A merger without synergies

State-owned Air India is finally seeing green shoots of a revival with the airline posting an operational profit after a decade. In an interview with BusinessLine , Ashwani Lohani, its CMD, shares Air India’s growth plans as well as his views on the merger between Air India and Indian Airlines. Excerpts:

You are perhaps the first head of Air India to say the merger between Indian Airlines and Air India should have never happened. Can you explain why the merger isn’t working?

The consolidation of any merged entity is never easy. In our case, it is more of an issue of two different cultures coming together. Air India is an international airline, while Indian Airlines is a domestic one. Culturally, we are poles apart. So, once you merge, a lot of issues come up, ranging from seniority, promotions, allotting houses and transport for senior staff. You can always merge two organisations but there must be a bigger goal. You shouldn’t merge for the sake of merging. There should be synergies, but I don’t think they were there in the first place. We bought aircraft. It created problems. We merged and it created problems; not that we didn’t need aircraft. Then we demerged the engineering and ground-handling divisions, which again was unnecessary. We bought aircraft with our own money. When the merger happened, look at the 2005-06 balance sheet, Air India and Indian airlines were in profits. From 2006-07, we have been making losses. The merger led to anything but synergy. The combined entity was not as efficient as individual entities were. Then on top of that we took a lot of loan to buy aircraft. When you make losses, you try to take more loans to run the company. So, now we are left with a debt burden of ₹4,000 crore per year, and to make up for it, imagine how much revenues you will need to make.

So, how do you work around the problem?

Now, we have to make the merger work and iron out the glitches. It takes time. We are about 2,300 employees in the entire group. If we can pump in enough energy into these employees, then we will grow. They should have faith in the management and they should feel we can look after them and protect them, then we can do it. That is the issue. It has to be run like the private sector as far as achieving efficiency is concerned. After all, we are running a business.

You are seen as a turnaround specialist. This can be seen from the fact that after a decade, Air India has posted an operating profit. It is easier to turnaround a private airline but to turnaround a public sector. How did you manage to do this?

The turnaround has just began. We are just at the margins right now. Lots need to be done. As of now, the revenue just about meets the operational costs. We are weighed down by a huge debt burden of almost ₹50,000 crore.

The debt servicing alone requires ₹4,000 crore a year. This huge gap is what we need to tackle. Unless that is met, we really can’t claim to have turned around. There is a long way to go still. During 2016-17, we expect to post an operating profit of₹700 crore- ₹800 crore which will go in some way in reducing the debt per year. If fortune favours us and we get more aircraft, then the turnover will be quicker.

How many aircraft do you plan to add and what is the current average age of your fleet.

 We have five 747s, 14 classics 320s, which are also on the verge of being phased out. If we discount those aircraft, then our average age is about 3 to 4 years. We have also taken on lease several aircraft. Then we have Dreamliners — six more have been ordered.

We will get three more this financial year and one in March. Altogether, we plan to add 200 more aircraft consisting of 14 wide-bodied, 16 Boeings 737s, 35 ATRs and the rest will be A320s. What needs to be noted here is that all these will be on lease which means we are not borrowing any money. It also means we can induct them faster, instead of waiting for clearances and guarantees. However, one thing needs to be said here: From the existing fleet, our margins will be higher if we fly them more. It will not be the case with leased aircraft. But then, we have the advantage of both.

You are one of the few MDs in Air India to write a blog. You also write mails addressed to your employees. In your blog, you had written about the bureaucracy which is hampering growth...

No. There is tremendous support from the government. What I had written in my blog was about our own internal way of working. It is about Air India bureaucracy. When I joined I realised that we don’t have an operations director. There are two key areas in an airline: operations and engineering. We didn’t have a director of engineering or operations. So, we recruited both. Our job is to give vision and make things easier for the organisation. Unfortunately, the senior management generally lacks that. To make things happen, we have to make it simpler and not micro manage the organisation. 

The airline management always had issues with the Indian Commercial Pilots’ Association. This has led to prolonged strikes. How do you plan to tackle them?

I don’t think so. Unions are an integral and essential part of the organisation. But for the organisation, management has to provide the leadership. If there is a vacuum there, then things go haywire. The staff has to be looked after. If you can do that, then there are no issues at all.

You are also seen as a tough boss…

I don’t think so. You should be very clear about when to draw the line and your employees should know what your boundaries are. You should also be fair. You can’t be partial to some employees and not to others. 

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