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One of the very early mascots of India,”Maharaja” is easily recognized as it stands tall on the mammoth sky scraper at Nariman Point (Mumbai). In 1946, Tata Airlines was converted into a public company which was renamed as Air India. The move was explained by the GoI as something which was meant for public good.
Let’s now look at some numbers:
Till 2008-09, The company reported cumulative losses of Rs. 8,461 Cr , the loss aggravated in the year 2009-10 is of Rs. 13,326 Cr . Currently, Air India has been incurring a loss of Rs 26 crore per day and has landed itself in debt trap.
The news reports claim: The Board for Reconstruction of Public Sector Enterprises (BRPSE), which advises the government on reviving bankrupt state-owned companies, plans to bring Air India Ltd under its umbrella using its suo motu powers to study the fast-sinking national carrier, a move the aviation ministry has so far resisted.
Is there a problem in airlines sector?
Not Exactly! Look at Go Air, it was until now a loss making company and it has turned the corner in 1-1/2 years. JetLite is doing well and SpiceJet is also doing extremely well. Apart from volatility in crude oil prices, there is no other major worry for the sector in general
What exactly is the problem with Air India?
- Problems in administration: Pilot’s strikes, Airport management, Accidents, Fleet plans, etc.
- Failure to operationally merge with Indian Airline: The pay structure and promotion chances vary greatly in both airlines. Indian Airlines is demanding to be put on par with Air India. While Air India doesn’t want any cuts in their salaries, they do not object to parity demands. It is very difficult but we will try. The merger agreement itself allows scope for level mapping, promotion chances to be at par without denting the present arrangement
- Huge debt and monthly deficit which makes it difficult to repay the term loan. This further reduces banker’s chances of refinancing their debt as no banker can afford to have such a huge NPA on his book,
Even with a gloomy future, Deloitte(AI’s official consultant) says, AI’s cost structure will be much lower than that of rivals like Jet and Kingfisher over the next five years, and it projects AI’s domestic market share growing at 22% annually as compared to 10% for its rivals.
For now, Air India has set a target to enhance its revenues by Rs 5,000 crore and also to reduce costs by Rs 4,000 crore a year, post the restructuring, according to its website. Only time will tell AI’s future, but unless the basic business model is refined, it will always be known as “Living Dead” PSU of India.
What are your views that can probably turnaround this organization?
Air India is a typical PSU incompetence at work. Being a govt enterprise has significant cost advantages.Air India has international carrier routes which no domestic airline is able to compete with but still somehow manages to screw it up with huge losses.
I appreciate the size of international routes that Air India operates on but the look at leadership. There is no effective management team to handle as the government undertaking has layers of bureaucracy. I think there are too many mistakes this organization has committed to correct itself now.
I understand that Mr. Rishabh is working in Private Equity and Venture Capital space and His interest areas include Finance and Strategy. Now I would like Mr. Risabh to answer the following questions :-
1) Before Indian Airlines and Air India were merged in 2007, the domestic carrier had losses to the tune of Rs. 280 crore and was on the verge of nosing out of the red. Air India had losses of about Rs. 455 crore. Thus the total losses of the two airlines amounted to Rs. 735 crore. Now within 4 years as you said it will be more than 15000 cr WHY?
2) Which theory or startegy suggest that with an annual turnover of just Rs. 7,000 crore, AI placed orders for Aircraft purchase of Rs. 35,000 crore for which the interest outgo would be Rs. 6,000 crore?
1) In March 2011, Rajya Sabha informed media: ‘Air India has incurred a cumulative loss of over Rs 13,300 crore since its merger’. If you go little backwards, in February 2011, CAG found discrpencies with the accounts of the airline and claimed that it underreported its losses by Rs.3000 Cr with respect to correct identification of deffered tax assets.
The point I’m trying to make is ‘Policies of the Government’ are responsible for the entire mess. Decisions to either to writeoff losses NACIL or infusing capital to keep up the things all led internally destroying the company. The Public Sector undertaking never improved operational efficiency in past few years as promised to Ministry of Civil Aviation.
2) Yes, the new aircraft purchase order (worth Rs 50,000 crore) was not backed by either a viable revenue plan or expansion of routes. Slight correction in the numbers: The airline claims unpaid interest liability to be around Rs. 700 Crore (http://www.thehindubusinessline.com/industry-and-economy/logistics/article2299865.ece?homepage=true). The article also states: The airline is waiting for the Government to release Rs 1,732 crore. Of this, Rs 1,200 crore is additional equity infusion and Rs 532 crore is what the Government owes Air India for VVIP travel. So given the free money infused by government, the company will not default on its interest payments
I just heard that Air India also lost the seat on International Air Alliance as it did not have min. basic standard required to be part of that collaboration. Have not confirmed this yet… is that true ?
NOt only it’s true but the fact remains that AI management inspite of reeling under severe cash crunch spend crores of Rs. just to get the elite membership of Star Alliance. For reasons best known to the the ministry of civil aviation and the management of AI former Indian airlines was renamed to “INDIAN”. Imagine the amount spend on painting of aircrafts and other documents. Then again the merged company renamed NACIL and now again to “AIR INDIA”. It is also learnt that SITA has been paid RS. 250 cr for upgrading passenger reservation system. Is this all joke !! Interestingly there is no accountability nor can anybody be held responsible for these wasteful expenditures incurred and now the employees are not getting their salaries for 3 months now citing reasons of liquidity crunch!!