Run(a)way pride

It was bound to happen. Air India, facing a crisis for a long time, has now reached a stage where it is unable even to pay salaries to its employees. First came the announcement that June salaries to employees will be delayed by 15 days. Now comes a request from the Air India Chairman to its officers to forego July salaries altogether — a la British Airways.
What ails the state-run carrier? Who are responsible for this mess? Is there any solution for the serious financial crisis?
To begin with, let us admit that the entire civil aviation industry in India as well as in the rest of the world are suffering uder global recession.
All airlines in India are losing money heavily and the industry’s estimated loss in 2008-09 was over Rs 2500 crore. But that apart, there are many perenial problems with Air India.
Milking the PSU over the decades, turning a blind eye to the surgery that was required for the airline, frequent change of management, unviable business plan, lack of foresight while taking decisions, are some of the major reasons.
You go deeper into the issues, you find more reasons for the kind of deplorable state that the 77 year old airline is in. The ‘Maharaja’ is showing tendencies of ending up pauper unless proper remedial measures are found.
Speaking of the airline’s woes, Centre for Asia Pacific Aviation India Chief Kapil Kaul told Deccan Herald “AI has sunk deeper and deeper into crisis. It reflects an unviable business model, inadequate management, lack of management capital, lack of a remedial process which should have started many years ago. There was continuing neglect of AI at every level. And, with 30,000 employees you cannot create a viable business model.”
Successive years of bad management has resulted in AI mounting its losses. From Rs 2,226 crore in 2007-08, the losses could mount to over Rs 4,000 crore in 2008-09 and far higher in the current fiscal. Which means over Rs 15 crore loss per day ! Something no airline can ill afford.
Successive losses has meant the liquidity volume reducing fast.
According to one estimate (the airline was reluctant come out with figures), the company has exhausted Rs 15,200 crore of its Rs 16,000 crore working capital limit which means cash available at hand is only Rs 800 crore.
But its total payment commitments is Rs 1,400 crore for buying fuel, to Airport Authority of India, vendors and others. No wonder, there is no money to pay salaries. Thus, it has led to the new Chairman and Managing Director Arvind Jadhav — a Karnataka cadre IAS officer — to announce deferment of salary and salary cut.
AI has perhaps the highest staff strength in the world inrelation to the fleet size, for any airline: 31,000. It has also one of the highest employee-aircraft ratio at over 200 when the ideal number is less than 80. Salary outgo alone is Rs 350 crore per month.
Analysts point at fleet expansion fiasco saying that it has left the airline bleeding as the traffic kept falling. AI ordered a total of 111 Airbus and Boeing planes and nearly half of them are already delivered. But, eventhough the occupancy is low, AI had not returned or sent on lease any of its aircraft.
So what’s the way out? CMD Jadhav has signalled that savings is a must and is hopeful that a slew of austerity measures he has initiated aiming at saving Rs 1,000 crore per year.
The measures being taken to cut costs include a system to ensure optimum fuel consumption through usage of technology which could lead to a saving of Rs 300-400 crore annually. Rationalisation of routes, proper scheduling of repair and engineering services and cutting down on employee travel expenses could save another Rs 400-500 crore, he says.
The government may also announce a bailout package. According to civil aviation minister Praful Patel, equity infusion into AI from the Government is on the cards and this year’s budget may provide Rs 4,000-5,000 crore towards this infusion as well as soft loan. This is the first time since its inception that the Government would pump equity into the carrier.
21/06/09 B S Arun/Deccan Herald

To Read the News in full at Source, Click the Headline

Categories: NACIL Jun 2009