Out of the Woods!

The National carrier is in the news again but mercifully this time not for the wrong reasons which has usually been the case especially in the recent years. In the beginning of the current financial year, Mahesh Sharma, the Minister of State for Civil Aviation, revealed that Air India which had perpetuated its image as a loss-making and inefficient public sector entity, in the financial year 2015-16, was expected to register an operating profit – for the first time in 10 years. The figure was estimated to be in the region of Rs. 1,000 crore.

The origin of the state-owned airline can be traced back to an entirely private effort by the legendary J.R.D. Tata when the Aviation Department of his company Tata Sons, was formed in July 1932. The venture initially christened as Tata Airlines was transformed into a public limited company on July 29, 1946, and acquired the name Air India. Two years later in postindependence India, the Government of India acquired 49 per cent share in the airline that was then conferred the status of a ‘National Carrier’. The government had the option to buy another two per cent of shares to establish control over the public limited company. On August 25, 1953, the government did precisely that when it acquired majority stake in the airline and renamed it as Air India International Limited. This was the year in which the Air Corporations Act was passed and as a result of which the air transportation industry was nationalised. There after it was curtains for the airline industry in the private sector in India.

Initially, the national carrier was a source of pride for India as the airline was regarded as one of the finest in the world, rubbing shoulders with the leading carriers of the Western nations such as British Airways and Pan Am. It was definitely the preferred choice of Indian nationals for international travel. Unfortunately, post-nationalisation, Air India began to go downhill primarily as it was perpetually afflicted by all the ills that are associated with government-owned establishments and particularly the business enterprises in India. With the opening up the Indian airline industry to the private sector in the wake of economic liberalisation initiated in the beginning of the decade of the 1990s by the Narasimha Rao Government, a number of private airlines emerged on the scene seriously eroding the monopoly the national carrier had enjoyed till then.

Air India also began to suffer increasingly from gross mismanagement, total lack of accountability, poor planning of routes, vulnerability to vested interests, bad work culture, labour dispute resulting in frequent strikes, poor on-time performance, unwarranted interference by the political and bureaucratic establishment, corruption and ill planned capital acquisitions leading to heavy debt burden. The occasional attempt at privatisation that were at best half-hearted and insincere, had no chance of succeeding. The national carrier’s finances descended deeper into shambles when a number of lucrative and profitable international routes were surrendered. It is believed that these steps were taken under directions of the political leadership apparently to favour some of the major carriers in the private sector. Today, of all the routes operated by the national carrier, only six domestic and three international are profitable.

Over the years, the national carrier continued to slide further into financial distress and today its cumulative losses combined with debt burden totals up to a whopping Rs. 67,000 crore! But perhaps the greatest debacle for the national carrier has been the merger approved in 2007 of the international carrier Air India with the domestic airline Indian. Even after the lapse of eight years, the process of merger has not yet been completed. This single decision of the UPA Government is regarded as a major strategic blunder that has only served to aggravate the problems that the national carrier had already been afflicted with.

In 2012, the government approved a turnaround plan for the national carrier that required infusion of Rs. 30,000 crore over a period extending up to 2020. The timeline defined for Air India to become profitable at the earliest was by 2018. Early this year, the Prime Minister’s Office asked Air India to furnish details of its business plan, financial disposition and dependence on public funds. This was seen by some as a move towards possible disinvestment of the national carrier. In the meantime, the Minister of Civil Aviation P. Ashok Gajapathi Raju issues a number of directives to Air India for it to recover from the humongous losses it had accumulated. These include rationalisation of manpower, enhanced focus on customer-friendly service, better on-time performance and strengthening the Air Cargo segment.

After years of loss-making operations, Air India recorded a miniscule profit of Rs. 14.6 crore in December 2014. Forecast by the Minister of State for Civil Aviation for the current financial year will certainly help raise spirits in Air India. It appears that the national carrier is finally emerging from the woods!