Turbulence in Air India

Air India's Rs 5,000 crore loss in fiscal 2008-09 is hardly surprising. The out of shape airline would have found it difficult to show results even in the best of times. In possibly the worst aviation crisis ever, AI would have been grounded by now were it not for the government support it got.
But then the blame for the mess the airline finds itself in also rests squarely with the government. Constant bureaucratic interference in its functioning, a huge and unacceptable level of workforce, a decade long indecision in allowing fleet acquisition and sundry other inefficiencies gave away AI's market share on a platter to domestic private and foreign airlines.
Aviation is a capital intensive and high fixed cost business, which makes it that much more vulnerable to economic/business cycles. More so as Air India is also saddled with over 31,000 employee, about 230 per aircraft — a far cry from the norm of 150 for most full-service carriers. The problem is clearly beyond cosmetic surgery such as forcing government employees to fly the Air India.
The immediate question is whether the airline should increase its capital costs by buying more aircraft. The sudden jump in losses are partly due to depreciation on the aircraft bought in recent years.
But then if the airline were to cancel the orders, the government should provide the assurance it would not require fresh approvals should it decide to expand fleet a few years down the line. From a longer term perspective, the issue of bloated workforce needs to be resolved at the earliest.
17/07/09 Economic Times

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Categories: NACIL Jul 2009