Winds of Change Blowing

On June 8 this year, the national carrier Air India celebrated the 68th anniversary of its first international flight which is regarded as a milestone in the history of the Indian civil aviation industry. The historic journey that took 24 hours to complete involved refuelling halts at Cairo and Geneva. It was flown using the 40-seat Lockheed L-749 Constellation called the Malabar Princess. There were 35 passengers on board and Captain K.R. Guzdar was in command. With this notable achievement, its owners Tata Sons Ltd renamed the airline as Air India International. However, in 1960, the airline reverted to its original name of Air India.

While the national carrier had recorded a glorious achievement nearly seven decades ago, its journey especially over the last two decades has been plagued with turmoil and distress. During this period, there has been progressive degeneration in its financial position and quality of services. In the second week of June this year, speaking on the issue of privatisation of the national carrier, the Indian Minister of Civil Aviation, P. Ashok Gajapathi Raju publicly stated: “The national carrier’s books are so bad that nobody would come forward to buy it even if it is put up for sale”. Whatever be the state of the finances of the national carrier, implicit in the statement of the Minister of Civil Aviation is the fact that the government is not in favour of privatisation of Air India and possibly for good reasons.

The finances of the airline came under intense pressure with the arrival on the scene of the several privately owned airlines in the wake of liberalisation of the economy and the deregulation of the Indian airline industry commencing in the early 1990s. This move of the government rendered the market highly competitive. From a situation of total monopoly, today, Air India has a market share of just 15 per cent. However, the most devastating blow that the national carrier had received was in 2007 by its merger with the domestic carrier Indian Airlines. This is regarded as perhaps the greatest strategic blunder by Praful Patel, the Minister of Civil Aviation in the UPA Government at that point in time. The financial position of the national carrier has been sinking further into the red since the ill-conceived merger.

A bail-out package of Rs. 30,000 crore by the erstwhile UPA Government notwithstanding, Air India has been troubled with mounting debts and cut-throat competition. As of December 2015, the state-run airline was reeling in debt of Rs. 50,000 crore and an annual interest burden of Rs. 4,000 crore.

But since the appointment in August 2015 of Ashwani Lohani, the new Chairman and Managing Director (CMD) of Air India, popularly known as the ‘Turnaround Man’, the airline appears to be embarked on a new path with some positive strides towards a turnaround. Drop in the global price of crude oil and consequently the low price of aviation turbine fuel (ATF) combined with a vibrant market with high demand, have helped Air India achieve a degree of stability that has consequently generated justified optimism. As per R.N. Choubey, Secretary, Ministry of Civil Aviation, Air India has plans to expand its fleet from the current strength of 130 to 230 aircraft in the next four years. Unlike in the past, Air India plans to lease these aircraft instead of outright purchase. This will provide for speedy induction as also much lower debt burden. Given the growing civil aviation market which is expected to be the third largest in the world by 2020, increase in the size of the fleet will help the national carrier expand its operations, rake in higher revenues and consequently generate higher levels of profits over the next few years which will lead to reduction in the debt burden. There could however be a few potentially serious challenges the national carrier may be confronted with. These are the growing competition from lowcost carriers especially those that are now licensed to operate on the international routes as also the abrogation of the 5/20 rule that would permit the new entrants such as AirAsia India and Vistara to operate in the international segment. There is also the possibility of rise in the price of ATF in the wake of the rise in the international price of crude.

But the most encouraging news in the recent past for the national carrier is that for the first time in a decade, the airline has registered an operational profit of Rs. 8 crore in the last financial year. Finally the tide is beginning to turn in favour of the national carrier.