Air India Crisis – The National Air Carrier on a FreeFall

21st June 2011

How it startedAir India (Hindi: एअर इं�डि�या) is a state-owned flag carrier, the oldest and the largest airline of India. It is a part of the Indian government-owned Air India Limited (AIL) which is renamed as Air India Ltd. The airline operates a fleet of Airbus and Boeing aircraft serving Asia, Australia, Europe and North America. Its corporate office is located at the Air India Building at Nariman Point in South Mumbai. It is the 16th largest airline in Asia. Air India has two major domestic hubs at Indira Gandhi International Airport and Chhatrapati Shivaji International Airport. An international hub at Dubai International Airport is currently being planned.

Some six decades ago in August 1953, the Indian airtransport industry was nationalised to provide safe, smooth and economic air travel to the people. It involved eight warring airlines with different work cultures, horrendous safety record, disastrous financial conditions because of cut-throat competition and inefficient management in some.Thus come into existence Indian Airlines Corp and Air India Ltd to operate domestic and international long haul services. The nationalisation was also expected to spur growth, promote economic activity, rush assistance in times of natural calamities like flood, famine and earthquake, foster national integration and, above all, serve as the second line of defence in the event of war with another country.It must be conceded that the nationalised airlines fulfilled most of the expectations of the nation, particularly at times of natural calamities and during the wars with China and Pakistan. This apart, bringing remote places of the country into the mainstream by connecting them with air service need not be told.

Timeline1. Founded by JRD TATA in 19322. 1953 Indian Govt. acquired major stake3. 1960 purchased first boeing 707 and entered jet age4. Renamed to Air India Ltd. In 19965. Was set for disinvestment in 2001 but it failed due to global slowdown.6. In 2006 the airlines began showing signs of financial distress. Estimated loss

Rs. 770 crores ( 7.7 billion).7. In 2007 Air India and Indian Airlines merged along with their subsidiaries to form Air

India Limited.8. Senseless merger of the two wings of the airline took loss figures to Rs7,200 crores

( 72 billion) by March 20099. This was followed by various restructuring plans which were not at all effective.10. May 2011 : Already reeling under financial crunch because of the ten day pilot strike

Air India finds itself in a tight spot as State-run oil companies – the Indian Oil Corporation, the Bharat Petroleum Corporation Ltd. and the Hindustan Petroleum Corporation refuse to supply the fuel to the bleeding carrier.

11. For the financial year 2010-2011 a loss of Rs 7000 crore is expected.

From a business case standpoint it should have ceased to operate a few

years back had it been a private company.

Problems (part 1) Was not prepared for competition it started getting after the

liberalization of India economy in 1990. Bloated workforce. Air India has 28,000 permanent staff, double

Jet's headcount. It operates 127 aircraft, compared with Jet's 115. Highest Employees per Aircraft in the world 200:1 where as desirable is 130-170:1. Bad management and faulty policies has brought Air India to this

crisis level. A culture of complete sloth in administration. Complete lack of Ownership. Lake of responsibility for results and failures. Deeply ingrained corruption in all levels. Instead of renting out unused portions of iconic Nariman Point

building for the huge sum, the debt-ridden airline is paying Rs 22 lakh each month for its upkeep; 15 of its 23 floors are lying vacant.

Problems (part 2)Old gas guzzling air crafts still running.Poor marketing and campaign management,

competitors like spicejet, jet, and kingfisher do effective marketing.

Employees not paid salaries.Employee strikes further taking it out of business,

and competitors taking advantage.The airline has not posted a profit since merging

with former duopoly partner Indian Airlines in 2007 and relies on handouts from New Delhi to survive.

Flight to survival

It needs :to secure a massive debt and operational overhaul if it is

to survive in a market growing at 20 percent a year. $4 billion of working capital debt Privatization – free from govt interference. to Lure customers and grab lost market share. to lease some of the 14 vacant floors in its landmark

building in south Mumbai to raise about $1 billion over five years

to clear $9 billion in debt as well as outstanding dues both to airport developers and state oil firms

to tackle a bloated cost structure, a difficult task given a workforce that is heavily unionised.

to do some downsizing.To cut unprofitable routes and create a new plan that

would focus on a hub-and-spoke route model

Recent strategic implemetations.from June 15 to July 25. AI launched an economy class

package worth Rs.30000 and also a business class package worth Rs.50000 which will allow passengers to enjoy unlimited number of flights along the length and breadth of the country.

Long Pending salaries of its employees would be disbursed by the end of June 2011.

Company in talks with 26 banks to restructure debt.The latest plan would focus on a hub-and-spoke route

model, cut costs by redeploying staff and unload non-core real estate.

According to the restructuring plan, part of the debt would be converted to long-term loans at fixed rates of interest with the remainder converted into preference shares to be redeemed after 15 years, giving the lenders equity in the airline.

References :

•http://www.reuters.com/article/2011/06/13/idUS250886910520110613•http://www.telegraphindia.com/1110614/jsp/business/story_14110511.jsp•http://www.livemint.com/2011/06/14065321/AirIndiamay-post-loss-of-7.html?atype=tp•http://www.prokerala.com/news/articles/a220209.html•http://www.citizeneconomists.com/blogs/2011/06/13/indias-privatisation-problem/•http://economictimes.indiatimes.com/news/news-by-industry/transportation/airlines-/-aviation/appoint-administrator-with-political-backing-in-ai/articleshow/8835308.cms•http://news.in.msn.com/national/article.aspx?cp-documentid=5181909•http://www.hindustantimes.com/Airline-on-a-freefall/Article1-708680.aspx•http://www.psuindia.in/psu-news/5077-air-india-to-combine-13-flights-to-tackle-fresh-financial-crisis•http://ncrkhabar.com/india/air-india-in-crisisoil-companies-refuse-fuel•http://boardingarea.com/blogs/flyingwithfish/2011/06/13/is-air-india-finally-ready-to-really-join-star-alliance/?utm_source=twitterfeed&utm_medium=twitter&utm_campaign=Feed%3A+boardingarea%2Fflyingwithfish+%28Flying+With+Fish%29&utm_content=Google+International•http://en.wikipedia.org/wiki/Air_India•http://www.livemint.com/2011/06/13232142/Air-India-to-get-the-required.html•http://www.dnaindia.com/india/report_come-out-with-white-paper-on-air-india-bjp-to-centre_1554667•http://articles.economictimes.indiatimes.com/2011-06-11/news/29643035_1_govt-releases-rs-air-india-vvips

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