Time for government to stop procrastinating on Air India: CAPA

by Devesh Agarwal

The Centre for Asia Pacific Aviation (CAPA) has released a report on national carrier Air India titled ‘Air India: the time has come to stop procrastinating and act. The final scene is near’.

The content and conclusions of the report are in line with our analysis. If anything, the CAPA report is mild displaying the diplomatic wording which is the hallmark of the politically charged arena that is Indian aviation.

The report warns, that despite favourable market conditions with the exit of Kingfisher Airlines and the serious and committed approach by the management of Air India, new marketing initiatives and measures adopted to rationalise its network, ‘Decisive action on Air India’s future assumes urgency in light of foreign airline investment’.

According to the report, only 12 of the 189 routes that Air India operates meets total costs. A further 82 cover their cash costs (fuel, food and salaries) but not their total costs, and 95 routes, or just over half, do not even meet their cash costs. International routes account for 80%~90% of losses.

The report goes on to say that Air India may report a small operating profit for the current financial year, but the net results will continue show significant losses.

“Despite these improvements, deep structural issues remain. As a result, in the five years beginning 2007-08, Air India accumulated losses of close to USD 5.25 billion, a figure which it is estimated will increase by a further USD 950 million or more by the end of FY13 (2012-13),”

As the civil aviation minister Mr. Ajit Singh continues to press Kingfisher Airlines and Paramount Airways to repay their financial obligations, he continues to overlook Air India’s bank loans and aircraft-related debt in excess of $9 billion (Rs. 48,600 Crore). Another $1 billion (Rs. 5,400 Crore) in additional vendor-related liabilities like to fuel companies, airports, etc., takes Air India’s debt to approximately twice that of all other Indian carriers combined, and this includes the financially imploded Kingfisher Airlines.

The government’s weak approach is highlighted

The easiest path for India’s leaders to take is to avoid facing the problem and to keep applying a hundred million dollars of taxpayers money each month to apply bandaids to the ailing airline.

and a lack of decisive, well supported (by the government) leadership at Air India, ensures extremely poor fleet utilisation, with only around 100 operational aircraft out of a total registered fleet of 127 aircraft (including Air India Express), while the dismal productivity of Air India’s bloated workforce is legendary.

The government has provided a humongous Rs. 30,000 Crore (approx $ 6 billion) tax-payer funded bailout, but the report goes on to rightly the criticise the implementation.

However rather than infusing capital on a one-time basis, it is drip-fed in over 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 recapitalisation efforts are not providing the strategic stability required.

The report identifies the need for transformational thinking and leadership required using the case studies of Malaysia Airlines, Garuda Indonesia, and the radical bankruptcy approach of Japan Airlines (read our article on advice from Japan Airlines’Chairman for Air India), but also highlights that the government will not do anything, preferring to nurse Air India just enough to keep it in its constantly critical condition. As we at Bangalore Aviation say, Air India is not an airline, its the NetJets of the Government of India.

The report warns, that as private airlines continue to be the beneficiary of foreign investment (for example the Jet-Etihad deal), Air India will continue to flounder and magnify its international losses, and with its management having to deal with the constant and excessive intervention by the Ministry of Civil Aviation and other ministries in the carrier’s activities which leaves little time or space to pursue strategic activities.

The report concludes with a warning that a procrastinating government is only going to exaggerate the situation which will continue to drive distortions in India’s civil aviation policy and its marketplace, for which it is we tax-payers who are going to bear the price.

Read the report here.

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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