August , 2017
Research shows Air India can do well
14:16 pm

Kishore Kumar Biswas

Till 2005-06, the Indian Airlines and Air India (AI) had been running profitably. These two organisations were merged into AI in 2007. It is seen that between 2007-08 and 2012, AI suffered heavy financial loss. In 2012, the government went for a turnaround plan for AI. In 2011-12, AI had loss of Rs 4901 crore. Two research documents (EPW, July 8, 2017), one of Kannan Kasturi, an independent researcher, and the other of R. Venkatesh and Pallavi Chaudhuri of the National Council of Applied Economic Research (NCAER) are relevant here. In the turnaround plan the operating loss began to decrease.

Currently, some of the favourable facts of AI

1)  The Ministry of Civil Aviation (MCA) thinks that by 2018-19, that is, much before the target time of turnaround (2022), AI will turn into a profitable organisation.

2)  Operating profit of AI at Rs 1,086 crore in 2016-17.

3)  About 60% of the revenue is coming from foreign currency.

4) It pays a huge tax on aviation fuel, which is a transfer payment.

5) If AI is privatised, it would directly lose around 50,000 workers and another 3,00,000 jobs in related sectors elsewhere.

6)  With the creation of subsidiaries for maintenance, repairing, and ground handling services the man power employed per aircraft became comparable to other private airlines.

7)  The MCA stated in the Lok Sbha that the AI was expected to improve its revenues in 2016-17 by 10%, revenue passenger KM by 6.8% and passenger load factor by 6.2%.

8)  In 2016-17, MCA’s estimated passenger load factor (simply seat capacity utilisation) has been 76.4%.

Why privatisation?

The NITI Aayog recommended privatisation of the AI and that was approved by the union cabinet. The NITI Aayog suggested that the recovered money by selling AI should be spent on health and education. When the turnaround was signed there were many weaknesses in the work in progress of AI. During 1989-2004, no new planes were ordered. At
that time there was a need for increasing the number of planes to cope with the increasing demand for air traveling. It should be mentioned that from 2005 to 20011 or even later, the Indian economy attained its historically high growth of GDP.
After prolonged discussions, 68 aircraft were ordered. But
that needed about Rs
 41,000 crore but the amount of equity
infusion was only of  Rs
 325 crore. The rest would be funded
by debt and that to be repaid through revenue generation. Then operational loss per year stood up to Rs
 5,000 crore
and accumulated debt to Rs
 43,000 crore . But there was a lack of supply of planes in time. This is why AI had to suffer
a huge loss in running business and gaining customers’ satisfaction. Government had to go for bilateral agreements with West Asian services for cross border passengers. In this way, AI had to lose passengers within the country from 23.1% in 2005-06 to 13% in 2011-12.  

Private airlines record in India is not commendable

In 2003-04, Indian Airlines, as was reported, was the most preferred service in India. Later there came the era of low cost airlines in India. The early private airline players did not do that well. Kasturi mentioned several instances. Air Deccan, the second largest airline in India in 2007, ran into losses and was taken over by Kingfisher Airlines. Later Kingfisher took Rs 7000 crore from several PSBs and became bankrupt in 2012. Jet Airways took over Sahara. Spice Jet went almost defunct in 2014-15. This means that private players will hardly come to the rescue of AI.

Some of the basic reasons behind the poor health of AI

Kasturi pointed out that it will not be difficult to sell AI to private players. This is because of the positive factors of AI. It is also felt that AI should be operationally profitable as it has a large number of aircraft, mostly new planes. There is also a low cost international carrier like Air India Express, which has profitable ground handling services, valuable property, and skilled human resources.

The main reason behind the poor health of AI was, as pointed out by Kasturi, “its many omissions and commissions in the past- delayed acquisition of aircraft, late capitalisation of the airline, interference with decisions related to aircraft acquisition, ill-thought-out merger of AI and Indian Airlines and providing a level playing field to the national carrier on international routes.”

Venkateshan and Choudhuri have shown the positive economic benefit of employment and output if the government continues with AI's services. They also showed that AI will not be a bleeding carrier provided some steps are taken. The operating profit has begun to increase considerably. The government has to extend a helping hand to rectify the past weakness of the management of AI.

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