STRUGGLING TO TAKE OFF
PSUs in our country are merely set up for loss-making units or for turning into sick units slowly and steadily or for disinvestment. This has been the common practice in the past. Today, I can point out in satisfaction that we have succeeded to turn the operation of socalled notorious Air India into an operational profit-making undertaking during the last year,” said Prime Minister Narendra Modi in his 70th Independence Day speech recently. Modi’s eloquence painted a rosy picture for the struggling Air India, which has posted around `100 crore of operating profits in 2015/16.
However, it cannot be labelled a turnaround story. The government has pumped `22,280 crore into the airline over the past five years. An additional `8,000 crore will be invested as per its turnaround plan approved by the Cabinet Committee on Economic Affairs in 2012. Besides, the operating profit is just 1.8 per cent of the net losses that it posted in 2014/15. The national carrier has to start generating net profits to pay back the government — in the form of dividends — for the taxpayers’ money it has spent on the airline’s revival. But that looks a distant reality. Air India’s debt stands at a whopping `51,000 crore as on March 2016, a result of its faulty policy of buying aircraft instead of leasing them, like most airlines do.
The operating profits were helped by an estimated `700 crore savings in FY16 due to low ATF (aviation turbine fuel) prices, which are beyond the control of airlines. In fact, low fuel prices give elbow room to airlines to reduce internal costs and increase non-passenger revenues. But Air India’s complex cost structure comprising fuel costs, finance costs and staff costs, has lesser scope for improvement. Its aircraft-toemployee ratio stood at 211 in 2014/15 compared to IndiGo’s 112 and Jet Airways’ 126. And the airline has consistently topped the charts when it comes to passengers affected due to delays and cancellation.
The government is now considering a proposal from Niti Aayog to group operations of Air India and its subsidiaries into three entities with one focusing on transport services, and the other two on engineering services and ground handling. Over the years, Air India has reduced its subsidiaries — from seven in 2008 to five in 2014. By reducing it further to three entities, a major impact is unlikely, not least because the subsidiaries have very little revenue compared to the parent.