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.
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.