Air India may face more headwinds as govt backtracks on Rs 30,000 crore second bailout package

The July domestic airline data released by aviation regulator DGCA show how slipping service standards and a shrinking market share for Air India have become par for the course. Air India (AI) had the highest cancellation rate among scheduled airlines last month (2.49 percent against an average of 1.49 percent). It also had the highest number of passenger complaints among all domestic airlines and worst on-time performance at four of the country's busiest airports. Every third Air India flight from and to these four airports was delayed as AI’s OTP was 67.5 percent. At Mumbai, almost every second flight was delayed. Only in terms of the number of passengers affected by flights delayed beyond two hours did Air India allow any other airline to better its own record.

While 50,612 IndiGo passengers were affected, only 43,804 from Air India suffered due to inordinate delays. And to top it all, Air India (along with Jet Airways) lost market share in July (12.4 percent versus 13.3 percent at the start of 2018) while IndiGo ramped it up to over 42 percent. In April, May and June too, AI had topped cancellations, passenger complaints and reported shrinking market share.

With a large number of aircraft non-operational and no new fleet induction plans, it is quite obvious that Air India’s market share will shrink further in the coming months. Air India is in a state of permanent flux, with falling service standards and shrinking share of the domestic market. And to top it all, government’s dithering about its future is unlikely to give the airline any sense of calm, anytime soon.

Representational image. PTI

Representational image. PTI

A few weeks back, government officials had spoken of pumping in thousands of crores more of taxpayers’ money into the perpetually loss-making airline to help it stand on its own feet. But now, reports that hiving off non-core assets will be followed instead and no fresh equity infusion will be made apart from the sum already budgeted for FY19, have emerged.

This about-turn in the government’s stand came after a meeting of the board of directors of Air India last week, the first one where India Inc captains Y C Deveshwar and Kumar Mangalam Birla were supposed to also be present. Only the former attended the meeting. Remember, AI has already received an equity infusion of Rs 27,195.21 crore till FY 2018, under a previously approved turnaround plan. And talk of infusing more cash into this loss-laden carrier started last month

As these earlier reports had suggested, the government was mulling a second bailout package of Rs 30,000 crore. But of course, a cash-strapped government would be wary of pumping in huge amounts of cash into an airline, especially in an election year when optics demand that it instead pours money down some social sector schemes.

This pragmatism is all very well but with no money coming in, Air India stares at a bleak future. It has little money to run daily operations, has been forced to delay salaries, a large number of its aircraft are grounded for want of spares and its pilots are up in arms over non-payment of their flying allowances.

What exactly does the government plan to do about AI? Does it want to fund the airline, turn it around and then attempt selloff once again? Or does it want to write off most of the debt and push the airline to become operationally stronger with a healthier balance sheet?

Remember, the second option will take months to be implemented. And from statistics presented above, it is clear that operational excellence is not exactly happening.

In Parliament, the government has been saying that it has not dropped the ball on disinvestment of Air India, a plan which bombed in May this year when not a single bidder threw its hat in the ring. A failed disinvestment and no fresh funds infusion is a double whammy for the airline which is struggling with over Rs 50,000 crore of debt and an almost equal amount of accumulated losses.

When asked about the present operational mess, an airline official had said earlier that many aircraft were on the ground due to non-availabilityof spare parts as the airline struggled with inadequate working capital. Payments to vendors and lessors have been also pending. The airline had sought a little over Rs 2,000 crore for this fiscal earlier but only Rs 650 crore has come in so far.

That Air India faces hard times ahead has been pointed out by global aviation consultancy CAPA as well. “The failure of Air India privatisation process brings near-term uncertainty to the carrier and the prospect of increased losses," it said, adding that the airline may lose market share in the international sectors as well (apart from domestic share loss) as LCCs gear up for increased international focus.”

The government needs a proactive approach to tackle the mess it has created at Air India. There needs to be a time-bound, long-term plan to bring the carrier out of the vicious cycle of losses, tackle its debt pile and allow it to compete in an increasingly hostile domestic aviation environment. Else, the only option would be to shutter Air India.


Updated Date: Aug 22, 2018 13:19 PM

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