How Air India is trying to take flight again

India's national carrier has been loss-making ever since its merger with Indian Airlines in 2007.

 |  3-minute read |   29-10-2018
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There are reports that say that Air India, India’s national carrier, is planning to rope in professionals from the industry at market compensation to turn itself around. With no takers for its divestment plan, Niti Aayog has advised it to improve the airline’s financials and then sell it, so that it attracts bidders and fetches a better price, say reports.

Some other reports say that there are plans to sell AI’s low-cost subsidiary Air India Express and ground-handling unit to improve its financial position and do the divestment of the airline itself at a later date. The minister of state for civil aviation Jayant Sinha said earlier this month that a revival package for the airline is in the works and would be announced soon.

Air India has been loss-making ever since its merger with Indian Airlines in 2007, accumulating losses of Rs 5,000 crore every year, resulting in cumulative losses of Rs 47,145.62 crore in 2016-17. A high debt burden, heightened competition, high fuel prices, and a falling rupee are cited to be the reasons. Also to blame were high airport user charges.

Air India has also amassed a huge debt. The airline owes a consortium of foreign banks Rs 20,000-odd crore towards its aircraft purchases in recent years. It also has a working capital loan of around Rs 32,000 crore advanced by 18 public sector banks, and needs Rs 6,500 crore to service its debt annually. To meet that, it receives Rs 2,500 crore from equity by the government and claims depreciation of Rs 1,500 crore. Despite all this, it still has an annual shortfall of Rs 2,500 crore, for which it is forced to borrow from the banks.

air-india2-copy_102918021053.jpgAir India has been a loss-making entity ever since its merger with Indian Airlines in 2007. (Photo: Air India)

Even as the government was hunting for a suitor for the airline, its health was fast deteriorating. Reports in July this year said that Air India has defaulted on government-guaranteed loans given to it by three banks. These banks and two aircraft leasing firms have issued default notices to the state-run airline and have threatened to take legal recourse if dues were not cleared.

The banks, to whom AI had outstanding interest payment of more than Rs 800 crore were Standard Chartered bank, Dena Bank and Bank of India. Moreover, US-based Wells Fargo Trust Services and the Dubai Aerospace Enterprise have also sent notices to AI for non-payment of lease rental payments on aircraft, reports added.

This, and gross mismanagement were taking its toll on the airline’s market share. Air India’s market share plunged to an all-time low of 11.8 per cent in September, down from 19.8 per cent in January 2014. This is despite passengers across all airlines growing 19 per cent in September.

Interglobe Aviation, which flies under the brand name IndiGo, had a domestic market share of 43.2 per cent while Jet Airways reported a share of 15.8 per cent. Low-cost carrier Spicejet, meanwhile, reported a 12 per cent market share.

Will the new plan to make the airline "professional" succeed? According to media reports, the government is planning to give significant autonomy to Air India’s board, in terms of capital expenditure and commercial decision-making. However, experts are questioning the move, saying that plans to make the airline "professional" now is an admission that the airlines was never professionally run.

Moreover, any decision taken by the management will run up against the trade union wall within the company. But that doesn’t stop the government from giving a final shot at a turnaround for the airline.

(Courtesy of Mail Today

Also read: Amritsar train tragedy: Why BJP and Congress should stop the culture of 'celebrating' death

Writer

MG Arun MG Arun @mgarun1

The writer is Deputy Editor, India Today.

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