RUN­NING OUT OF FUEL, FAST

THE GOV­ERN­MENT EM­BARKS ON AN­OTHER EX­ER­CISE TO RE­VIVE NA­TIONAL CAR­RIER AIR IN­DIA, BUT THE OUT­COME SEEMS OB­VI­OUS

India Today - - INSIDE - Arun By M.G.

The gov­ern­ment em­barks on an­other ex­er­cise to re­vive the na­tional car­rier, but the out­look re­mains dire

T“To keep Air In­dia run­ning, we have in­vested Rs 50,000 crore so far. That money is the gov­ern­ment’s money, it’s your money. It could have been used for school ed­u­ca­tion,” Union fi­nance min­is­ter Arun Jait­ley had said in a tele­vi­sion in­ter­view in 2015. “And if the pri­vate sec­tor can han­dle 86 per cent of fly­ing, it can also han­dle 100 per cent.” That state­ment was a pre­cur­sor to an an­nounce­ment that fol­lowed in June 2017: the air­line would be pri­va­tised. How­ever, three years af­ter Jait­ley made that state­ment, noth­ing has moved for the be­lea­guered air­line.

With no tak­ers for its divest­ment plan, has the gov­ern­ment buried the idea for good? With the lat­est plan to turn Air In­dia into a ‘pro­fes­sional’ or­gan­i­sa­tion, the gov­ern­ment seems to sug­gest just that. It has not been able to find a buyer for the air­line, and now there are re­ports sug­gest­ing that the NITI Aayog has ad­vised that its fi­nan­cials be im­proved first so that it can at­tract bid­ders and fetch a bet­ter price.

This could mean the last-ditch ef­fort to save the air­line has come to naught, cast­ing a long shadow over its re­vival and the fate of over 21,000 of its staff. More­over, as the gov­ern­ment at­tempts to keep the air­line alive by ex­tend­ing life­line af­ter life­line in the form of loans, it is fi­nally the tax­payer who is bear­ing the brunt of th­ese at­tempts to pull off the im­pos­si­ble. Marred by decades of mis­man­age­ment, a slew of bad com­mer­cial de­ci­sions and bend­ing of rules to serve the needs of the babus that run it, the erst­while Ma­haraja has been nose­div­ing steadily, los­ing market share even as it sinks deeper into a fi­nan­cial quag­mire, de­fault­ing on loans and delaying salaries to staff.

WIDEN­ING LOSSES

Now for some mind-numb­ing num­bers. The air­line has been wal­low­ing in losses ever since its merger with In­dian Air­lines in 2007. It has been 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, com­pe­ti­tion, high fuel prices and a weak ru­pee have wreaked havoc on the air­line. 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 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. It still has an an­nual short­fall of Rs 2,500 crore, for which it is forced to bor­row from banks again.

“Air In­dia is very clearly a legacy is­sue. The debt is un­sus­tain­able. For­get Air In­dia, no­body can han­dle that debt,” Suresh Prabhu, Union civil avi­a­tion min­is­ter, said in an in­ter­view in Au­gust this year. 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 are not cleared. The banks, to whom AI had out­stand­ing in­ter­est pay­ment of over Rs 800 crore, were Stan­dard Char­tered bank, Dena Bank and Bank of In­dia. More­over, the US-based Wells Fargo Trust Ser­vices and the Dubai Aero­space En­ter­prise have also sent no­tices to AI for de­fault­ing on lease rental pay­ments on air­craft, re­ports added.

LOS­ING MARKET SHARE

Gross mis­man­age­ment has also taken its toll on the air­line’s market share. Air In­dia’s market share plunged to an all-time low of 11.8 per cent this Septem­ber, down from 19.8 per cent in Jan­uary 2014. This is de­spite the num­ber of 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. Air In­dia, which de­rives 70 per cent of its rev­enues from in­ter­na­tional op­er­a­tions, has a fleet size of 163 air­craft, com­pared with the 57 that SpiceJet has and the 69 air­craft IndiGo flies. Mean­while, Jet Air­ways, which had been go­ing through a rough patch fi­nan­cially, is in early talks with the Tata Group for a merger with the lat­ter’s Vis­tara, say re­ports. The deal, if it ma­te­ri­alises, will bring to fruition the Tata Group’s am­bi­tion of run­ning a ma­jor air­line in the coun­try, as it will give Vis­tara li­cence to fly abroad be­fore the manda­tory five years of fly­ing for a new air­line. It would also help cash­strapped Jet Air­ways to come out of its fi­nan­cial trou­bles, say ex­perts.

“AIR IN­DIA IS VERY CLEARLY A LEGACY IS­SUE. THE DEBT IS UN­SUS­TAIN­ABLE. FOR­GET AIR IN­DIA, NO­BODY CAN HAN­DLE THAT DEBT” Suresh Prabhu, Union Min­is­ter for Civil Avi­a­tion

Go­ing by the amount of money Air In­dia bleeds ev­ery year, it is the worst per­former among pub­lic sec­tor en­ter­prises. Hence the de­ci­sion in June 2017 to go for a strate­gic divest­ment. But the gov­ern­ment had a stip­u­la­tion: the win­ning bid­der could not merge the air­line with ex­ist­ing busi­nesses as long as the gov­ern­ment held a stake. The win­ner was also re­quired to list Air In­dia and abide by con­di­tions de­signed to safe­guard em­ployee in­ter­ests, re­strict­ing its abil­ity to cut staff. Th­ese were big put-offs for bid­ders, es­pe­cially the staff part. Who doesn’t know that the Air In­dia staff are highly unionised and have suc­cess­fully re­sisted any at­tempts by pre­vi­ous man­age­ments to ra­tio­nalise the work­force?

The cen­tral gov­ern­ment later mod­i­fied the ear­lier clauses to at­tract for­eign di­rect in­vest­ment (FDI) by di­vest­ing 76 per cent in the air­line, but even then, there were no tak­ers. This proved to be a ma­jor em­bar­rass­ment for the Naren­dra Modi gov­ern­ment’s dis­in­vest­ment drive, since they were plan­ning to make the car­rier a show­piece in this re­gard. Jet Air­ways said it would not be par­tic­i­pat­ing in the dis­in­vest­ment process, soon af­ter IndiGo de­cided to drop out. The Tata Group, widely re­garded as a po­ten­tial suitor, also found the gov­ern­ment’s terms too oner­ous.

But things could be even worse. Ac­cord­ing to avi­a­tion con­sult­ing firm Capa In­dia, Air In­dia might even shut down if the divest­ment pro­gramme fails. Even be­fore the gov­ern­ment back­tracked on dis­in­vest­ment af­ter fail­ing to find any buy­ers, Capa had said it was crit­i­cal that the cen­tral gov­ern­ment amend the labour and debt con­di­tions for the process to suc­ceed. This is im­por­tant since the suc­cess­ful bid­der will need to in­vest in re­struc­tur­ing and ab­sorb losses for sev­eral years, in ad­di­tion to the con­sid­er­a­tion paid for 76 per cent. Also, bid­ders may want to be ring-fenced from pos­si­ble po­lit­i­cal risks, an­other rea­son why many were stay­ing away. Capa has also warned that Air In­dia was headed for losses in the range of Rs 9,750 crore to Rs 13,000 crore in 2018-19 and 201920, which is by no means com­fort­ing.

RE­VIVAL PLANS

Since June this year, the gov­ern­ment, along with the Air In­dia man­age­ment, has been work­ing on a white pa­per for its re­vival. The plan has four el­e­ments to it. First is ad­dress­ing the fi­nan­cial is­sues—strength­en­ing the bal­ancesheet to en­able the air­line to ser­vice its debt obli­ga­tions. The gov­ern­ment has had to re­cast the en­tire balance-sheet and has been work­ing with var­i­ous agen­cies, lenders and stake­hold­ers.

The sec­ond ele­ment is to cre­ate a vi­able and value-cre­at­ing strat­egy for the air­line. “It should re­sult in prof­itable op­er­a­tions and value cre­ation,” says Jayant Sinha, MoS for civil avi­a­tion. “We have been try­ing to fig­ure out the right route net­work and how it should position it­self. I would clas­sify the over­all strat­egy as Ma­haraja Di­rect—which is high-qual­ity ser­vice and a very con­ve­nient route net­work which gets you to ma­jor cities in In­dia and across the world.”

The third is to ad­dress gov­er­nance and man­age­ment is­sues, with the ad­di­tion of new mem­bers on the board— in­dus­try lead­ers Y.C. Devesh­war and Ku­mar Man­galam Birla and BJP leader Dag­gu­bati Pu­ran­deswari—so that the air­line op­er­ates “on a pro­fes­sional ba­sis with full au­ton­omy”. The fourth ele­ment is to ad­dress a num­ber of long-pend­ing hu­man re­sources is­sues, in­clud­ing ser­vice con­di­tions, com­pen­sa­tion and con­tract em­ploy­ees.

The gov­ern­ment is plan­ning to share the white pa­per with Par­lia­ment when the win­ter ses­sion be­gins. How­ever, the min­is­ter is quick to point out that the com­mit­ment to strate­gic dis­in­vest­ment, as and when in­dus­try con­di­tions are favourable, stays. “We want to make sure Air In­dia is a glob­ally com­pet­i­tive, world-class air­line op­er­at­ing at par with global air­lines. There is full free­dom to op­ti­mise routes and Air In­dia is adding more routes. The gov­ern­ment has to take the bag­gage of the past and off­load it,” says Sinha. The plan is also to move Air In­dia’s non-core as­sets into a spe­cial pur­pose ve­hi­cle, he adds.

Will the new plan to make the air­line ‘pro­fes­sional’ suc­ceed? “Is this a tacit ad­mis­sion that so far Air In­dia wasn’t man­aged pro­fes­sion­ally?” asks Ji­ten­der Bhar­gava, a for­mer AI ex­ec­u­tive di­rec­tor. “The gov­ern­ment seems to be tak­ing a lot of ad hoc de­ci­sions. No­body has been pulled up for not at­tain­ing ob­jec­tives.” The big­gest im­ped­i­ment to any change within AI are the air­line’s unions. “Can the man­age­ment take on the trade unions?” asks Bhar­gava.

Mean­while, the air­line staff seem to be a dis­grun­tled lot. “I don’t think any plan is work­ing for the air­line at present. We have been at the re­ceiv­ing end of sev­eral wrong poli­cies,” says a se­nior crew mem­ber with the air­line, not want­ing to be iden­ti­fied. For now, noth­ing seems to be work­ing for Air In­dia. Even as the gov­ern­ment pours in good money af­ter bad, In­dia’s of­fi­cial car­rier sinks fur­ther into the quag­mire. This time, there may be no es­cape.

THE LACK OF BID­DERS FOR AIR IN­DIA HAS BE­COME A MA­JOR EM­BAR­RASS­MENT FOR THE MODI GOV­ERN­MENT’S DIS­IN­VEST­MENT DRIVE, SINCE IT WAS PLANNED AS A SHOW­PIECE IN THIS RE­GARD

Source: DGCA; Jet Air­ways in­cludes JetLite, and Air In­dia in­cludes Air In­dia Ex­press; Rest, oth­ers

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