Friday, March 10, 2017

Six reasons why Air India is going downhill

New Delhi: The Comptroller and Auditor General of India ( CAG) pointed out numerous holes in the government version that state-owned Air India is on a path to turnaround its fortunes. In its audit of the Turnaround Plan and Financial Restructuring Plan of the airline, the auditor said that the airline has failed to achieve many of the objectives in various functional areas mandated under the financial restructuring plan which provided equity infusion of Rs 30,231 crore till FY21.

This failure resulted in less revenue generation for the airline leading to requirement of more short-term loans for the airline which eroded the benefit of financial restructuring plan.

1) Less income in passenger revenue: Air India earned passenger revenue of Rs 15,773 crore, almost 20% lower than projected Rs 21,297 crore in FY16.

2) Low monetisation of assets: Lack or faulty initiatives to monetise its assets- one of the primary requirement of meeting the revenue deficiency led to dip in the company’s fortunes. The audit noticed that for five out of 12 properties the terms and conditions made it impossible to monetize.

3) Non-availability of proper aircraft: The audit finds that there has been a mismatch in demand and availability of the airline. For instance, there was over provisioning of wide body aircraft where as it didn’t have required number of narrow body aircraft. For instance, the airline after the recommendation by the consultant to buy induct A320 aircraft to reduce maintenance cost, it took three years for the airline to float a global tender.

4) Mismanagement in granting bilateral agreements with foreign countries: The audit pointed out that more than required granting of bilateral seats to carriers of foreign countries hurt Air India’s prospects. As a result sixth freedom traffic carried by foreign airlines rose significantly which had an adverse impact on Air India’s business plans.

5) Loss making international operations: Air India can be on an expansion drive to new international destinations but the audit says that most of such routes burn a hole in the airline’s pocket as it fails to recover the cost.

6) Mismanagement of manpower: According to the requirement, the company had 11,433 employees as against the envisaged requirement of 7,245.
10/03/17 Business Standard