State-owned Air India is finally seeing green shoots of a revival with the airline posting an operational profit after a decade. In an interview with BusinessLine, Ashwani Lohani, its CMD, shares Air India’s growth plans as well as his views on the merger between Air India and Indian Airlines. Excerpts:
You are perhaps the first head of Air India to say the merger between Indian Airlines and Air India should have never happened. Can you explain why the merger isn’t working?
The consolidation of any merged entity is never easy. In our case, it is more of an issue of two different cultures coming together. Air India is an international airline, while Indian Airlines is a domestic one. Culturally, we are poles apart. So, once you merge, a lot of issues come up, ranging from seniority, promotions, allotting houses and transport for senior staff. You can always merge two organisations but there must be a bigger goal. You shouldn’t merge for the sake of merging. There should be synergies, but I don’t think they were there in the first place. We bought aircraft. It created problems. We merged and it created problems; not that we didn’t need aircraft. Then we demerged the engineering and ground-handling divisions, which again was unnecessary. We bought aircraft with our own money. When the merger happened, look at the 2005-06 balance sheet, Air India and Indian airlines were in profits. From 2006-07, we have been making losses. The merger led to anything but synergy. The combined entity was not as efficient as individual entities were. Then on top of that we took a lot of loan to buy aircraft. When you make losses, you try to take more loans to run the company. So, now we are left with a debt burden of ₹4,000 crore per year, and to make up for it, imagine how much revenues you will need to make.
So, how do you work around the problem?
Now, we have to make the merger work and iron out the glitches. It takes time. We are about 2,300 employees in the entire group. If we can pump in enough energy into these employees, then we will grow. They should have faith in the management and they should feel we can look after them and protect them, then we can do it. That is the issue. It has to be run like the private sector as far as achieving efficiency is concerned. After all, we are running a business.
You are seen as a turnaround specialist. This can be seen from the fact that after a decade, Air India has posted an operating profit. It is easier to turnaround a private airline but to turnaround a public sector. How did you manage to do this?
The turnaround has just began. We are just at the margins right now. Lots need to be done. As of now, the revenue just about meets the operational costs. We are weighed down by a huge debt burden of almost ₹50,000 crore.
The debt servicing alone requires ₹4,000 crore a year. This huge gap is what we need to tackle. Unless that is met, we really can’t claim to have turned around. There is a long way to go still. During 2016-17, we expect to post an operating profit of₹700 crore- ₹800 crore which will go in some way in reducing the debt per year. If fortune favours us and we get more aircraft, then the turnover will be quicker.
29/06/16 K Giriprakash/Business Line
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You are perhaps the first head of Air India to say the merger between Indian Airlines and Air India should have never happened. Can you explain why the merger isn’t working?
The consolidation of any merged entity is never easy. In our case, it is more of an issue of two different cultures coming together. Air India is an international airline, while Indian Airlines is a domestic one. Culturally, we are poles apart. So, once you merge, a lot of issues come up, ranging from seniority, promotions, allotting houses and transport for senior staff. You can always merge two organisations but there must be a bigger goal. You shouldn’t merge for the sake of merging. There should be synergies, but I don’t think they were there in the first place. We bought aircraft. It created problems. We merged and it created problems; not that we didn’t need aircraft. Then we demerged the engineering and ground-handling divisions, which again was unnecessary. We bought aircraft with our own money. When the merger happened, look at the 2005-06 balance sheet, Air India and Indian airlines were in profits. From 2006-07, we have been making losses. The merger led to anything but synergy. The combined entity was not as efficient as individual entities were. Then on top of that we took a lot of loan to buy aircraft. When you make losses, you try to take more loans to run the company. So, now we are left with a debt burden of ₹4,000 crore per year, and to make up for it, imagine how much revenues you will need to make.
So, how do you work around the problem?
Now, we have to make the merger work and iron out the glitches. It takes time. We are about 2,300 employees in the entire group. If we can pump in enough energy into these employees, then we will grow. They should have faith in the management and they should feel we can look after them and protect them, then we can do it. That is the issue. It has to be run like the private sector as far as achieving efficiency is concerned. After all, we are running a business.
You are seen as a turnaround specialist. This can be seen from the fact that after a decade, Air India has posted an operating profit. It is easier to turnaround a private airline but to turnaround a public sector. How did you manage to do this?
The turnaround has just began. We are just at the margins right now. Lots need to be done. As of now, the revenue just about meets the operational costs. We are weighed down by a huge debt burden of almost ₹50,000 crore.
The debt servicing alone requires ₹4,000 crore a year. This huge gap is what we need to tackle. Unless that is met, we really can’t claim to have turned around. There is a long way to go still. During 2016-17, we expect to post an operating profit of₹700 crore- ₹800 crore which will go in some way in reducing the debt per year. If fortune favours us and we get more aircraft, then the turnover will be quicker.
29/06/16 K Giriprakash/Business Line
