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Maharajah: Citadel of our skies
by Rijul Singh Uppal on 02 Mar 2012 6 Comments

Over the last year, there has been endless talk about Air India being a white elephant that the Government should either partially privatise or completely sell-off in order to relieve a crushing burden on the taxpayer. The writer believes there is an hitherto neglected dimension of the Maharaja story, which merits investigation.


Critics argue that government should keep aloof from the aviation sector as it is not its job to run an airline. Yet some of the highly successful airlines in the world, such as Aeroflot, Finn Air, Singapore Airlines, Emirates, and Thai Airways International, amongst others, are government-owned and operated. Air France (before the KLM merger) was majorly owned by the French government. In our own neighbourhood, we have Pakistan International Airlines, Biman Bangladesh Airlines, Sri Lankan Airlines, Nepal Airlines and China Airlines, all directly or indirectly state owned.

 

NDA’s attempt to privatise Air India


In 2001, the Bharatiya Janata Party-led NDA government tried to sell off Air India (international arm) to the TATA Group-Singapore Airlines joint venture. It also received bids from an Air France-Delta Air Lines venture and a last minute bid from the UK-based Hinduja brothers who tied up with Lufthansa. None of these bidders was driven by altruism or fantasy; obviously the airline had huge potential. Luckily, Singapore Airlines backed off, and as the global aviation economy slumped after 9/11, the deal was scrapped.


The question remains: why was the NDA keen to sell Air India? A national carrier is the only reliable entity a nation can rely on in times of crisis. Air India proved its worth during the Gulf crisis when it successfully rescued over 111,000 Indian expatriates from Kuwait and Iraq, flying Amman to Mumbai, a distance of 4117 kms. In an operation spanning 59 days (yes, virtually two months, 13 August-11 October 1990) the airline operated 488 flights in association with its domestic wing, Indian Airlines. That translates to 8 flights a day and 68104.94 kms/day. Would the private airlines have risked their assets in a war theatre? Would private pilots have risked their lives for fellow citizens? Who sells such an asset?

 

Profit & (Loss) from 2004 (in Rs Crore)

 

Pre Merger

2003-2004   Air India              92.33
                        Indian Airlines   44.17

2004-2005   Air India              96.36

                        Indian Airlines   65.61


2005-2006   Air India             14.94

                        Indian Airlines   49.50


2006-2007   Air India             (447.93)

                        Indian Airlines  (240.29)


Post Merger

2007-2008   NACIL               (2226.16)

2008-2009   NACIL               (7774.42)

2009-2010   NACIL               (5552.44)


 

Cause of losses


It is now well established that the ill-fated merger of Air India and Indian Airlines in 2007, under the leadership of Praful Patel, coupled with the outlandish order of 111 planes at a massive cost of around Rs. 45,000 crores, was responsible for the mess Air India lies in now.

Before the merger, combined losses of both airlines amounted to nearly Rs. 750 crores, and Indian Airlines was already on the path to recovery. Five years into the merger and accumulated losses have reached nearly Rs. 20,000 crores.

The order for 111 planes was simply bizarre. Originally, Indian Airlines had planned to purchase 43 aircraft, Air India only 24 aircraft – total 67 aircraft. But under the guidance of a Page Three regular who doubled up as minister in-charge of the luckless airline, the ministry jumped into Air India’s acquisition procedure and soon the airline proposed to buy 68 aircrafts – an extra, unnecessary 44 planes. At the same time, the national carrier was made to quit lucrative routes. Naturally, it quickly metamorphosed into a white elephant.

In 2007, the Parliamentary Committee looking into Air India’s acquisition plans of 2005, observed, “Reasons for going ahead with huge purchases by the civil aviation ministry despite Air India and Indian Airlines not having the capacity to support it, remain unknown to the Committee. It, therefore, recommends that this aspect needs to be further probed to fix the responsibility for taking such an ambitious decision that has become a big financial liability.”

At the same time, profitable routes were dropped with catastrophic effects. For instance, AI quit the Mumbai-Vadodara route in September 2009 on account of “poor load factors and sustained losses”. But hardly six months later, IndiGo and Jet began to operate several flights on the same route!

Similarly, flying rights to profitable Gulf and other routes were given up for no apparent reason, routes that operated on an 80-100% load factor. On many such routes too, private Indian airlines began operating, while foreign carriers increased their frequency. Obviously, the routes were profitable. So why did Air India drop these routes? Was it a deliberate attempt to favour other airlines?

 

This dropping of routes not only caused the loss of cost-effective destinations, but also led to under-utilisation of planes and pilots. The double disaster of over-purchase of new planes which increased debt, and under-utilisation of profitable routes which decreased revenue, had a cascading effect...

 

The then minister had little time for the national carrier. He took months to decide issues regarding the national carrier; but in the case of private airlines, he took just days to urge the Airports Authority of India to defer airport charges and PSU oil companies to defer fuel charges.


The Comptroller and Auditor General and Public Accounts Committee have already slammed the government for pushing the airline to the edge, specially the obnoxious order of 111 aircrafts through debt. The CAG report said that “capacity expansion by both the erstwhile airlines (Indian Airlines and Air India) without adequate due diligence by either the companies or the ministry as to requirement and imprudent project financing has put the merged entity into acute financial stress.” 

Around the same time, employee unrest and strikes led to Air India losing public support and trust, causing the public to opt for private airlines.

 

Road to Recovery


With around 30,000 employees and a fleet of about 140 planes, Air India’s employee to aircraft ratio is among the highest in the world. NACIL currently has the second highest staff costs per ASKM in the world, while it has the lowest ASKM (available seat kilometre) in the world. It has thus been rendered the least efficient airline in the world.

Current industry standards of aircraft efficiency are 16 flying hours/day; Air India’s fleet average is 8-12 hours/day. With 111 new planes in its fleet, it makes sense for Air India to get back priority on lucrative national and international routes.

The good news is that the airline’s operating load factor has gone up 5% from 57% (08-09) to 62% (09-10) and passenger load factor up 6% from 59% (08-09) to 65% (09-10).


While Praful Patel was seen as an unmitigated disaster, his successor Vyalar Ravi made some serious efforts to bring the airline back on track. But the UPA decided to use the civil aviation portfolio as a political tool and gifted it to RLD chief Ajit Singh, in view of the Uttar Pradesh assembly elections. He immediately invoked the mantra of FDI, a concept that was part of the ministry’s five year strategy plan, but was fast losing its sheen in the economy as a whole.

Air India has been the victim of a nexus determined to drive the airline to the ground, to mould public opinion against the airline and in favour of privatisation to corporate raiders from India and abroad. But in this exceedingly complicated world, no country can afford to be without a national carrier, and it is a matter of national pride and honour to restore the denuded glory and prestige of the Maharajah.

 

References:

Financial reports on the Air India website – www.airindia.in

http://icpaindia.in/PublicArea/Data/copu%20report.pdf
http://pd.cpim.org/2009/0726_pd/07262009_8.html
http://www.tehelka.com/story_main49.asp?filename=Ne190311EXCLUSIVE.asp
http://news.bbc.co.uk/2/hi/business/1523153.stm
http://www.financialexpress.com/news/pac-slams-ai-for-acquiring-planes-on-debt/902608/0

http://news.bbc.co.uk/2/hi/business/1185716.stm


 

The author is a student
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