Let professionals run Air India

A current example of a good project given a bad name by safe-playing bureaucrats is the merger of Air-India with Indian Airlines. Union civil aviation minister Praful Patel has taken a lot of flak for floundering on the merger project. The truth is the idea of a merger between A-I and Indian Airlines is very sound but the babus, who zealously protected their turfs, did not want to implement it sincerely.
Some of the bureaucrats involved in the project have since got good promotions and hold positions in the rank of secretary to government. One of them now has an even more onerous task than turning Air India around. He faces the challenge of rescuing Prasar Bharti, where a bunch of ex-bureaucrats are fighting a prolonged and utterly ridiculous legal turf battle.
Coming back to Air-India and Indian Airlines, Praful Patel has yet another chance to put through the merger project and make the new entity accountable with a professional management running it. The merged entity, National Aviation Company of India Ltd (NACIL) has accumulated losses of over Rs 7,000 crore till March.
The losses piled up simply because the company incurs an annual cost of Rs 17,000 crore and gets revenues of Rs 14,000 crore. The Rs 3,000 crore annual deficit is the crux of the problem. The situation worsened last year as global aviation industry was hit by a severe recession. Even well-run private airlines like Jet Airways and Kingfisher have run up massive losses. In desperation, Jet and Kingfisher had even announced a strategic alliance last year to cut costs.
Therefore, it makes eminent sense for A-I and Indian Airlines to cut costs by optimising resource usage. The two can rationalise human resource which is 20% of the total cost. An attractive VRS scheme for the employees must help in reducing staff by at least 10%. The merged entity has a staff of over 30,000, which is way too high. The employee to aircraft ratio is currently at over 220, which is much higher than the norm of 110 to 130 persons per aircraft.
Shockingly, in the year of the worst aviation recession, Air India gave its employees productivity-linked bonuses. This was about 10% of the total costs. This must be given only when the airline comes into profits. A part of the Rs 3,000 crore annual revenue deficit of the merged entity can be covered if both Air-India and Indian Airlines make optimal use of their prime real estate properties across various cities. Air India must shut down expensive offices it is maintaining at airports in the Europe and other expensive locations, unless absolutely required.
Subject to heavy cost cutting and other reforms, the government must infuse fresh equity of Rs 2,500 crore as Praful Patel has asked for. Currently the merged entity has a paltry equity base of Rs 145 crore which would make it impossible for NACIL to leverage long-term market debt to acquire 100 aircraft as planned earlier. Already 51 planes at a cost of $4 billion have joined the fleet.
28/07/09 MK Venu/Economic Times

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Categories: NACIL Jul 2009