Tuesday, June 20, 2017

Critical blow: Wobbly Air India now grappling with CBI FIRs

The CBI FIRs on Air India have opened a stinking can of worms. Air India was made to order 68 aircraft by the government, instead of the originally planned 28. The total order for Air India and Indian Airlines combined was for a mind-boggling 111 aircraft. The FIRs point out that as the aircraft on order started coming in, load factors predictably began to fall. There was no way the two airlines could absorb such large-capacity infusions. The gross over-capacity situation thus created had caused many of the flights to operate at well below break-even load factors. This means that load factors (percentage of the seats occupied) was too low for the airline to make a profit. The FIRs state that, at one time, five long-range B777s and as many B737s were grounded as they represented surplus capacity.

It seems likely that some government bigwigs compelled the airline managements to do so, against their will. That placement of unreasonably large orders needs to be thoroughly investigated.

As for the ill-fated merger of the profitable Air India with the unprofitable Indian Airlines, that seems to be a common — through grossly ill-advised — practice of governments in the past. The government had similarly merged the loss-making National Airports Authority with the International Airports Authority of India — and had thus badly hurt the latter. Apart from adding the losses of Indian Airlines to the joint airline’s balance sheet, it had caused severe damage due to the sharp differences in the two airlines’ corporate cultures.

Air India was at that time managed according to the best private-sector management practices. The stodgy Indian Airlines was a bastion of shoddy public sector corporate culture.
21/06/17 Hormuz P Mama/DNA