Tuesday, September 06, 2011

Air India: Ailing ‘Maharaja’ needs credible turnaround plan.

Tuesday, September 6, 2011
By A K B Krishnan

Air India continues to survive on government handout. The ailing carrier is all set to receive an equity infusion of Rs66,000mn - a move that will wipe out its entire outstanding dues to vendors and oil companies. This would be in addition to Rs12,000mn promised by the government for the fiscal year 2011-12. It is part of a three-pronged approach the government is adopting to revive the airline that reports a daily revenue of Rs360mn as against an expenditure of Rs570mn and is groaning under a cumulative loss of Rs221,650mn and a total debt of Rs400,000mn.

Civil Aviation Minister Vayalar Ravi had last month spoken of a revamp in Air India management to give the airline’s restructuring plan a push. A thorough revamp of its senior management is already on. The government has put Rohit Nandan, a joint secretary in the Civil Aviation Ministry, as the new chairman-cum-managing director (CMD) of the airline, replacing Arvind Jadhav, who has been facing criticism for his “autocratic” style of functioning.

Three new directors would be inducted into the Air India board soon for personnel, marketing and finance departments and all decisions concerning the ailing carrier will be implemented under strict supervision of many mid-to-senior ranking bureaucrats of the generalist IAS posted in the Civil Aviation Ministry.

The government move marks the airline’s return to the old system of complete government control and bureaucratisation. But can these cosmetic changes like replacing the chairman and yet another debt restructuring package help revive the ailing Maharaja? Several such bailouts and rescue attempts made in the past failed miserably, plunging the airline into a deeper financial mess. A bailout should be a one-time affair, but sinking in tax payers’ money every few months in an airline which shows no signs of a turnaround may not be fair to the taxpayers.

The national carrier has been very ill for a long time now. It has now reached a stage when it could pay neither its employees nor its fuel suppliers. Its problems are too deep-rooted.

The Indian air transport industry was nationalised in August 1953 to provide safe, regular and economic air travel to the people. As many as eight warring airlines, with different work culture, horrendous safety records, disastrous financial conditions and inefficient management were merged. Thus came into existence the Indian Airlines Corporation and Air India Limited to operate domestic and international long-haul services respectively.

The nationalisation was expected to stimulate industrial growth, promote economic activities, rush assistance in time of natural calamity, foster national integration and, above all, serve as second line of defence in the event of war with other countries.

The nationalised airlines fulfilled most of the expectations of the nation.
But over a decade ago, a group of politicians, bureaucrats and corporate houses joined hands to scrap the Air Corporation Act of 1953, allow the private airlines to come into being, favour them to grow, gifting them the profit-making routes at the cost of the national airline, passing on the highly profitable airports to private operators, thereby completing their mission of handing over the entire civil aviation industry to the chosen few private hands.

With the ‘Open Sky’ policy coming into operation, the private aviation sectors started setting their fare chart although the idea behind opening the aviation industry to the private sector was to bring in competition that would help reduce fares. With no infrastructure worth the name, they began charging even more than the fare of national airlines.

The smart ‘private birds’, including foreign airlines, soon began touching new heights at the cost of Indian Airlines and Air India, thanks to the development of a close-knit nexus between politicians, bureaucrats and private airlines owners. This nexus has now turned into a well-oiled aviation mafia.

The immediate cause of the trouble in the national airline can be traced to the senseless merger of Indian Airlines and Air India in a tearing hurry. The very purpose of that merger has been reportedly to create problem in the flagship carrier, disgrace it and project a negative image of the company.

The recent pilots’ strike was said to be part of that carefully orchestrated plan to make a mess in the airline and create the ground eventually for handing it over to the private sector on a platter. The mafia plan appears to be succeeding, if the persisting crisis in the national airline is any indication.

Successive governments have struggled to find ways to take Air India out of the red. But all efforts have been in vain. In 2001, the government had briefly even contemplated taking the radical step of selling the airline. Speculations about privatisation plans have been rife ever since.

But the present UPA government has ruled out the possibility and promised administrative and monetary steps to turn it around. No one wants to be the ruling dispensation under whose watch Air India gets privatised.

As the government resorts to the drearily familiar exercise, it should not fool itself that some tinkering will be enough to fix what it messed up. It will have to take much larger steps than it appears comfortable doing.

Air India’s sorry plight is a telling commentary on how a combination of political interference and mismanagement can run the best of public sector companies to ruin. It now presents a microcosm of poor governance that typifies the government-run service sector.

The airline needs considerable capitalisation and re-organisation, fresh talent and a highly motivated team along with a credible turnaround plan. More than that, the government needs to be prompt to the needs and requirements of the airline and to minimise interference if it is serious about restoring the airline to its earlier days of glory.

The dons of the aviation mafia may want the ‘Maharaja’ to die as early as possible. To make ‘him’ survive in the interest of public sector civil aviation industry, hard decisions will have to be taken. Demerging Air India and Indian Airlines and restoring their mandate to fly in their erstwhile well-defined air space can be one. Rationalisation of loss-making routes, rescheduling of aircraft purchases, return of leased aircraft that are underutilised, rationalisation of human resources at various levels, and a possible reduction in contractual employment are other possible steps.

This will naturally call for across-the-board consultation and consensus building. The realisation must dawn on all stake-holders that this looks very much like the last chance to keep the Maharaja in the skies.

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