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?