Posted by: John Elliott | September 9, 2009

Is Patel crying ‘Wolf’ on Air India or is he for real this time?

At last it looks as if the government might be making a genuine effort to sort out the problems of its ailing Air India airline. A rescue plan is being finalised by ministers involving Rs5,000 crore ($1bn-plus) new equity that would be paid in tranches over three years.

“This is a fundamental call (to Air India) that there must be a turnaround or the government is not going to support you – it is not a carte blanche,” Praful Patel, India’s aviation minister, told me a few days ago. The airline must, he said, cut costs and increase revenue or it would not get the rescue package that will probably be paid in tranches over three years.

How many times have we heard that before! Is Patel crying “wolf” or is it for real? I should maybe have written “surely not again”, instead of be “at last”, in the first paragraph because there have been many failed rescue attempts over more than 20 years. I remember Ratan Tata and Rahul Bajaj (who head broadly successful business groups bearing their name), being put in charge of what were then two airlines in the 1980s by an over-optimistic Rajiv Gandhi, then the prime minister.

There have been odd spurts of success since then, but now there are heavy losses – Rs5,000 crore ($1bn-plus) in the year to last March, and a similar figure is expected for this year unless savings are made. Patel has said he’d like to sell the airline, but has been told by the government to keep it flying.

aviation minister Praful Patel and Arvind Jadhav of AI (Business Standard graphic)

aviation minister Praful Patel and Arvind Jadhav of AI (Business Standard graphic)

Air India is notionally India’s national carrier, but its real role for decades has been to line the pockets and make life comfortable for those directly involved in its affairs – from ministers and bureaucrats, who get kickbacks on aircraft and other orders and benefit from freebies and powers of patronage, to top executives, pilots and other staff who often don’t work but do block change.

If the airline also carries non-government passengers, that is a bonus for India, but it is not the real reason that those in charge want it to continue flying.

There has been little progress in the past four years or so, except for a flawed and incomplete merger of the old Indian Airlines national and regional carrier and the international Air India under a new National Aviation Company of India (NACIL).

Patel painted the merger two years ago as the solution for the two airlines’ problems, but total losses since it was implemented have rocketed to Rs7,000 crore. He’s  been aviation minister since 2004, and I’ve been blunt, some might say unkind, about his record in the past on this blog – see Bed and Bhai Runs Indian Aviation and (on ministerial jobs after the recent general election) , so I went to see him last week. I thought I should hear his views about why the merger has been such a failure, and what can be done now.

“The people in the system have worked to defeat the merger – the unions and directors and levels of management,” Patel told me. There were “vested interests in the unions and the management – up to general managers and executive directors”.

Patel is the most urbane and unflappable of India’s ministers, and is also a wealthy businessman. He owns one of India’s biggest bidi and tobacco derivative operations, based in his home state of Maharashtra where he packs political punch alongside Sharad Pawar, a veteran top politician who runs the National Congress Party and is agriculture minister. So he knows how to run things.

He is credited with reforming aviation by creating NACIL’s merged Air India, authorising its purchase of 111 aircraft, allowing foreign airlines massively increased access to Indian airports, rapidly increasing the number of domestic airlines and available seats, and pushing through the privatisation of Delhi and Mumbai airports.

Sadly the record of implementation is not so good. Air India has not really been merged, and it does not now (and some say never did) need 111 new aircraft to replace its ageing fleet, especially when it faces massively increased competition from the foreign airlines that Patel allowed in.

Most airports in the country are nowhere near ready to cope with the increased traffic that has been allowed. The airport privatisations were swamped in tendering controversies and ended up with real estate and land developers grabbing the franchises – and the construction of a glamorous but faulty new domestic terminal in Delhi, parts of whose roof blew off in a gale recently after earlier leaks.

Patel understandably makes the point that airlines all over the world are bleeding so neither Air India, nor he, should not be picked out for special blame. That is partly true, but those airlines that aren’t being forced to close by the world’s economic crisis are taking dramatic steps to cut costs and improve efficiency, whereas till now Air India has done virtually nothing, despite the merger. It is therefore fair to criticise Air India and the government for not implementing change.

For a start, I (like many other people) haven’t understand how Patel could imagine that merging two failures without changing the ownership or top management would achieve anything except compound failure. When I asked Patel about that two years ago at a Delhi conference, he dodged the question and said he was confident that there would be advantages 

He now admits that not enough has been done, and primarily blames the airline’s staff (as the quote above shows). He says that the government has not had the power to make things happen and claims that the government can only give “macro directions” – and that, indeed, is all that seems to have been done, though Patel could have used much more muscle if he had bothered or wanted to.

There have been some economies – cutting back on duplication of routes, manpower and assets, says Patel. But internal opposition has blocked merging the information technology systems and the airline still has two airline codes – IC and AI. Plans to halve a productivity bonus have also been opposed.

A new chairman and managing director was appointed in April last year but, as has happened many times before, he came from the Ministry of Civil Aviation so did not bring a fresh approach. He was removed after a year in the job and a new chairman and managing director, Arvind Jadhav, has been appointed.

Jadhav is also a bureaucrat but not from the aviation ministry, so can take a more independent fresh look at the problems. He is advertising internationally for a chief operating officer, hoping to hire someone who can transform this ailing airline.

But he has a huge task as he showed in an interview in India’s Business World weekly magazine last month, The Time For Talking Is Over, Jadhav where he spelt out the problems – here are some of them:

–   Air India has 32,000 employees compared with 12,000 “in any like-to-like company”.
–   Employees are not conscious of working for a business in crisis.
–   Pilots “sitting at home” are paid “80 hours of flying allowances”.
–   Despite a freeze on recruitment, “we have recruited”.
–  “There is a duplication of every activity and no single chain of command”.
–  “Revenues are 14,000 crore and costs are Rs19,000 crore” (approx $2.9bn and $3.9bn)
–  “We have 22 offline stations where we no longer fly”.
–  “We have an alarming number of aircraft (25) and engines (33) on standby”.
–   For 800 business class seats from Delhi, 750 meals are ordered but there are only 400 travellers – “no-one knows” where the other 350-400 go.

Is there any chance of such an array of problems being sorted? The government’s rescue package is based on six months of survival, with recovery starting in the next nine months, followed by profitability being achieved in the second half of the three years. Monitoring progress will be done not by Patel and his aviation ministry, but by a government committee chaired by the cabinet secretary.

I hope to meet Jadhav soon to discover how he plans to meet these targets – more on this blog then.


Responses

  1. I fail to understand why Govt does not find a professional to run this massive organisation. What domain knowledge these bureau-crates have to be selected as CMD to handle the merger of Air India and Indian Airlines.Mr Jadav has listed so many problems being faced by the merged entity which obviously was the legacy of his predecessor who was also an IAS. What did he do in his tenure except for ordering the fleet which was not required and then asking for induction of more and more capital. Now new CMD again another IAS has asked for induction of more capital. There is no plan for curtailment of loss and now the poor fellow is faced with pilots strike.Very sad these pilots are not giving him even breathing time. Ask Mr Jadav what did he achieve by implementing APDRP 1 ( Rs 55000 crore programme)
    Look at the fate of more than 100 power distribution companies after Electricity act 2003.All are headed by IAS officers( Erstwhile Deputy commissioners). All are making losses. When will govt start realising that you need professional like E Sridharn of Metro ,R.P Singh of PGCL with solid domain knowledge to run such complex organisations efficiently. Air India needs such professional at the helm affairs not babus who have never met the labour even once in their life time.

  2. Mr. Praful should face CBI enquiry on the sad demise of Air India.
    KRN

  3. It is very sad to note that dues of IA employees since 1997 are yet to be paid.
    Retired employees are the sufferers. Government correctly hook the dues to them
    from a retired employee by way of taxes. Why the government is not thinking to pay off the dues to the employees that too a retired employees. It is a killing.
    What action was taken by the Government on the Parlimentary Coimmitte report on payment of wage arrears to employees? Please do no not earn the curse of the retired employees – they are also human.
    KRN

  4. […] in an earlier blog, has also been a target of leaks to the media. He frequently issues smooth denials of any problems, and of his own lack of responsibility for the worsening state of Air India and India’s over-crowded and potentially dangerous skies and […]

  5. […] spent an hour with him a few days ago, following my recent post on how Praful Patel, India’s aviation minister since 2004, failed to implement chan…after he nominally merged Air India with Indian Airlines last year into the National Aviation […]

  6. Sir,
    The new CMD is another mouthpiece of the minister.with so many burocrats taking over AI justice is not done. it is run in a unprofessional way. AI does not give dues to their staff even after retirement.The staff salaries were revised in 1997.Before the merger AI had staff of 1200 and with merger it increased to 32000.The minister to save Indian Airlines killed Air India and to promote foriegn carriers ans Jet and Kingfisher Airlines.

  7. The article is well written.AI staff strength was less than 12000 before merger and after merger it became 32000. The minister and the accenture indicated that the merged identity will make a profit of 600 to 700 crores. The ground handling dept which was earning 700 to 800 crores revenue to Air india in the last decade is being killed by the minister and management by appointing unprofessional directors to the dept.And nopw instead of reviving the same they want to have JV with SATS subsidary which is only 2$ company. The minister should resign for all the mess and also the new MD.Airindia also have liabilities towards its retired employees,they are not paid their due wage revision arrears.The wage was revised from Jan 1997.You may ask CMD during next meetin as staff even after their retirement don’t get their dues after retirement.

  8. Dear Mr Elliot,

    Further to my earlier comment and your prompt reply to Mr A B Joy. Since you are to meet Mr Jadhav could he also be asked what other cost cutting measures were implemented than just cutting staff wages!!! Air India needs a turn around in terms of many areas, professionalism, transparency, flow of information without bureaucratic bottlenecks and pressures and resolving many long pending HR issues. Please do remind him like a country is made by its people and not merely by its boundaries, AI is made of its staff and not merely its aircrafts. Lead them right and lead them tight, if need be. But first recognise them to your asset or your liability!!!

  9. Any employee in the public sector in India has a guarantee of job security and regular salary till retirement which is taken as granted , otherwise you risk being called not a representative of “aam admi” as the BJP learnt in a painful way. Any Minister who claims he is not aware of such unwritten rules is not being honest. The “challenge ” for the Minister is to make the business viable under such conditions.

    Probably Praful patel may be feeling that just paying the salary and benefit of AI and IA staff without running an Airline can make more saving to the tax payer than running one. But how do you communicate such unpalatable realities to the tax payer.

    Now you know why there were not many people competing for this ministry compared to say Railways or IT !!

  10. Very well written, but a shame no one will react to it professionally. It will all be read, questioned and talked about amongst ourselves at tea breaks and gossip chats and will die down again.
    Sad, but true, that though, the fact is glaring stark and thrown at our faces, both the management of Air India and the ministry will simple manage to escape it and feel triumphant that they survived without having to answer or act.
    Talk about a company run by leaders who find solace in passing the blame onto the army which walks bindfolded into darkness and disaster. If leaders were not of importance, why are they so elevated in their credits and stature!!! Today it is the country’s favourite catch to accuse the staff of bringing the airline to this state. Truly because they see only them at the front and so find them easy to accuse. Like with movies, blame the stars or worship them and forget about the people pulling the things and making things happen.
    Could it be, that there maybe more to it than meets the eye. Maybe we as a nation need to think. Think about how the cattle (staff) allowed to go so astray, will the shepherd ever be asked?? Is he allowed to stay there were just not well trained!!!!

  11. Sir,
    Are you sure that you are right when you calculate the staff per aircraft ratio of AI. Do you actually take into account the number of inhouse activities undertaken by AI in its operation ,while so many airlines outsource some of them. Kindly also take into account the number of other carriers aircrafts handled by AI and the revenue gained out of it. I hope you remember how many staff of closed down airline were forced upon AI.

    thanks for the comment – as I explained, the figures were given by Arvind Jadhav, the new AI ceo. I will course ask him on this point when we meet (see last para) – je

  12. brilliant. clear, and unlike most opinions, this one framed the opinion around the words of the minister himself, leaving less room for a counter-argument.

    also, what with the problems-faced being spelt out so clearly, it does make me wonder – why is it that in this nation, we can’t crack the whip (even when it is visibly, and direly so, required), and remain in a state of chaos\disrepair and rot unto a point when the system has to be abolished and remade, or else a violent aggressor overturns it? why is it that democracy seems to stall even the universally agreed-upon ‘good’ change? why do vested interests invariably force us t lag behind?

    anyway, questions are easy to ask. will make a mental note to try and ask fewer ones, and try answer a few myself the next-time-around.

    do keep blogging \ it really is a pleasure reading well-structured non-sensationalist journalism.

  13. Dear Mr. Elliott,
    Very well written. You have judged the situation much more fairly than most of the bloggers. As mentioned by you Mr. Praful Patel was in office for more than 16 months from the time the merger was announced. Hence there could be no way that he can absolve himself from taking responsibility of the failure. Secondly, I do think that any management of a government enterprise would have the guts to defy an order from the Minister. After all their carrier would have be been at stake. Hence I am sure that there was no will from the Minister to merge the airlines.
    sincerely
    P C Choudhury


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