Air India Tests New Delhi's Mettle

Debt-stricken Air India is a test of New Delhi's will to reform. Should the government flunk, it will leave India's national airline permanently crippled, and the country's finances facing another strain.
Competition and a legacy of high operating costs mean the airline is now begging for cash infusions from the government. The sums involved are already substantial, $170 million in February, and an additional $255 million expected later this year, but the need could be far greater. Air India's lost nearly $3 billion since 2007 and is now saddled with $3.5 billion in debt—17 times its equity. A pickup in air travel alone won't help. The government estimates that losses will continue.
New Delhi insists that the state-owned carrier cut costs and develop a feasible business plan. A restructuring plan was due by the end of May, but has yet to be revealed. There are some obvious places to start, but politics means in some cases this is much easier said than done.
Consider manpower costs. Air India operates with 203 employees per aircraft. An ideal ratio would be half of the current, says Kapil Kaul at the Center for Asia Pacific Aviation. The global average is 120. With India's politically powerful unions quick to strike, past efforts at shedding workers have blown up in the airline's face.
So a major change on staffing requires substantial political sacrifice from New Delhi—which makes it unlikely. Where New Delhi can use its weight is by backing negotiations to lower the airline's debt burden.
16/06/10 Harsh Joshi/Dowjones/Wall Street Journal

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Categories: NACIL Jun 2010