NEW DELHI - The iconic Maharaja of Air India is bent at the waist, quite
literally. But this time the moustachioed mascot isn't caught in a bow of
courtesy, enframed in the age-old Indian tradition that confers godliness on
the guest of honor. He's bent more like Sisyphus - under pressure and the sheer
shame of having to beg and borrow to play host.
With losses of US$1.5 billion on its head, India's national carrier has simply
lost the wherewithal to honor its commitments and has had to run to the
government for a $2 billion bailout package to stay afloat - and in the sky.
Government bailouts do not come without strings attached. The clamor of angry
employees and conspiracy theories did not deter the carrier's benefactor from
setting up stringent payback norms. So now, Air India's performance has been
deemed to be of "national concern" and will come under the scrutiny of an
group headed by cabinet secretary K M Chandrashekhar.
The first evaluation meeting is slated for July 25, when the Air India
management - executive members of the board of directors and senior officials
of the Civil Aviation Ministry - will sit across the table and finalize a
blueprint of revival that will include cost-cutting, rationalization of routes,
stalling of fleet expansion and manpower pruning. There's talk that Ratan Tata,
chairman of the Tata Group of industries, could be roped in to head an
international advisory panel that will help pull the ailing public-sector
behemoth out of the red.
That really is history coming a full, ironic circle. Air India was originally
founded by the late JRD Tata as Tata Airlines in 1932. After independence in
1947, the government of India slowly took over, acquiring a majority stake by
1953. After half a century, the Tata Group made a bid to buy back some stake in
partnership with Singapore Airlines in 2000-01, but was thwarted at the last
moment. The names of Infosys chief mentor Narayana Murthy and Knowledge
Commission chairman Sam Pitroda (once former premier Rajiv Gandhi's favorite
technocrat) are also in circulation.
The Aviation Ministry, however, is putting its money on a PowerPoint
presentation of the revival plan that will be unveiled at the Chandrashekhar
committee meeting - once that rolls out, it says, it won't take long to pull
Air India out of the red. Experts in the civil aviation sector say the ministry
could be accused of daydreaming and worse for floating hope stories in the
midst of an extreme economic downslide that it has little power to arrest.
Nonetheless, the government is gritting its teeth and going down that road. It
set up the committee after the flamboyant Civil Aviation minister Praful Patel
met Prime Minister Manmohan Singh at the end of last month, pleading for a
bailout package. Now there will be amputative surgery.
There was no other way the National Aviation Company of India Ltd - formed in
July 2007 after the merger of the two national carriers, Air India and Indian
Airlines - could be up and flying. NACIL, popularly known as Air India, has
been lurching from one crisis to another. Unable to pay wages, it first asked
its thousands of employees to take paycuts, then deferred salary disbursal to
the 15th of every month. It virtually had no working capital to keep flying.
The aviation sector worldwide has been under severe stress for a variety of
reasons, among them the economic slowdown and high fuel prices. Private
carriers in India aren't in the pink of health - Jet Airways and Kingfisher
have also asked for government help and excise duty cuts on fuel in the past
But Air India was charting a different story, buying up Boeings and Airbuses by
the dozen (the orders, in total, amount to $11 billion) and starting new
non-stop flights to New York, London and elsewhere. It became known only later
that Air India had been incurring a heart-stopping 800% increase in losses in
the past two years.
Before this, the pre-merger Air India (the international wing) did make profits
for four consecutive years up to 2004-05; and Indian Airlines (domestic) logged
profits for two years. Based on a clean book, around August 2004, both the
international and domestic wings drew up an aircraft acquisition plan. It was
decided that the former would buy 43 new aircraft and the latter 68.
By many standards, this was a rather ambitious plan - but the spin sold well.
The news was greeted with fanfare as part of a much-needed modernization plan,
one that would help the company phase out an aging fleet and compete better in
a market that was fast getting crowded. Everyone seemed pleased to have Patel,
a businessman-politician, as the civil aviation minister - he was seen to be
endowed with the skills necessary to run the behemoth as a smart corporation,
not as a lackadaisical government-owned carrier in the old style. This was
during the previous government led by the United Progressive Alliance (UPA);
Patel was billed as one of the heroes of the new Indian economy.
What had escaped public attention was the fact that Air India, which had
enhanced its original order of 24 new aircraft to 68, was tying itself into a
deal worth several billions of dollars when its turnover stood at a mere
one-and-half billion. Worse still, in a shrinking market, the aviation company
was saddled with new aircraft while not having the routes on which to fly them.
How was this overlooked? Even as the acquisition plan was signed and executed,
the company had a surplus of aircraft - 13 extra in 2004, 17 in 2005, 16 in
2007, 14 in 2008 and six in 2009. Of the 111 Boeings and Airbuses that were
ordered, 49 aircraft worth $4 billion have already been delivered.
Also, the company had to spend extra money to hire hangars and technical hands
for the newly acquired assets that had to be left idle or kept under-utilized.
This is over and above the $1.2 billion it has to pay annually as capital
repayment and interest. So cashed-strapped it became on account of this huge
upswing in costs that there were no funds left to retrain pilots to fly the new
hi-tech fleet it had acquired. Little wonder that one of the first steps the
committee of secretaries has been asked to take is to cut the excess baggage:
for starters, an immediate halt to further acquisition of aircraft.
Things went through rather stark twists and turns on the tarmac before it got
to this point. Earlier, in desperation to increase market share, Air India had
gone in for an aggressive wet and dry leasing of aircraft. (With a wet lease,
an airline provides an aircraft, complete with crew, maintenance and insurance,
to another airline, with payment by the hour operated; under a dry lease, only
the aircraft is provided, with a term of perhaps two years.)
There are even unconfirmed reports to suggest the cash-starved company, at the
behest of the ministry, sold some planes from its older fleet only to lease
them back. Whatever the logic, Air India dry-leased three Boeing 747s to
develop a new Los Angeles route (only to abandon it at a later stage), and one
for the Bangkok-Kuala Lumpur route. This was in 2006. By the middle of 2007, it
started getting its own new aircraft. In a near-farcical situation, it is now
forced to keep 10 Boeing 777s and 737s grounded at a cost of $170 million.
This is not the end. Air India's plight became more dire after part of its
lucrative routes were parceled off to international carriers in pursuance of
the UPA government's open-air policy. Bilateral rights amounting to 90,000
seats per week were given to Emirates, Qatar Airways, Singapore Airlines, Thai
Airways International and Lufthansa. In exchange, the Indian private sector Jet
Airways managed to get 12,000 seats per week to destinations that were
frequented or monopolized until then by Air India.
Then, in an attempt to get Air India into the budget airline segment, the
ministry floated Air India Express to fly in heavy service-sector passenger
routes - Singapore, Sharjah, Muscat - cutting into what was till then an Indian
Airlines market. On the flip side, Indian air travellers did benefit from the
bonanza of cheap tickets.
In addition, some of Air India's money-spinning ground operations have also
been hived off. Singapore Airport Terminal Services has managed to get the
ground-handling operations in Bangalore and Hyderabad (worth $185 million).
To top it all, the merger of the two - the international and the domestic
airlines - does not seem to have gone particularly well. It left employees of
both sides disgruntled on various issues relating to facilities and pay -
former Indian Airlines officials have been complaining about lower
performance-linked incentives; in Air India they grumble about lower
emoluments. Now, both employee pools will face drastic cuts, if the government
can overpower the unions.
A former chairman and managing director of Air India, P C Sen, who oversaw a
successful restructuring in the last decade, says it is possible to turn around
the ailing company through route rationalization and improvement of services,
as he had done. But the workforce has to cooperate as they did last time,
thanks to incentive packages. In this round, Air India is clearly in no
position to buy employees' support through salary enhancements and nor is the
government in a mood to bankroll such an initiative.
The airline and its workforce have always generated enough critics. The
prominent among them think it's time the "national carrier" faded from the sky
since it doesn't have the drive to compete. At the same time, the recent more
open-sky policy, with increased competition, may have hurt the Maharaja, but it
has greatly benefited the ordinary Indian passenger.
Santwana Bhattacharya is a New Delhi-based journalist who writes on
politics, parliament and elections. She is currently working on a book on
electoral reforms and the emergence of regional parties in India.