Air India, Like Indian Bank, Will Be Taken Care Of By The Government

Turnaround strategy

SBI Caps has prepared a turnaround strategy for the ailing public sector air carrier Air India. It has suggested fleet expansion as one of the measures to cure the ills of Air India. But the management of Air India is not able to utilise its existing fleet optimally. How can it use the expanded fleet? The panel has suggested addition of 135 planes to make a total of 245 planes in 10 years time and make Air India viable by 2019. A capital infusion of Rs.43255 crore is also suggested in the next ten years period to make Air

Boeing 787 Dreamliners

Indian Airlines pilots are complaining that their monthly flying hours has come down from 75 hours to 50 hours and their salaries are at rock bottom level. Even this low salary is not paid in time. The Parliamentary MPs are busy hiking their own salaries periodically. Who cares for these poor pilots? Many of these pilots have joined Air India and Indian Airlines, producing fake certificates. So, they don’t have the public sympathy also. Air India is sinking due to debt, losses and high expenses. The Aviation Ministry is rethinking on the 27 Dreamliners (Boeing 787 planes) ordered as a part of a deal for Rs.50000 crore for 111 new planes earlier. The Dreamliners are scheduled to arrive in October this year. The Aviation Ministry may cancel them or postpone their deliveries due to the current problems with Air India. In the meanwhile, Air India has said that it will be using GEnx-1B engine in Boeing 787 aircrafts.

Compensation to air crash victims

In 2007, when Air India and Indian Airlines were merged, the total revenue of these two airlines combined was Rs.16000 crore per annum. Now, after four years of merger, the revenue has come down to Rs.12000 crore. Air India is flying its planes at an average of 9 hours a day and Indian Airlines 14 hours a day. In the four years since their merger, air traffic has grown at double digits every year. Still, Air India could not capitalise the advantage and is sinking due to poor management. Now the Kerala High Court has asked Air India to pay Rs.75 lakh as compensation to each victim of the Mangalore air crash, in which 158 persons were killed on 22nd May 2010. This will involve an outgo of Rs.1185 million and will puncture Air India’s financial position further. An Air India plane skidded off the runway at the Kanpur airport last week after a tyre burst, after landing in rainy conditions. 54 passengers and 5 crew were travelling in the aircraft. Luckily, no one was injured. Otherwise, the Court would have ordered Air India to shell out compensation in this case also.

Indian Bank was never worried

Before the end of this year, Air India has to repay Rs.20415 crore worth of loans. Its cumulative losses amount to Rs.67000 crore. But Air India has no worries about this. This is because, the government of India is there to infuse funds. When Indian Bank incurred a massive loss and its entire net worth was wiped out, it had no money to honour the depositors. But its CMD Gopalakrishnan was not worried and was in fact laughing. The reason? He was confidant that the government of India will infuse capital and

Largest insurance cover

The Home and Defence Ministries owe Rs.105 crore to Air India for the VVIP flights operated by Air India. But these ministries are not paying this money and sitting over them for long time. Last month, Air India had taken Rs.200 crore loan for 15 days to pay for salaries of its employees. The largest aviation insurance cover in India for Air India’s fleet, estimated at $9 billion (over Rs.40000 crore) has attracted only two bids – one from ICICI Lombard and another from a consortium led by New India Insurance Company. For 2010-11, ICICI Lombard bagged the cover at a premium of $30 million (Rs.135 crore).

Profiting from commercial spaces

There is also a talk that Air India should utilise its commercial spaces profitably and generate revenues. It should either dispose off its land and building assets wherever possible or else rent them out. For example, the 22-storey Air India Tower in Mumbai is worth Rs.800 crore if sold. Or it can fetch a rent of Rs.80 crore per annum.

Losses mounting

In terms of market share in the aviation business, Air India has slipped to fifth slot. Jet Airways is the market leader. Six airlines companies operating in India have flown 25 million passengers in India for the month of May which was a 17.6% increase over the corresponding period of the previous year. Air India took four Boeing 737-800 aircrafts on dry leasing and another four on wet leasing in the beginning of the year. Oil companies refused to supply jet fuel to Air India because Air India was unable to pay cash to buy the fuel. So, 50 flights of Air India were grounded. Later on, the problem was solved due to interference of the government. Air India defaulted on interest payment to banks. Air India defaulted on salary payments to its employees. Air India was incurring everyday loss of Rs.20 crore due to the recent pilots’ strike. This is in addition to its other operating loss.

Pampered child

But there is no need to worry about these losses. Air India will not be closed down. The government leaders, politicians, officials and other VIPs need Air India aircrafts to travel anywhere they want free of cost. Private airlines and foreign airlines will not offer them this luxury. Therefore, whichever party is ruling at the Centre, Air India will be pampered. There is no need for Air India to put in a good performance and show results. It is like Indian Bank – the pampered child. A pampered child will not be abandoned by its parents. Sometimes, the child may receive minor scolding and that too for fun. Similarly Air India will be reprimanded by the aviation ministry, its lenders may express concern, and politicians may speak the need to make Air India a profitable organisation and so on. But all these glib talk is only a part of the drama that is enacted. Air India knows that they are not for real.