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Air India- A Saga of mismanagement
Air%20India_edited.jpg

Sphurti Srivastava

2 mins read

Do you guys remember Air India? Do you know the one that was labeled as the ‘Palace in the sky’? The world's first all-jet airline? The one which excelled in providing customer service, which was quite evident from its logo of Maharaja? Well, do you also know that this same Air India is on the verge of shutting its operations? Shocking right? But sadly, it's true. 

 

Air India has a debt burden of ₹ 60000 Crores. The Government has been following an extensive disinvestment policy but not a single buyer is willing to buy. The Government of India has infused a total of ₹ 30520 Crores from 2011 till December of 2019. The Government has left Air India to fend for itself by refusing to inject funds anymore amidst its privatization plans. Air India registered a massive loss of ₹ 8556 Crores from 2018 to 2019. The question you must ask yourself is how did Air India come to this state of affairs? 

 

Well there are a large number of factors but as Jitendra Bhargava, author of “descent of Air India'', says there are two factors responsible for Air India's fate:

 a) Competition from the private sector came early in the aviation industry as compared to other public sectors like banking

 b) Appointment of an outsider as the Chairman of Air India instead of an insider.

 

Drawbacks of Air India include the lack of a strong leader who could take strong decisions. What followed was that Air India could not negotiate with labour unions and acceded to its demands and the result was that Air India had to reduce its services to cut down its cost which severely affected its competitive position in the market. But these aren’t the two factors which crashed Air India. The Atal Bihari Government wanted to privatize Air India and Indian Airlines and tasked Naresh Chandra Committee to study the options.

 

The UPA-I government, under the leadership of Dr. Manmohan Singh, was in favour of

the modernization of the fleet and rejected the Naresh Chandra Committee's report.

 

The Government acquired 111 aircraft at the expense of ₹ 70000 Crores. The idea was to fund the acquisitions through debt and repay through revenue generation. The plan didn’t work and was a disaster. In 2007 The Government decided to merge Air India and Indian Airlines to increase synergy. The result was exactly the opposite. Losses kept mounting. In 2002-03, the overall losses for Air India and Indian Airlines were ₹ 63 crore which then rose to nearly ₹ 7,000 crore in 2010-11. In a span of five years, the combined Air India-Indian Airlines entity piled up a debt of ₹ 20,000 crore. In 2011, the UPA-II government decided to pump in the equity of ₹ 48,212 crore for 20 years initiating in 2011-12 and ending in 2031-32 to stop Air India from bleeding.

 

. . .

Air India was expected to show positive earnings and a cash surplus from the financial year 2017 onwards. The opposite happened. Air India's inability to service the annual interest payments led to losses amounting to ₹ 52,000 crore this year. According to the CAG (Comptroller and Auditor General of India) report tabled in Parliament in March 2017, Air India incurred a loss of more than ₹ 671 crore by selling five Boeing 777-200 long-range aircraft to Etihad below the cost price.

 

Air India sold these five Boeings to Gulf carrier Etihad for USD 336.5 million, which comes to roughly USD 67.3 million per plane. According to CAG, the aircraft were sold at a price lower than the indicative market price of USD 86-92 million per aircraft obtained from two parties, M/s AVITAS and M/s ACCENT. The losses mount when one adds the interest paid on loans to procure these aircraft which stands at ₹ 324.6 crore. The losses kept mounting but Air India had to pay its employee’s salaries, insurance premiums, and all such expenses which kept on increasing losses. Air India also suffers from overstaffing. The company has about 210 employees per plane, Jet Airways has 119 and IndiGo requires just 80 per aircraft. It’s not that the company hasn’t tried to prune its staff size. But its voluntary retirement schemes, implemented in 2003, 2008, didn’t result in any significant reduction in the workforce. 

 

Just imagine the extra expenditure Air India incurs every month which could have been avoided. It is said that Air India met such a terrible fate. Air India's case serves as a learning lesson for all public sector undertakings and warns that a poorly managed PSU will meet the same fate as Air India.

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