The grounding of Air India. Shock figures. And some questions for Praful Patel

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AIR INDIA

From Tehelka

The grounding of Air India.
Shock figures. And some questions for Praful Patel

The story of how Air India was stripped of its wings and brought to the ground. SAMIRAN SAHA reports

ON 7 FEBRUARY, Vayalar Ravi took over from Praful Patel as the civil aviation minister. The scenario he stepped into was dismal. But imagine an aircraft being first hijacked, then shot down from the sky. When it lands on water, huge chains appear from the ocean bed to drag it down.

ILLUSTRATION: SAURABH DEB

If that’s the general picture, consider the details. From a monopoly position in the 1990s, Air India is today fourth by way of market share (17 percent), has a debt burden of a whopping Rs. 40,000 crore and financial losses amounting to Rs. 5,551 crore in 2009-10. This is the worst it has ever been in its 79-year history.

Before Indian Airlines and Air India were merged in 2007, the domestic carrier had losses to the tune of Rs. 280 crore and was on the verge of nosing out of the red. Air India had losses of about Rs. 455 crore. Thus the total losses of the two airlines amounted to Rs. 735 crore. Within three years of the merger, losses have touched nearly Rs. 16,000 crore.

That’s just one link in a chain of inexplicable policy decisions. One can pick out, at random, many other moves that mystify observers, enrage the staff and give the airline so much extra baggage that it’s a wonder that flights still take off.

Take aircraft purchases. In 2007, the Parliamentary Committee looking into Air India’s acquisition plans of 2005 found that the programme totally lacked required transparency. Specifically, it made the observation, “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.”

Initially, Air India had planned to buy only 24 aircraft and Indian Airlines had planned to purchase 43 aircraft. Under the active guidance of Patel, Air India changed its plan and within 24 weeks firmed up a proposal to buy 68 aircraft. Note the anomaly: with an annual turnover of just Rs. 7,000 crore, it was placing orders for Rs. 35,000 crore for which the interest outgo would be Rs. 6,000 crore.

New route? Vayalar Ravi has a huge mess to clean up PHOTO: SHAILENDRA PANDEY

Already, the country’s flag carrier is saddled with a debt of Rs. 40,000 crore (of this, Rs. 19,000 crore is high-cost working capital debt), an annual interest payment of Rs. 2,100 crore, or about Rs. 7 crore per day, and has accumulated losses of Rs. 15,000 crore. On top of this, it has an annual wage bill of Rs. 3,100 crore.

“The Rs. 7 crore per day to service interest on loans is what is killing us and that is the reason why we are unable to pay the salaries to our employees on time,” says a senior airline official.

No wonder, a passenger overheard this conversation among executives at Air India’s Delhi airport-based office: “I spoke to someone in the finance director’s office and I was told there is no certainty about when we would be paid our salaries for February.” January salaries were paid to the employees in mid-February. February salaries were paid on 7 March.

If this sounds like a death knell for a once-proud institution, it’s not the only one. To protest working conditions and wage parity with the Air India counter-parts, pilots with erstwhile Indian Airlines have threatened to strike work next week. In fact, after the clumsy merger, retired pilots who were re-employed by the airline when it faced an acute shortage of pilots, have not been paid their dues, including flying allowance and arrears since 2007, despite several pleas to the ministry.

The financial ill-health of Air India is attributed by a civil aviation expert to a “systematic failure of the political and bureaucratic masters who have run the airline like their own principalities for years now. And the merger of Air India and erstwhile Indian Airlines in March 2007 under Patel’s directives has led to an unmitigated disaster”.

Ironically, adds the expert, global consulting firm Accenture, which was hired to draw a road map for the airlines’ merger, was paid Rs. 90 crore for services provided. There are also whispers about why, while other airlines in India hire pilots at a salary of $8,000 per month, Air India hires from a particular placement agency at $10,000. The agency, it is learnt, is run by the son of a former Air India official.

Last year, the Committee on Public Undertakings (COPU) termed the merger as a “marriage of two incompatible individuals” and slammed the government for the “ill-conceived and whimsical” decision.

In its report submitted to Parliament, COPU suggested demerging the airlines under a single holding company to save the carriers. It recommended fixing of responsibility on ‘agencies and individuals’ who took such a decision and sought ‘suitable action’ to prevent such ‘intangible loss’ being caused to a Staterun company.

The merger of AI and IA in 2007 under Patel has led to a ‘ disaster’, say industry experts

ARGUABLY THE most fatal blow to the airline in Patel’s regime came from the issuing of flying rights to foreign carriers on routes where Air India could have really cashed in. “Squandering flying rights on lucrative sectors in the Gulf to foreign airlines including Etihad Airways, Qatar Airways, Air Asia, Singapore Airlines and several others, coupled with bad route structuring has left the airline where it is today,” says Capt Mohan Ranganathan, a Chennai-based aviation expert.

During his meeting with the unions in the first week of February, Patel’s successor Ravi, who was given the portfolio during the Cabinet reshuffle in January, was told that the airline had pulled out of as many as 32 profitable routes, mainly in the Gulf sector, for no apparent reason. Cruising deftly into the gap were private airlines. The minister, sources say, has sought a detailed report as to why Air India opted out of profitable routes. A union leader has a ready reason: “On many of the routes the load factor was as good as 80-100 percent and the only reason we see Air India opting out was to make way for private carriers.”

For instance, the airline had, without citing any reason, sent letters on 8 October 2009 to its stations in Kozhikode, Doha and Bahrain stating that it was withdrawing operations on the route. “This is a route that is referred to as a legacy route,” a senior pilot told TEHELKA. “We were raking in revenue to the tune of Rs. 100 crore per annum of which Rs. 40 crore came from Doha and the rest was the earnings from our Bahrain station. Despite all station managers writing to their regional managers to restart operations on this route, the stations managers never received any reply from the management.”

To substantiate his point, he said, “Next what we learnt was that Jet Airways had started operations on this route, Etihad increased its frequency from three to seven flights a week, Emirates doubled its frequency from seven to 14 a week. This was one of the most profit-making routes and suddenly we were not on it but other foreign and private carriers were.”

The other routes that the airline withdrew from due to different reasons include Bengaluru-Bangkok, Chennai-Colombo, Kolkata-Bangkok, Kolkata-Singapore and London-New York. And this list is merely indicative, there were several others.

Shiny toy AI used to spend beyond its means during Praful Patel’s reign PHOTO: AP

Curtailing of routes, cunningly dubbed route rationalisation, has had a cascading effect: it led to underutilisation of pilots and aircraft. As against 90 hours of flying per month, pilots are flying an average of 49-53 hours per month. Similarly, the average utilisation of aircraft has also been affected — as against 16 hours of flying per day, aircraft with Air India are airborne for barely 9-10 hours a day.

“Every aircraft on the ground spells losses. In the aviation industry, it is airborne aircraft that bring in the revenues,” a pilot explained. He adds that instead of flying to the west coast of the United States (Seattle, San Francisco) which have global IT giants like Microsoft, Intel, Dell and others, Air India is flying to non-lucrative destinations like Los Angeles in the US and Melbourne in Australia. The other airlines that are operating on these routes are flying full loads and the passengers mostly comprise Indian nationals working in these firms.

The latest Directorate General of Civil Aviation (DGCA) figures reveal that while all Indian carriers jointly operated a total of 5,25,504 flights on the domestic network during 2010, Jet Airways and its subsidiary JetLite operated 1,42,101 flights and Kingfisher Airlines operated 1,20,362 flights, leaving Air India at the fourth spot with only 1,01,352 flights.

If one minister is known to have willfully clipped the wings of the airline, can hope lie with the new incumbent? Everyone wonders whether the 74-year-old Congress leader will be able to pick up all the pieces and put it together again.

“Yes, this will be the No. 1 airline in the country and I will create it,” a confident Ravi told TEHELKA. He has acquainted himself fully with the situation and instilled confidence in senior airline officials that he has the right intentions. A lot of positive energy was generated by his visit to the airline’s Nariman Point headquarters in mid-February where he met representatives of as many as 14 trade unions.

‘Yes, this will be the No. 1 airline in the country and I will create it,’ says a confident Ravi

A senior Air India official commends his decisiveness. On his Mumbai visit, union leaders told Ravi that because of staff shortage the airline was not able to take up baggage and ground handling for other airlines (third-party jobs). This could generate additional revenues for the beleaguered carrier. Ravi called senior officers to find out what the true picture was. The officer summoned glibly said that the airline was adequately staffed and could depute people to the new businesses.

FLIGHT DATA These numbers are proof enough of the troubles at Air India 40,000 cr Amount of debt the country’s flag carrier is saddled with 5,551 cr Air India’s financial losses for 2009-10, the worst figure in the carrier’s 79-year history. 2,100 cr Amount of annual interest that Air India has to pay. It works out to about Rs. 7 crore per day $10,000 The average salary of an Air India pilot. Their counterparts at private carriers make $8,000 17 percent Air India’s market share, which makes it fourth on Indian chart 9-10 Number of hours Air India planes are airborne every day. Private airlines clock as much as 16 hours per day

“Not convinced,” the official pointed out, “the minister called for another officer who told him that the airline was actually short of as many as 900 people and that was the reason why it is not in a position to take up third-party jobs. The minister wasted no time in transferring the officer who had lied to an insignificant outpost with immediate effect.”

AIR INDIA officials feel that Ravi fully intends to clean up the mess. However, the job at hand is a mammoth one. Right now, apart from delayed salaries, there is a sense of crisis stemming from the fact that State-run oil companies have refused to give credit from 13 December, forcing Air India to pay Rs. 12.5 crore per day under a cash-and-carry scheme. The government is now tapping private sector fuel suppliers hoping for a line of credit and better discounts on volume.

On being asked how he intends to get the airline out of the financial morass, Ravi said, “Discussions are on to strengthen the airline’s financial situation. I am in talks with different government agencies but I would not like to disclose more.”

The global consulting firm that has been mandated to restructure Air India’s finances, and chose not to be named, has in its report to the government suggested certain harsh measures. One, that there should be no pay hikes or promotions for the next three years. Two, that the turbine fuel bill should be cut by Rs. 300 crore per year, by negotiating more aggressively with fuel suppliers for domestic routes.

But does the airline really have a chance in a competitive environment where it has, from a monopolistic position in the 1990s, slipped to fourth place with a mere 17 percent market share?

PRIVATE-SECTOR RIVALS such as Jet Airways, Kingfisher and IndiGo have raced ahead of Air India, which operated far less domestic and international flights this year.

Now that it has been run to the ground, some sector experts see no option but disinvestment. Kapil Kaul, the India head of aviation consulting firm Centre for Asia Pacific Aviation, says, “The airline should be privatised in the next three to five years through a series of financial processes and the government should avoid playing an interventionist role.”

Asked about the future of the airline, former minister Patel oozed optimism about a turnaround in the near future. “The airline certainly has a future. The highcost debt is being converted into low-cost debt. The banks are willing to fund aircraft purchase, the government has infused Rs. 2,000 crore as equity and more would be infused as and when required, but employees and the management have to work very hard to turn around Air India,” he said.

Now that AI has been run to the ground, some see no option but disinvestment

In February 2010, the government had infused equity of Rs. 800 crore and was promised another dose of Rs. 1,200 crore in December to tide over the crisis and finance the fleet acquisition plan of 111 aircraft ordered from Boeing and Airbus in 2006. But it was dealt another blow by the Comptroller and Auditor General (CAG), which is learnt to have questioned the government’s decision that allowed the airline to order these aircraft for a whopping Rs. 50,000 crore.

Of the 68 Boeing aircraft ordered by Air India, around 40 have already been delivered. All 43 Airbus aircraft ordered for Indian Airlines have been delivered. The CAG has demanded to know the basis for projections of market growth for the airline, matched with its achievement till date. The CAG also wants to know the reasons behind Air India’s dwindling domestic market share, which crashed from the high of 23-24 percent, achieved just before the merger.

While these government agencies go about the business of trying to get a fix on the problems, criticism came from an unexpected quarter: Gustav Baldauf, hired as the chief operating officer (COO) at a salary of Rs. 3 crore per annum. In an interview to a newspaper, he complained of “too much government interference”. For this, he lost his job on 28 February. So did Pawan Arora, COO of the airline’s low-cost arm Air India Express, who was drawing Rs. 1.2 crore per annum. Arora was sacked after the four independent directors gave adverse feedback about his appointment.

Asked to analyse the government’s role, Air India’s former executive director Jitender Bhargava said there is ambivalence in the government’s commitment, which is expressed in strong words but not in action. “There is total lack of vision on part of the senior management as a consequence of which no long-term policies are being worked out to improve the product or create new revenue streams for the carrier,” he said.

He further added that the airline’s top management has been experimenting with the airline but only with disastrous consequences. The airline, he feels, needs decisions that make commercial sense.

“It is a fight for survival,” Air India Chairman and Managing Director Arvind Jadhav had said in a letter to employees shortly after taking charge in May 2009. But is it just about survival or is there any hope that the glory of the flag carrier will be restored? Experts imply this is an outdated notion, that any other airline is as much of a flag carrier as Air India is. Right now it is fourth among eight Indian carriers, sinking in a sea of troubled waters.