Net result will remain in the red, says CAPA report
Air India may report a small operating profit for the current financial year , but the net result will remain significantly in the red, the Centre for Asia Pacific Aviation (CAPA) said on Thursday.
A new report titled ‘Decisive action on Air India’s future assumes urgency in light of foreign airline investment,’ adds that the airline reporting a small operating profit will depend on the impact of the Boeing 787 grounding and market conditions in the fourth quarter.
“Despite these improvements, deep structural issues remain. As a result, in the five years beginning 2007-08, Air India accumulated losses of close to $5.25 billion, a figure which it is estimated will increase by a further $950 million or more by the end of FY13 (2012-13),” the report said.
At present, Air India operates on 189 routes. Of these, according to the report, only 12 meet total costs. A further 82 cover their cash costs but not their total costs, and 95 routes, or just over half, do not even meet their cash costs. International routes are bleeding particularly badly and account for 80-90 per cent of losses.
The Government has committed to fund the carrier’s turnaround plan. However, rather than infusing capital on a one-time basis, it is drip-fed in an uncertain schedule. When each small tranche is received, it is largely absorbed by overdue vendor and salary payments, rather than being utilised to implement turnaround initiatives. As a result, the re-capitalisation efforts are not providing the strategic stability required, the report said.
Air India’s bank loans and aircraft-related debt total $9 billion, in addition to which there are vendor-related liabilities — to fuel suppliers and airport operators, in excess of $1 billion.
In fact, Air India’s debt is approximately twice that of all the other carriers combined. Air India’s fleet utilisation is very poor with only around 100 operational aircraft out of a total registered fleet of 127 aircraft (including Air India Express). The productivity of Air India’s bloated workforce continues to be a major challenge. The absence of a long-term fleet strategy, with no pending narrow body orders and no long-haul aircraft commitments beyond 2015, limits the future business case, the report concludes.