The government’s plan to infuse fresh blood into Air India (AI) through a global search process boggles the mind. The national carrier is in deep distress not because any management—past and present—was or is incompetent, but because its hands are tied behinds its back. The simple fact is the carrier’s costs are bloated because of a large workforce, which has led to the debt piling up to unsustainable levels. And, the interest payments on these borrowings of close to Rs 50,000 crore are weighing it down.
Unless the flab is shed, no CEO can turn it around. Currently, AI’s staff costs are 30-35% more than those of its rivals and there is little chance of trimming the team; else, the government would have offered a VRS. Indeed, the information memorandum put out when the government sought to privatise the carrier said that 37.6% of the permanent staff of11,000 plus would retire over the next five years. That would still leave close to 7,000 people on the rolls. Ahead of a general election, it is hard to see the government calling for a cut in the workforce. That is why it had sought Parliament’s nod for a grant of Rs 2,345 crore and Rs 1,300 crore for Air India Asset Holding Company, the special purpose vehicle housing the airline’s debt. The government has so far infused Rs 28,175 crore of taxpayer money since 2012—throwing good money after bad, some would argue. However, the airline remains in the red after all these years, having posted, between FY2013-FY2017, an average annual loss of Rs 5,400 crore. Indeed, despite all the financial support, the airline has failed to grow revenues meaningfully; the increase in revenues in 2017-18 was just 5.3% compared with Indigo’s nearly 20%.
01/01/19 Financial Express
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Unless the flab is shed, no CEO can turn it around. Currently, AI’s staff costs are 30-35% more than those of its rivals and there is little chance of trimming the team; else, the government would have offered a VRS. Indeed, the information memorandum put out when the government sought to privatise the carrier said that 37.6% of the permanent staff of11,000 plus would retire over the next five years. That would still leave close to 7,000 people on the rolls. Ahead of a general election, it is hard to see the government calling for a cut in the workforce. That is why it had sought Parliament’s nod for a grant of Rs 2,345 crore and Rs 1,300 crore for Air India Asset Holding Company, the special purpose vehicle housing the airline’s debt. The government has so far infused Rs 28,175 crore of taxpayer money since 2012—throwing good money after bad, some would argue. However, the airline remains in the red after all these years, having posted, between FY2013-FY2017, an average annual loss of Rs 5,400 crore. Indeed, despite all the financial support, the airline has failed to grow revenues meaningfully; the increase in revenues in 2017-18 was just 5.3% compared with Indigo’s nearly 20%.
01/01/19 Financial Express
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