Prime Minister agrees to bail out Air India subject to conditions

As expected, the Prime Minister of India Dr. Manmohan Singh has promised support to the state owned National Aviation Company of India Limited (NACIL) which operates under the brand Air India.

However, also as expected, the Prime Minister has not given a blank cheque to the carrier. The amount of the bailout is subject to the airline delivering to him a viable, time bound, review-able business plan within a month, that ensures deep cuts in flab and a complete transformation of the airline into a competitive entity.

To ensure a direct channel for review the Government has formed a four member committee headed by the cabinet secretary and comprising of the principal secretaries from the ministries of finance and civil aviation, and principal secretary to the Prime Minister.

This committee will review the airline’s performance on a monthly basis against the business plan.

Civil aviation minister Mr. Praful Patel announced “this was the last chance for the airline” and that “radical restructuring” would occur at Air India; a clear reference to shake-up of the status-quo and jettisoning of non-performing staff.

At all levels Air India is over-bloated. With 31,000 employees and a fleet of just 148 aircraft, the employee per aircraft ratio is a mind boggling 210. The bloat extends all the way to the senior levels. Six directors, 40 executive directors, 90 general managers, 180 deputy general managers, and despite having most of it’s catering outsourced a canteen staff of over 1,000.

Another positive announcement is that many of the senior directors will be replaced by functionaries with the requisite skills in the airline business.

Given the success of Air India Express, the airline’s low cost international operations, as well as the constant growth of low cost carriers like IndiGo, Spicejet and Go Air, an option that is being considered is to convert the domestic operations of Air India i.e. the erstwhile Indian Airlines, in to a low cost carrier.

This is puzzling to me. Low cost operations require efficiency end to end to justify, and earn off the low fares. The best of private legacy carriers like Jet Airways and Kingfisher are having a torrid time breaking in to this market. With it’s years of government induced lethargy, sloth and bloat, I cannot see any way on god’s green earth how Air India can make a success as a low cost carrier. They should discard this idea.

One announcement which did not surprise, me at least, Air India will continue it’s much questioned fleet procurement, which will eventually cost the airline 46,000 crore ($8.3 billion).

Reading between the lines raises fingers towards the integrity of the original procurement process and quite clearly there are benefits to be accrued to the powers that are.

With a meagre equity base of just Rs. 145 crore ($29 million) and accumulated losses exceeding Rs. 7,200 crore ($1.44 billion) how is Air India expect to fund these acquisitions ?

I guess that is another story for another day.

Please do post your thoughts via a comment.

About Devesh Agarwal

A electronics and automotive product management, marketing and branding expert, he was awarded a silver medal at the Lockheed Martin innovation competition 2010. He is ranked 6th on Mashable's list of aviation pros on Twitter and in addition to Bangalore Aviation, he has contributed to leading publications like Aviation Week, Conde Nast Traveller India, The Economic Times, and The Mint (a Wall Street Journal content partner). He remains a frequent flier and shares the good, the bad, and the ugly about the Indian aviation industry without fear or favour.

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