from the government. The airline plans to reduce the strength of its workforce to 21,000 by the end of the current financial year, a step that may provide some relief from financial stress.

But things appear to be set to change for the better as the restructuring plan moves forward. There has been reduction in the operating losses and rise in revenue for the airline in the year 2013-14 as compared to the previous year. Air India has also succeeded in joining the prestigious Star Alliance opening up new opportunities. Mercifully, there has been a significant reduction in the price of ATF in the wake of the crash in global price of crude. Expenditure on ATF consumed had been constituting 45 to 50 per cent of the operating cost of the airline. The situation with regard to revenue generation has also improved considerably especially in the recent past as there has been a healthy growth in both passenger and cargo revenue.

The combined effect of all these factors is that after incurring losses for decades, in December last year, the national carrier posted a net profit of Rs. 14.6 crore. Finally, for Air India, the tide appears to be turning!