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Monday August 3, 2009

Flight passage unclear for Air India

INDIA DIARY BY COOMI KAPOOR


Saddled with US$1.4bil (RM4.94bil) losses, and still mounting, India’s bloated national carrier needs infusion of new funds to keep flying.

THE Maharaja is in trouble. The national carrier, Air India, whose mustachioed mascot is widely-known, needs an urgent infusion of cash to survive the latest turbulence in its chequered history. These might be tough times generally for the civil aviation industry the world over, but the woes of Air India are aggravated further by bad management, constant political interference, and a refusal to run it on purely commercial lines.

How bad the situation is can be gauged from the fact that the national carrier’s accumulated losses were over US$1.4bil (RM4.94bil) and still mounting. Payment of staff salaries has been delayed in the last couple of months. Fuel bills to oil companies have not been cleared for more than a year. The management has now asked senior employees to accept salary cuts ranging from 15% to 25%.

In trouble: The Maharaja, the mascot for Air India. The country’s national carrier is currently facing major financial difficulties

The Maharaja was never in such bad state before.

Huge borrowings alone have kept it from sinking into oblivion. It had a debt of over US$3bil (RM10.6bil) on its books this June.

Things were so bad that the Prime Minister intervened to rescue the national carrier. A few days ago, a committee of senior officials constituted by the PM was told that Air India would need a financial bail-out package of US$4bil (RM14.12bil) to be spread over the next five years. Also, an immediate cash infusion of US$450mil (RM1,600mil) to US$650mil (RM2,295mil) alone would help it ward off the current financial crisis. Of course, the money would be made available with a promise of more stringent overseeing by the Government.

Now, encouraged by the bail-out package being readied for Air India, private airlines on July 31 resorted to what a newspaper called blackmail by threatening to ground all flights on Aug 18. Seven private airlines flying some 10,000 domestic flights might not take off if the matter is not resolved by then. However, government-owned Air India and Indian Airlines flights numbering about 300 will fly as scheduled.

The strike threat is seen as a pressure tactic, although it is undeniable that their cumulative losses in the last financial year were about US$2bil (RM7.06bil). The airlines want the sales tax on fuel reduced from 26% to 4% and also a steep reduction in the airport development charges being levied on them.

Back to the financial woes of the national carrier. These were merely symptomatic of the deeper malaise that has afflicted it from its very inception. At the time of its founding back in 1948, the decision to set up Air India was unexceptionable. A newly-independent nation required an international airline. Given that no one in the private sector had the wherewithal to start one, the Government took over the privately-owned Tata Airlines, founded by the late patriarch, JRD Tata and renamed it Air India.

From a lone weekly flight to London back then, Air India now flies all over the world. Its fleet of luxury Boeings and Airbuses could be the envy of the best airlines in the world. Even its safety record is laudable, though maintaining flight schedules has always been a problem.

Admittedly, the Air India crisis was worsened by the global economic slowdown, with most airlines the world over feeling the pinch to a smaller or greater degree. Even two of India’s best airlines in the private sector were going through a lean patch, struggling to remain afloat due to the general slump. But, without doubt, most of the problems of Air India were peculiar to it alone.

To begin with, Air India has too many people on its rolls, way out of proportion to the industry norm. To service a fleet of some 40 aircraft, it has a live payroll of over 31,000. Believe it or not, more than 2,000 employees are only meant for watch and ward/security duties. It has 5,000 people in the engineering department to maintain the aircraft and nearly 10,000 in the ground-handling services.

Therefore, one simple way to improve the financial position of the sick airline would be to cut down the excessive flab. That is easier said than done. The unionised staff, patronised by political parties, would never allow retrenchment/dismissal/golden handshake of a single employee. Because it is a public sector airline, everyone has a right to milk it, isn’t it?

A few months ago when two of the most successful private carriers gave pink slips to some 2,000 junior employees, there was such a hue and cry in parliament that the managements had to withdraw the termination orders.

So, to think that Air India can rationalise its staff strength is unrealistic. Because its top management is invariably drawn from the civil services rather than from the civil aviation sector — commercial interests come second to political interests.

In recent years, for instance, Air India surrendered bilateral rights to other airlines in profitable sectors in East and West Asia, a decision forced on it by the Civil Aviation Minister Praful Patel.

Patel was again to blame for the ill-advised decision to merge Air India and Indian Airlines, the nationally-owned domestic airline, without ensuring systemic synergies.

Another questionable decision was the order for new aircraft worth US$11bil (RM38.84bil) without any advance capacity planning.

How will a company with a revenue of a little over US$3bil (RM10.6bil) service such a huge debt on its books was never clear, especially when it was dropping market share in its more lucrative sectors. Admittedly, the management too followed lax standards, paying out some US$250mil (RM882.65mil) annually as so-called productivity-linked-incentive bonus to its employees despite overall mounting losses.

Given Air India’s dire straits, a recent government order enjoined upon all public sector employees to travel by it on all official work, even though that might militate against the spirit of free competition. The order should ensure a revenue of some US$400mil (RM1,412mil) annually for the national carrier. But that is hardly a solution for its woes.

Could the privatisation of the national carrier be the only way to end its troubles? Indeed, why should tax-payers pick up the tab for a badly-run airline, especially when a couple of private sector carriers with an excellent record in customer service are available at competitive prices?

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