Don’t waste time trying to revive AI

Can’t fly high? Might as well ground it REUTERS

The airline is a story of multiple organ failure, thanks to neta-babu control. Better to unlock value and move on

Soon after civil aviation minister Gajapathi Raju talked of the Centre reviewing options to revive Air India, his colleague Jayant Sinha informed the country of a “robust” multi-dimensional plan to turn the national carrier into a “great global airline for India”. Sinha’s brave stance sounds platitudinous, too familiar.

For long there have been several suggestions for revamping Air India. Most commentators suggest the Government should cut its umbilical cord with the carrier. It was referred to Disinvestment Commission in 1998; the then disinvestment minister Arun Jaitley advocated its privatisation. So did a 2012 study commissioned by the corporate affairs ministry. Again in 2013, the civil aviation minister rooted for privatisation; the move was blocked by the Opposition.

A lot of turbulence

As the Economic Survey of 2016-17 eloquently put it, “Defying history, there is still the commitment to make the perennially unprofitable public sector airline ‘world class’”, although acknowledging that the exit is “difficult especially in a precocious, cleavaged democracy dominated by vested interests”.

However, there are signs of hope. With Niti Aayog’s reported recommendation for AI’s strategic disinvestment, finance minister Arun Jaitley’s assertion that if private airlines already carry 86-87 per cent of country’s air traffic, they might as well carry 100 per cent, and civil aviation minister Raju assuring that a decision for its “rejuvenation” will be taken within three months, a decision may be on the cards. The Modi sarkar could live up to Prime Minister’s oft-repeated avowal that the Government has no business being in business.

Of course, as Niti Aayog says, the Government will perforce need to considerably relieve AI of its ₹55,000-crore debt overhang to make it attractive for investors.

With its decision for an equity bailout of ₹30,231 crore over a nine-year period till 2020-21 as a key element in AI’s turnaround plan, the UPA government predictably opted for a soft option. The plan has not helped. As Sinha said, AI carries a “crushing load” of debt; ₹50,357 crore at end-FY16.

Worse, the CAG has said that AI in fact incurred a loss of ₹321 crore in 2015-16, instead of an operating profit of ₹105 crore it claimed. The auditor stated that AI understated losses to the tune of ₹6,415 crore in three years from 2012.

Many ailments

There is little evidence of any systematic diagnosis done of AI’s real ailment. The national carrier’s stewardship has mostly been an almost-exclusive prerogative of babus with little domain expertise, nominated directors stacked along with pliant chief executives. Once a former AI chief lamented how the management was bullied by a minister into seeking “immediate and unquestioned compliance” with orders for financially damaging and commercially unviable measures.

Probing ‘Air India scam’ at Supreme Court’s instance, the CBI has just filed three FIRs: one, against AI’s own assessment in 2000-01 that it should only lease aircraft, an order was placed in 2004-05 to buy 68 Boeing airplanes for Air India and another 43 for Indian Airlines; second; AI dry-leased four B-777s for five years in 2006 even when new planes were due to arrive in mid-2007, resulting in five B-777s and five B-737s standing idle, involving an estimated loss of ₹840 crore during 2007-09; third, several lucrative routes and schedules were given away for private airlines.

Air India’s woes are too deep, it is a story of multiple organ failure. It is not just its abysmal financial situation or myriad operational glitches that often surface; the politico-bureaucratic stranglehold on it has nurtured a sinister culture of free-for-all rent-seeking and wanton fleecing of, what once it was, a real Maharaja airline, one of the world’s very best, which has steadily scraped the bottom of the barrel.

In reply to a question sometime ago, Parliament learnt of a score of cases of malfeasance and misdemeanour like fraudulent claims, even of some senior staff actually working elsewhere. Frequent work stoppages by different employees’ unions and groups, even by “world’s highest paid” pilots strangely categorised as “workmen” did an enormous damage.

Minister Raju believes that, notwithstanding the legacy issues, which drag down AI’s finances, the carrier has “definitely improved” in parameters like the passenger load factor, on-time performance and aircraft productivity. Yet, some doubts linger. For example, with 32,235 employees on its rolls – regular and some 4,350 casual and contractual hands, AI’s tooth-to-tail employees/aircraft ratio in 2011 stood at scandalously high of 298, almost thrice the industry’s average. This is reflected in employee costs constituting 23 per cent of working expenses for AI in comparison with 12 per cent on Jet. AI’s employee/aircraft ratio shown as 120 for 2015-16 is explained only by its total strength reckoned at 12,880 employees, against the number of its regular employees alone being 26,921 in 2011-12. The big drop in the numbers may be ascribed to its splitting the engineering and cargo businesses into two separate subsidiaries in 2013.

Trailing behind

While younger Indian airlines such as IndiGo and SpiceJet are scripting a bold narrative in aviation industry — increasing capacity, gaining market share, improving asset utilisation, load factor and on-time performance, AI is losing out. AI’s paltry 13-per cent domestic passenger market share trails far behind IndiGo’s, JetAirways’, and SpiceJet’s. Its international market share of 10.7 per cent also lags behind Jet’s 14.5 per cent. AI’s on-time performance at six of India’s metro airports in 2015-16 was 89.2 per cent vis-a-vis Jet’s 91.8 per cent and IndiGo’s 95 per cent.

Notwithstanding the diligence and sincerity of the management now in the saddle, AI’s very credibility as an institution is in question. AI will never be permitted to function as a truly autonomous enterprise and, instead, be hostage to debilitating diktats. Consider the import of the recent appalling conduct of MP Gaikwad on an AI flight tacitly, supported by a number of his colleagues, and the FIR filed by the national carrier virtually ending in the culprit having the last laugh.

Amidst a plethora of suggestions to pull AI out of the quagmire, it will be prudent to devise an innovative mechanism to somehow unlock AI’s optimal value, and let it extinguish itself in its existing incarnation, to be born again in another — alive and kicking.

The writer is the former CMD of Concor

Published on June 08, 2017
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