A white elephant called Air India

ai A report in Business Standard states the first meeting of the Group of Ministers (GoM) to discuss funding options for cash-strapped Air India remained inconclusive today and it will meet again in a week. The government plans to infuse Rs 5,000 crore — Rs 2,000 crore in the form of equity and rest to fund the functioning — in the bleeding airline, which has an equity capital of Rs 145 crore. Air India has losses of around Rs 7,200 crore on its books and has debt of Rs 15,000 crore on its books. Of this, Rs 11,000 crore are high-cost debt.

In a previous post, Air India – The Cashless Maharajah I had mentioned the problems ailing the Air India. The Airlines in an attempt to trim costs announced to cut the productivity-linked incentive (PLI) of all 31,000 employees by 50 per cent, which was objected by the unions. Later, the airline management announced to cut the PLI ranging from 25 per cent to 50 per cent, which was objected by executive pilots. The airline then had to roll back the cut for executive pilots and a committee was set to look into the same.

In a candid interview with Businessworld, Arun Jadhav, the Chairman and Managing Director of Air India mentioned the problems facing the airline. To sum up these are:

–   Air India has 32,000 employees compared with 12,000 “in any like-to-like company”.
–   Employees are not conscious of working for a business in crisis.
–   Pilots “sitting at home” are paid “80 hours of flying allowances”.
–   Despite a freeze on recruitment, “we have recruited”.
–  “There is a duplication of every activity and no single chain of command”.
–  “Revenues are 14,000 crore and costs are Rs19,000 crore” (approx $2.9bn and $3.9bn)
–  “We have 22 offline stations where we no longer fly”.
–  “We have an alarming number of aircraft (25) and engines (33) on standby”.
–   For 800 business class seats from Delhi, 750 meals are ordered but there are only 400 travelers – “no-one knows” where the other 350-400 go.

Can such problems be sorted out in near future remains the question? The govt’s bail out package is based on six months of survival and recovery starting in the next nine months followed by profitability to be achieved.

Airlines have been loosing money across the world. In private sector when an airlines looses money, it is driven out of business and the shareholders bear the losses. But when Air India looses money this is paid by the general public. Not even 1 percent of India’s population has ever used Air India’s services. The major funding will now come from the rest of 99 percent Indians and from the pocket of poorest of the poor in this country. It is not that private companies are not running airlines or are not capable of operating airlines.  It is just that our rulers in their need to have a personal airline at their disposal have put a cost on the general public.

Why should government be involved in running an airline company in the first place?

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