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Monday, May 13, 2002

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Restructuring to make a safe landing

Ashwini Phadnis

IN His address to the Airline Financial Summit in New York recently, the Director General and Chief Executive Officer of the International Air Transport Association (IATA), Mr Pierre J. Jeanniot, expressed concern over the huge financial loss (an estimated $12 billion) suffered by the international airlines (only IATA members on scheduled services) and emphasised the need for reviewing the size and appropriateness of corporate overheads and discarding the inefficiencies which were masked by the growth experienced by the airlines in the past.

Pointing out that the crisis had hit the airlines sector long before September 11, Mr Jeanniot mooted a few suggestions such as route restructuring programme, fleet simplification activities and examining refinancing options as a means to achieve turnaround.

"We have lost more in one year than we have made in our entire history. This is an industry that is now in a deep hole. We must start looking for footholds and ways to climb quickly out of the financial abyss,'' Mr Jeanniot observed in course of his speech.

It is interesting to note that most of the suggestions by the IATA CEO have already been successfully implemented by our national carriers — Air India (AI) and Indian Airlines (IA) — both members of IATA.

In the aftermath of September 11, AI curtailed services to a number of sectors and redeployed aircraft on more profitable routes. Similarly, on noticing that several international air transport companies cancelling the aircraft orders, IA decided to invite fresh price bids from two major aircraft manufacturers, Airbus Industrie and Boeing, as part of its plan to acquire 43 aircraft.

The decision alone helped IA save $3 to $5 million per aircraft on the entire deal, and as IA sources pointed out, this was not a small savings in the present low margin regime. Furthermore, the airline also renegotiated the lease rentals for Airbus A-320 aircraft which helped it save several millions of dollars.

But, then, it will be a rash to claim that the country's civil aviation sector remained immuned to the ravages caused by the September 11.

The post- September 11 developments did affect our national carriers. As the Union Minister for Civil Aviation, Mr Syed Shahnawaz Hussain, told Parliament, AI suffered a loss of about Rs 8-10 crore owing to the cancellation of its flights caused by the closure of the US airspace for several days.

Besides, several international carriers withdrew operations from India as a direct fallout of route rationalisation.

United Airlines of the US was perhaps the first among those to announce withdrawal of services from India. Before September 11, the airline had announced its plan to discontinue its daily service on the Delhi-London sector; instead, it proposed to launch a direct Delhi-Chicago service. After September 11, the airline decided to withdraw from India altogether. Similarly, the Scandinavian Airlines (SAS) too.

The IATA CEO made a few other suggestions such as service improvements and industry rationalisation to complement a recovery in profitability. He also expressed in favour of improved security and customer-friendly airport processes. His other suggestions included introducing fully adequate and cost-effective third-party war risk insurance cover and evolving industry regulations to permit efficient restructuring.

One hopes both IA and AI will also take note of these suggestions in their bid to tighten their belts and improve performance.

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