Aircraft order, merger not bad but only privatisation can save Air India

New Delhi: A lot has been said about why our national airline, Air India, is in such a mess. And why it needs to now be privatized because Government ownership has been its biggest bane. But what former Chairman and MD V Thulasidas has said today in an op-ed piece in the Economic Times includes perhaps some of the most significant inflexion points which lead to the present sorry state of Air India.

Thulasidas was the CMD of Air India from December 2003 till March 2008 and in today’s piece, he is merely reacting to some of the charges levelled against him by a former colleague in a recently published book. His comments are confined to the three major decisions taken during his tenure and how he is not to be blamed for either the decisions being taken or their implications for the airline.

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During his tenure, the hugely controversial decision - to purchase 68 new aircraft for Air India - was taken. This decision was severely criticized by the Comptroller and Auditor General (CAG) in 2011. CAG said this large aircraft order was almost single handedly responsible for the airline’s deep financial mess subsequently because it burdened AI with over Rs 40,000 crore of aircraft debt, from which it has yet to emerge.

Thulasidas says the airline had only 30 aircraft in 2003 when he joined and these were all 15 years old. He also says that of the 50 new ordered by Air India (the remaining 18 were meant for budget subsidiary Air India Express) the 29 which have been delivered and paid for till now have replaced the old aircraft. So the need for new aircraft was real and the decision to buy aircraft was taken not by him but by a committee appointed by the airline’s board.

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Fair enough. But what happens to the huge aircraft debt which AI was forced to take on and which led to its bleeding right through till today? Thulasidas merely says when he left the airline in 2008 it was profitable. Sources in the airline say the 15 aircraft meant for AI Express have all come in and the 29 Thulasidas has mentioned for AI include deliveries of the 9 Boeing 787 Dreamliners.

The second point he makes is about the merger of erstwhile Air India and Indian Airlines - which was announced in August 2007 - has some merit. He says the merger was essential because Air India needed a domestic network for the final leg of an international passenger’s flight. Till then, the two erstwhile airlines were functioning independently, with no common boarding passes, no alignment of flights. So a passenger arriving from, say, New York on an AI flight had to book another airline for his onward travel within India. Thulasidas says there were really only two options available for AI : either begin a new domestic airline or merge with Indian Airlines.

Well, the idea of the merger in itself was not bad.

But what about shoddy implementation? How come the subsequent CMDs of the merged airline could never sell the merger to the employees or to the bitterly opposed employee unions? The merger in itself may not have been bad but its implementation was surely most unprofessionally done.

Result? Air India (merged entity) went on piling losses as employees of the two erstwhile organizations continued to spar over work hours, salaries and promotions, alignment of flight schedules and even pilot training programmes. This issue is being sorted out only now, five years after the merger, with the implementation of the Justice Dharmadhikari Committee report.

The third point Thulasidas made was Government’s haste in getting a new management in place by March 2008, when the merger was only a few month old. Since Thulasidas’ exit in 2008, the airline has seen four CMDs in five years - one of these, E K Bharatbhushan was there for less than a month! Thulasidas says he should have been retained to smoothen the merger process and allow a subsequent entry of the airline into Star Alliance.

Well, whether Thulasidas was the only one competent enough to carry the merger through or not, he is surely seen as one of the architects of the merger. Besides, continuity in top management of any business is desirable. The Government has traditionally removed AI’s top brass without ceremony and made fresh appointments on the whims of the incumbent Minister of Civil Aviation. Had the appointments of CMDs been done in any professional manner, perhaps the airline would not have been in such a crisis as it is today.

It is important to point out here that though Thulasidas was merely reacting to charges, he has made no mention of perhaps the only long term solution to Air India’s woes - privatisation. Instead of fixing what’s broken, he is reliving past mistakes.

[caption id=“attachment_1093007” align=“alignleft” width=“380”]  AI is and continues to be in serious financial trouble with a directionless leadership in place even now. What is needed is privatisation to save AI from Government interference.
PTI[/caption]

AI is and continues to be in serious financial trouble with a directionless leadership in place even now. What is needed is privatisation to save AI from Government interference.

The Government may have promised AI Rs 30,000 crore in equity support over a decade but with its own finances in doldrums, where is the cash going to come from? Another Rs 20,000 crore is needed for sovereign guarantees for AI’s short terms loans. Already, almost Rs 3,500 crore equity support promised in the Budget for FY14 is not coming with the Government itself starved for funds and AI may have to raise loans. Anyway, the Government cannot be expected to fund AI in perpetuity. A viable solution must be found to its financial woes. The airline carries about Rs 45,000 crore in accumulated debt on its books, which includes debt from aircraft purchase, from banks and from sundry debtors.

Even six months back, AI was happily declaring how its operational performance was improving and talked of a Rs 1,000 crore EBIDTA positive (breakeven at the operational level) FY14. But things have changed dramatically since then.

AI continues to lose money to the tune of Rs 11 crore a day, translating into a total drain of over Rs 4,000 crore. These losses are despite the government infusing Rs 16,300 crore in the last four years.

All of this needs professional handling, not another solution thought up by babus in Rajiv Gandhi Bhawan which houses the Ministry of Civil Aviation.

Air India’s workforce, long used to sarkari culture, will need to put in a hard day’s work.