Air India: Headed for a crash landing

With the state-owned National Aviation Company of India Limited forced to delay salary payments, it could be that the government will now rush through the package that the company has been demanding for many months.

Whatever the final details of the bailout package (Nacil officials insist it is not a bailout but the cost of the merger of Air-India and Indian Airlines, which the government must legitimately pay for), the government's strategy remains unclear.

The implementation of the merger has clearly not worked; the numbers at senior executive levels have exploded in an effort to keep everyone happy, and the two airlines are yet to operate on a single reservation platform and achieve other synergies. So there is a question mark over what the government hoped to achieve by the merger.

What is equally unclear is why, unlike Jet and Kingfisher, Nacil has not deferred its purchases of aircraft to cope with the aviation slump; it has ordered 111, of which nearly half have been delivered.

What is intriguing in this context is the logic of liberally awarding bilateral rights to other airlines. While Air India has always resisted any move to allow more competition, the ministry's insistence on awarding more bilaterals probably stems from an understandable desire to give passengers more choice. But if more bilaterals are to be given and these reduce Nacil's share of the ex-India business (now down to 23.5 per cent), why buy 111 planes?

The resulting financial crisis was long foretold. The airline has spent about Rs 20,000 crore (Rs 200 billion) already on the new planes delivered, a sum that is substantially in excess of its annual turnover -- which has fallen despite the fleet expansion!

Another Rs 25,000 crore (Rs 250 billion) will be spent in the coming two to three years, for taking delivery of the remaining aircraft ordered. And the government has talked of ordering another 100 aircraft after that!

Any airline would have gone bust, with such reckless expansion. So it is no surprise that Nacil has accumulated debt of Rs 16,000 crore (Rs 160 billion) -- a sum that is equal to its turnover.

While the airline has not been allowed to defer the delivery of aircraft, its protests over the terms of a joint venture for ground handling have been ignored and its chief executive sent packing after he protested.

Nacil is also being pressured to hand over more than 100 acres of land that it has on long lease adjacent to the Mumbai airport, for a pittance in return from the privatised Mumbai airport company. It is almost as though the airline has been deliberately run into the ground in the last few years.

While the civil aviation ministry's activist supervision of the airline's functioning is said to be responsible for much of the mess, the airline management has its own sins to answer for.

Despite having a new fleet, Nacil discounts its fares more than rival airlines with older fleet. And if its market share keeps dropping, one reason could be poor on-time performance. In the last one month, just 73 per cent of its international flights left/landed on time, compared to 85 per cent for competitors like Singapore Airlines; on domestic routes, it was 42 per cent, versus 68 per cent for Jet Airways.