The Hindu Business Line : Reinventing the ‘Maharajah’

Air India is in dire need of a revamp for it has to compete with the world’s best airlines. The Government should reconsider its stand on disinvestment. Our national carrier must also reflect the vibrant and resurgent ethos of Indian business.

The earlier the government sells controlling stake in the airline, the better it is for the national carrier.

Pankaj Narayan Pandit

A national carrier is often said to exemplify its nation. The national airline is the identifiable face of nation’s economy, industry, and business in microcosm.

Look at Singapore Airlines, with its gleaming fleet and impeccable service standards that epitomise the prosperous island-nation. Lufthansa mirrors traditional virtues of German reliability. Profitably privatised, British Airways is identified with re vitalised public sector enterprises of the UK under Lady Margaret Thatcher. Loss-making airlines such as Alitalia too make a comment on their owner governments.

Does our national carrier exemplify the new, vibrant India? Since 2003, the year of liberalisation of the Indian airline industry, Air India has reported operating losses of over Rs 1,300 crore. However, after adjusting for non-operating revenues, such as handling revenues and code-share revenues, Air India has been making modest net profits every year.

Apart from increase in airline capacity, other reasons for the operating losses are: lack of professional management, high debt-equity ratio and low brand equity — common factors that have plagued other government-owned legacy airlines world over.

India’s airline industry is in a severely competitive stage. Post 2003, the sector registered 18 per cent average annual growth, yet the industry has become severely competitive. Mounting losses have forced takeover of airlines such as Air Sahara and Air Deccan. The industry’s total operating losses were close to Rs 1,000 crore in 2006, if Jet Airways’ profits of Rs 538 crore are excluded (Source: DGCA).

Bilateralism to multilateralism

Before 2003, the ASA (Air Service Agreements) between India and other countries were shared by Air India with foreign airlines in a cosy oligopolistic arrangement. Now these bilateral entitlements have been increased multi-fold. All Indian carriers are not able to match the capacity of mighty foreign airlines like Lufthansa, British Airways, Air France, KLM, and Singapore Airlines. Load factors of Air India’s international operations have fallen to 68 per cent in 2006 from 76 per cent in 2003, below breakeven point.

Dubai and Singapore have emerged as alternative hubs near India. Sixth freedom carriers (an aviation term for taking travellers to an airline’s home-base location and then giving onward connections) such as Singapore Airlines, Emirates and European airlines such as British Airways and Air France-KLM, are using their strategic geographic base locations to offer daily connectivity from the US and Europe to India’s hinterland airports, including Bangalore, Hyderabad, Chennai and Ahmedabad. Travellers are happy for direct flights give them better connectivity.

Thus, legacy networks established by Air India, with Mumbai and New Delhi as hubs, and Indian Airlines’ domestic network have lost their intrinsic value.

Flip-flop on disinvestment

The world over, most governments have disinvested their stakes from national airlines. Better accountability, professional management and transparency that results from listing a public sector company on a stock exchange often enhance shareholder value.

The Government had plans to partially dilute its shareholding in Air India in favour of a foreign airline with an Indian partner. Bidders such as Singapore Airlines, with the Tata group, had shown an interest in buying stake in Air India. However, the stake sale collapsed as the global airline industry went in severe recession following the 9/11 terrorist attacks.

Since deregulation of India’s airline industry in 2003, capacity of foreign as well as domestic airlines has increased exponentially. The Government now plans to dilute 10 per cent of its stake in Air India to retail investors, and employees through an IPO.

India’s national carrier does have valuable hidden assets, including a large pool of trained manpower, slots, parking bays, offices at key global locations, hangars, etc. The sale of government stake will infuse much-needed capital. In addition, the Government has to help Air India sort out the contentious HR issues of merger with Indian Airlines, along with such other issues as wage revisions, establishing seniority, merging of divisions, payment of arrears, and so on.

Inspired leadership

Since nationalisation, Air India, and Indian Airlines have sourced their CEOs from the IAS cadre, members of which usually covet such positions a few years before retirement. Hence a CEO cannot serve a full term of five years, making it difficult to pin accountability.

A charismatic, bold leader can turn around an airline’s fortunes by rebuilding trust and, driving changes while winning employee support, like Sir Collin Marshall, who turned around British Airways in the 1980s. More recently, Mr Jean-Cyril Spinetta, a French civil servant, revived Air France’s fortunes after a decade of hard work. Mr Spinetta is credited for effecting Air France’s successful merger with KLM. Thus “picking the right leader”, and “unstinted backing from government” are critical success factors.

FDI norms

The Government has recently raised FDI cap in ground handling services, cargo airlines, non-scheduled airlines and chartered airlines from 49 per cent to 74 per cent. Also, 100 per cent FDI is now allowed in maintenance, repair and overhaul (MRO), pilot training and helicopter services.

However, no foreign airline is allowed to invest in India’s scheduled airlines. Turnaround plans from business consultants are relatively easy to prepare, but difficult to execute if the airline continues to be wholly owned by government. Turnaround plans for airlines such as Alitalia collapsed because of government interference. Lessons from such failed attempts are clear: the earlier the government gets out of the way and sells controlling stake in the airline, the better it is for the national carrier, its employees and finally the taxpayer. Air India’s mascot, the lovable, playful Maharajah needs urgent reinvention.

Air India was India’s first global brand, flying the Indian flag across continents. It was a bright spot over India’s skies during the tumultuous 1970s. Today, the image of the staid Maharajah seems like a relic of the past, as the Indian aviation industry is firmly entrenched in the global scene. It is time India’s national airline exemplifies the resurgent and youthful face of India’s business.

Brand Air India badly needs repackaging for competing with the world’s best airlines, raising service levels, and running profitable operations. Any delay in such re-positioning endangers the Maharajah’s fate in today’s highly competitive airline industry.

(The author is Principal Consultant, Airlines Practice, with Infosys Technologies Ltd. The views expressed are personal. e-mail: pankaj_pandit@infosys.com)

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