Is There Any Point In Trying to Revive Air India Prior To Sell-off?
According to the latest data put out by the Directorate General of Civil Aviation (DGCA), only 74.3 percent of Air India’s domestic flights arrived and departed on time at metro airports, in the month of May
This means roughly every fourth flight was delayed that month
Almost 44,000 passengers faced delays beyond two hours on Air India’s domestic network in May—the highest among all domestic airlines
How are private airlines able to manage better operational parameters when Air India constantly battles delays? Month after month, the airline continues to languish at the bottom of the ‘on-time performance’ charts
The government wants to dress up the bride before giving it away in marriage. The bride in question is Air India and ‘dressing up’ refers to the revival of the ailing airline before it is reportedly put on the block for disinvestment.
According to reports, one of the recommendations of the Niti Aayog—which has been tasked with drawing up a list of public sector undertakings (PSUs) for disinvestment—is to revive Air India before any disinvestment. The Aayog has included Air India in a list of 22 PSUs where revival will have to happen before any value can be realised through disinvestment.
The only problem is Air India is past its sell-by date as far as revival is concerned. Don’t get taken in by the airline declaring a modest eight crore operational profit in 2015-16, even though this is the first time in a decade that the airline has used the word ‘profit’. Even assertions by the Chairman and Managing Director Ashwani Lohani of achieving an exponential increase in operational profits, to about Rs 800 crore in the current fiscal, are of no consequence. Reports suggest Lohani is eyeing the post of Chairman of the Railway Board, and lofty financial targets could well be left for his successor to achieve.
Former Executive Director at the airline and the author of ‘Descent of Air India’ Jitender Bhargava says Air India was one of the first companies to be referred to the disinvestment commission in the 1980s. “30 years later, we are still talking about its revival. Isn’t past performance enough indication that revival is either difficult or not feasible at all with the current management structure and continuous political interference?”
In his book, Bhargava identified three major events that led to Air India’s descent: the inability of the government to go in for disinvestment, the ill-advised aircraft acquisition programme and the merger of Indian Airlines and Air India. In the late 1990s, there was a proposal by the Tata group and Singapore Airlines to become strategic partners to provide professional management to Air India. But this fell through, allegedly because of vested interests. As for the aircraft acquisition programme, it cost an estimated Rs 40,000 crore and became the genesis of the airline’s eventual financial crisis. Air India still has about Rs 4,000 crore as annual debt repayment, largely because of this aircraft order.
Now the government has promised Rs 30,000 crore equity support to Air India, of which over Rs 22,000 crore has been given till date. The airline is sticking to its turnaround plan under which this money was given. However, to understand why Air India’s revival is a mirage, one must read the fine print of its operational performance in 2015-16, when it was roundly argued that the airline has emerged from losses.
First, it has only made an operational profit (that too, a mere eight crore in 2015-16), and there is no talk of net profit in the near future.
Second, these figures are on the basis of unaudited results.
Third, this modest operational profit came almost entirely from benign fuel prices and earnings from sale & leaseback activities. Not from a tight cost control or any marked improvement in other operational parameters.
According to sources, Air India’s spend on fuel declined from Rs 8,449 crore in 2014-15 to Rs 5,745 crore in 2015-16. This means a saving of Rs 2,704 crore straight away. Then, income from sale & leaseback activity was up by Rs 518 crore, from Rs 458 crore in the previous fiscal to Rs 976 crore in 2015-16. If we add the two figures—fuel savings and income from sale & leaseback—we get Rs 3,222 crore. The actual improvement in EBIDTA for 2015-16 was Rs 2,851 crore. From these figures, one might infer that the airline was worse off in 2015-16 since it did not show all the savings—from lower fuel prices and sale & leaseback—as operational profit.
In a presentation made before Civil Aviation Minister Ashok Gajapathi Raju yesterday, Lohani has spoken of improved operational profits this fiscal, an ambitious fleet expansion plan, new international flights to destinations like Madrid and Barcelona, and starting the Ahmedabad-London-Newark flights. Not much was said about action on cost control or the service standards of the airline. Sources told this writer that the Minister wondered why Air India’s website is not consumer friendly and why the airline has not sewed up code-shares with all Star Alliance members till now. Star Alliance is a prestigious grouping of global airlines and allows members seamless connectivity to numerous destinations through codeshare pacts.
It is all very well to open up new international destinations but, according to sources, the percentage of Air India’s network capacity meeting total costs was less than five percent in 2015-16. This means a whopping 95 percent of the capacity the airline deployed in India and abroad did not meet total costs, though some of this capacity would be meeting variable costs. In this scenario, does it make sense to launch new international flights without doing any proper analysis on route economics?
Air India’s domestic market share plunged to 15.9 percent in 2015-16 from 17.9 percent in the previous fiscal. Its on-time performance is anyway a joke, with Minister M. Venkaiah Naidu publicly berating the airline over flight delays.
Sample this: On the last Monday of June, there were at least 12 delays of beyond two hours on the Air India network (domestic and international) which were largely attributed to technical faults in the aircraft. At least one flight was delayed because the commander did not reach in time. The domestic network was anyway crippled since as many as 12 of Air India’s A320 family aircraft were grounded due to engineering issues, resulting in the airline meeting its schedule with just 54 aircraft. Another four of the Boeing 777 family and two Dreamliners were also grounded due to engineering issues. It seems there are increasing cases where aircraft that are ready to take off return from the ramp due to technical issues. Non-availability of aircraft remains a big reason for poor on-time performance (OTP).
How are private airlines able to manage better operational parameters when Air India constantly battles delays? Month after month, the airline continues to languish at the bottom of the OTP charts.
According to the latest data for May, put out by the Directorate General of Civil Aviation (DGCA), only 74.3 percent of Air India’s domestic flights arrived and departed on time in May at metro airports. This means roughly every fourth flight was delayed that month. Compare this to 90.2 percent OTP by AirAsia, 85.1 percent by Vistara, 83.1 percent by IndiGo and 82.3 percent by Jet Airways at the same airports.
Almost 44,000 passengers faced delays beyond two hours on Air India’s domestic network in May—the highest among all domestic airlines. The stats look even scarier in the last week of June. Air India’s international OTP was 78 percent, 72 percent, 65 percent and 68 percent on June 27, 26, 25 and 24 respectively. For the domestic network, the stats are 79 percent, 74 percent, 76 percent and 78 percent for the same dates. Clearly, at least two in ten domestic flights are being delayed every day.
So whether one looks at market share, on-time performance or flights which are meeting total costs, the only inference to be drawn is that Air India is far from revival. And it seems it is even further from any disinvestment by the government. Minister Raju has spoken many times of how the airline’s books are so bad that no one will come forward to acquire a stake in it, especially since it carries over Rs 50,000 crore of debt. The government needs to write off this huge amount before making the airline attractive for any potential investors.
Disinvestment seems a distant possibility, as of now. Which is a pity, since the government should get out of certain businesses, especially those which come under the service industry.
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