Dell appoints Wipro's ex co-CEO Suresh Vaswani as president
'India, China war games begin with countries like Maldives'

Corporate Dec 7, 2012

Maharaja of good times: Is Air India turnaround for real?

By Rajesh Pandathil

Finally, there is some good news for our grand old Maharaja. There are indications that the government's turnaround plan may be working as the airline is likely to sharply narrow its losses this year.

According to a report in Mint, the state-run carrier has estimated internally that it is on its way to cut net loss to Rs 4,270 crore this year from Rs 7,853 crore loss in 2011-12.

The news is giving credence to Civil Aviation Minister Ajit Singh's recent statement in Parliament that Air India has improved its performance standards.

PTI

He had also said promotions to its employees, which had been stopped recently, will be started from January 2013.

He said during the Question Hour in Lok Sabha that it has even returned some of the loans taken from banks and its market share rose to 20.8 percent.

What is helping the company lower its losses? It is a combination of cost-cutting and revenue generation steps undertaken by the carrier, the Mint report said.

A senior civil aviation ministry official has been quoted as saying that it has managed to cut the staff cost this year to Rs 2,260 crore from was Rs 3,700 crore 2010-11.

In its bid to cut staff cost, the airline restricted its hiring to pilots and engineers. It did not fill vacancies created by the retirement of employees. These steps have effectively reduced the staff count to 28,500 from 35,000 in 2011.

Besides, the airline has cut wages too.

Another factor that has helped the company is the grounding of Kingfisher Airlines.

But according to the minister's statement in the Lok Sabha, the airline is still making losses on most routes.

"As per provisional Route Economics for April-June, 2012, out of 184 services, only 16 services met the total costs, 99 services did not meet cash-costs and 69 services met cash-costs but not the total costs," Singh said.

Experts feel the airline's turnaround could be for real, only if the company can stick to the turnaround plan and the government stop meddling in its operations.

Moreover, the government's equity infusion also hinges on the airline's ability to become profitable.

As far as sticking to the turnaround plan is concerned, it already looks a hard bargain for the management.

An earlier Mint report said unions have vowed to oppose any move to divest stake in Air India's engineering subsidiary.

The ministry has plans to divest stake in the engineering company next year, after hiring a foreign executive to head it, the report said.

The MRO business of Air India is a story of lost opportunities. The company has the required expertise and talents, but has not been able to cash in on them.

The arm, Air India Engineering Services Ltd, is likely to become operational on 1 January. The hiving off of the engineering operations is part of the turnaround plan.

According to the Mint report, Air India Engineering has an annual revenue potential of about Rs 1,000 crore initially. It can increase the revenue once it starts getting business from companies other than Air India.

Another good news for Air India is the likely deal between Jet Airways and Etihaad, which increases prospects of the state-run carrier getting into Star Alliance.

A deal with Etihad is likely to scuttle Jet Airways' plans to be part of the alliance, as the alliance has never been keen on Gulf-based airlines.

Admitting that the deal news has increased Air India's prospects of getting into the alliance, Air India CMD Rohit Nandan told the Economic Times yesterday that it is in continuous dialogue with Star Alliance.

"Star Alliance did deviate in between for a short while (when Jet formally requested membership) but they would now see Air India more favourably," Nandan was quoted as saying in the ET report.

The Jet-Etihad deal is also likely to increase competition for Air India in the international routes.

For the time being, however, Air India seems to be on a stronger wicket. But a long-term revival is possible only if the government and the babus restrain themselves from meddling in the airline's affairs.

by Rajesh Pandathil

Related Stories.