Uneasy numbers stacked against Air India

July 19, 2009

State-run Air India, which enjoyed a monopoly in the country till the deregulation of the aviation sector in 1991, is besieged by ballooning debt and a litany of woes, pushing it to the brink of collapse.

Unless, of course, the central government steps in to bail out the national flag carrier.

Air India is now seeking a 39.81 billion rupees package from the state, though the airline has been asked to come out with a plan of action to make its existence viable.

The money may come as federal aid in the form of equity and loan.

But some say the airline needs a credible action plan to rescue it.

The civil aviation ministry says the 31,000 workforce should be trimmed to keep it viable. Estimates put the average number of employees per aircraft at nearly 1:230, while as per international standards, an airline needs 1:100 -150 employees.

Others question whether the ministry, which presides over the National Aviation Company Ltd created to run the merged Indian and Air India, can absolve itself from the faultlines posed by the bloated workforce.

Complimentary travel in business class for its employees is one of the perks authorities seek to curb. How much would such a measure help the carrier?

But is the high employee-aircraft ratio the sole reason for the airline’s woes, though it accounts for 40 billion rupees as wages annually for the troubled airline?

Air India’s debt in June 2009 more than doubled to 152 billion rupees from 65 billion rupees in November 2007. And that was mainly due to massive aircraft orders placed by the beleaguered firm with aircraft makers — 68 with Boeing and 43 with Airbus.

The orders were placed when the country was beginning to witness an aviation boom, but some analysts say the airline did not have the much needed aircraft when it really wanted them.

The opposing point of view is that you always need aircraft to catch up on a boom next time around.

Forty-nine aircraft have been received so far, but the aviation boom did not last long enough to justify the huge orders for the struggling airline, which placed orders worth nearly 440 billion rupees.

Four out of ten seats are vacant now, but that statistic can be tagged to many airlines as a global economic recession and soaring oil prices dented appetite for air travel.

Were the additional aircraft ordered without properly identifying the potential?

Nearly 30 airlines have become defunct globally in the past one year alone.

Now, wonks seek a renegotiation as part of the umpteen measures needed to lift the sagging fortunes of India’s state-run airline.

But any cancellation or deferring of placed orders would also invoke some penalty from aircraft makers.

Air India’s international market share dipped to about 18 percent in the last fiscal from 21.7 percent a year ago, while a percent of its domestic market share also declined to touch 16.9 percent in the period.

Airline passenger numbers dipped about 8 percent in the first half of 2009, adding to the mountain of woes faced by Air India.

In punctuality too, Air India’s domestic service stood fourth with a 75.7 percent record, behind Indigo (87 percent), Jet Airways (86.4 percent) and Go Air (83.4 percent).

Many bilateral agreements also allegedly ceded Air India’s market share to foreign air lines, while some huge revenue earners like ground handling operations in Bangalore and Hyderabad were gifted on a platter to foreign players.

Aviation experts say the merger of Air India and Indian also did not have the desired impact.

So what would a turnaround for the airline involve?

Many say it will surely be a herculean task for the top brass of the airline. They are charting a rescue plan which would be whetted by SBI Caps before it is placed to the federal government for approval.

Can privatisation revive the dipping fortunes of Air India? Does it need aviation experts rather than bureaucrats to pull off a turnaround?


We welcome comments that advance the story through relevant opinion, anecdotes, links and data. If you see a comment that you believe is irrelevant or inappropriate, you can flag it to our editors by using the report abuse links. Views expressed in the comments do not represent those of Reuters. For more information on our comment policy, see http://blogs.reuters.com/fulldisclosure/2010/09/27/toward-a-more-thoughtful-conversation-on-stories/

Well written. Especially compared to many articles ‘flying’ around these days. We need more analysis like this.

Posted by Jimmy Tata | Report as abusive

The govt should privatise everything. Sell off the aircraft, send off off the employees on a one-way paid holiday to Timbuktu and try and derive maximum value from the airport land. If they think an IAS officer from the Agriculture ministry can help turn around an ailing airline, I would like a stab at running Infosys. It’s a democracy, after all.

Posted by Mathai | Report as abusive

If national carrier could do with some route rationalization though this would put the passengers at peril. Already, private airlines have cut out several of their non-remunerative destinations and it is only AI that still flies to these destinations. To that extent, the government needs to subsidize the flights. Another option is to cut salaries as AI pilots are paid higher than some of the private airlines. A friend of mine chose AI over KF and Jet simply because of a better deal – both in terms of cash and easy working hours.

Posted by Raj | Report as abusive

A very well-researched piece. Cut flab, fly high.

Posted by Arun | Report as abusive

If anyone can turn AI around, that grossly customer-unfriendly airline, he will go down in history as Bill Gates of India’s civil aviation. You need a revolutionary to do that, don’t you?

Posted by Ullekh | Report as abusive

We really need to sell this Maharaja. There is nothing national pride in it. I have traveled with it sometime. It was the worst experience in all aspects. India needs money to start programs to lift people out of poverty and invest in healthcare. This non-performing Maharaja should be providing some bucks to the nation rather than taking it away. This airlines must be opened for disinvestment and the Govt. should keep some shares in it. It must have a private management which could only revive it. All these Govt. appointed babus that controls this company will make the situation only worse.

Posted by Naveen Kumar | Report as abusive

Air India’s problem is systemic.On one hand it is overstaffed whereas on the other the Ministry Of Civil Aviation decides Merger, Routes,Purchase of aircrafts and day to day operations to non-profitable routes besides signing off the revenue generating Bilaterals to foreign airlines.Privatisation is the only road to revival with Bilaterals reviewed, just like it is for Air Canada, British Airways, Emirates or Singapore Airlines, which we often compare to their aircraft-employee ratio.The Ministry or Government should then let the airline grow without any executive authority. Open Sky Policy will not only bring down Air India but all the other Domestic Carriers as well.King Fisher and Jet Airways has posted similar losses as well for the very reason of over capacity.

Posted by Joseph Murlidharan | Report as abusive

Air India signifies everything that is wrong with India – inefficient government company that couldnt care less about its customers and has only the state-granted-monopoly as its only reason for survival. The staff are rude to the point of being disgusting just like every other public sector enterprise that Indians are forced to deal with due to excessive government control. I, like most Indians dont want even one single Ruppee given to it to keep it viable as a public sector enterprise. Break it up, sell it off, get rid of the anti-competitive laws.

Posted by Manu | Report as abusive

I dont understand why in this time and age of open market is the Gov in the business of running a national airline. They are wasting tax payers money . The right solution is to privatize AI, sell it off.

Posted by Greg | Report as abusive

The entire airline industry is sick and always has been.

Posted by Jason | Report as abusive

What do u expect when ‘babus’ run a business?
Tax payers should demand the privatization of the airline and guarantee debt payments.

Posted by babu bhai | Report as abusive

Cut the perks given to AI employees. Do you know that daughters of AI workers can fly free until death! In New Jersey every AI cabin crew is given a free trolly where the customers have to pay $ 5 for it. Your mileage does not even get credited to sky miles. Old planes, poor services, late departures, run-a-round given, delays due to flimsy issues. Cut staff, reduce perks and improve services. Shut them down once and for all.

Posted by Suresh | Report as abusive

Like what they says in west first create a monster and than kill it.

Our Goverment in the name of privatisation and opening up of doors to foreign and private player killer our demon. And create monster situations. I am quite surpirse to hear lots of critical comments on babu and beauracts. I do agree they are all much more responsible for this dibacle. But is the disinvestment is the only solution. Are we now at that point where No national Pride Means to us. National Carrier not only carry national flag but also a symbol of the respective conutry in outlan.

Look at singapore Airlines Emirates, They all run effectivly with gud service and margin of profit with high end counsumer to mid segment consumer too. And more over they are carry the pride of their respectives states.

But how and why all it happens. A interesting article on rediff news published some day back . Give an full details on the revival and resons for the failure of this mehmoth.

Any way we can still take this out from trouble by doing things in positive way and wiling to do. Think of the staffs of this institution. There moral must be at deep earth low . Willing to performe must have died.

We need a revival financially and morally both. A road Map which can not only create revenue but also pride to run this.

A Govt who act like a pimp to foreign and pvt players looks in so hurry that wanna to sell this country assest in fast. Are they nuts who will simply allow thier AIRspace in other hands. Go to any major international AiRport they have dedicated corrider for thier state run AIRLINES and here our company behaved like a step brother or even worse. why Indigo can have 87 points. can’t INDIAN not achive this. They can but need to change with time and keep the essence of Indian in it. I wish We must understand one point at this time. –

If we not preserve our state resources now than this country will be run by DHUGS and OUTLANDER and policis taken in the interest of their monetary benefit. Dont Make this happen other wise next time we will not have Gandhi or Azad to fight for it.

Thought for food- “When we got a cut in our hand, we not cutout entire hand but try to cure the cut and find out the reason to avoid further cut.”

Posted by Amit Daga | Report as abusive