A company needs the flexibility to operate and make decisions on its own based on ever-changing market scenarios. Till now, Air India was denied this freedom.
After failing to find a buyer for the debt-ridden national carrier, the government has decided to give Air India one more chance to revive itself. But does the airline, which lives off taxpayers’ money repeatedly, deserve another chance?
Air India has been a spoilt child. The only reason it is still able to fly is that the government has bailed it out every time the airline hemorrhaged. The same luxury was not available to Kingfisher or Jet Airways, now.
Having said that, part of the reason for Air India’s sloppy performance has been the government itself. From buying airlines to hiring staff or deciding which routes to fly, all these were dictated by politicians or bureaucrats.
As a result, Air India sits on Rs 50,000 crore of debt for which it pays Rs 5,000 crore as interest every year. The government has already infused Rs 25,000 crore as equity in the company apart from the bank guarantees that the airline enjoyed over the years. Though Air India has not yet declared its 2017-18 audited numbers, in January 2018 a written reply from the ministry of civil aviation put the figure at Rs 3,579-crore loss. In short, the airline continues to bleed profusely.
In order to save the company, the government has suggested a number of steps. For one, it plans to transfer Rs 30,000 crore, or 60 percent, of Air India’s debt to a special purpose vehicle. Second, it will infuse Rs 15,000 crore into Air India through loans and guarantees. This part of the deal is somewhat similar to every government bail-out package that Air India has received only for the airline to revert to its old ways.
The differentiator this time around is autonomy. A company needs the flexibility to operate and make decisions on its own based on ever-changing market scenarios. Till now, Air India, unfortunately, was denied this freedom. The management was not allowed even basic decisions like retiring older staff to make way for newer people with skill sets to go with the times. As a result, while the retirement age at Air India is 58, the average age of its employees is 55. With such restrictions, it is no surprise that the airline was not making money.
Now, the government is offering significant autonomy to Air India’s board with the condition that the company will not seek financial support from the government after 2018-19.
The Indian airline sector is one of the fastest growing in the world but at the same time, it is one of the most competitive ones. In a price sensitive market, low-cost no-frills airlines have an upper hand in terms of profitability and operating parameters. Air India has been competing in this market by keeping its price low but its high-cost structure was bleeding it.
Giving autonomy to the board of the company is just one part of the job. The company will need to revamp its management with the best-in-class. This would mean paying top dollar to senior management and asking it to cut manpower in the company along with other costs. This is a tall task in a country like India and especially for a political sensitive company like Air India.
Secondly, the company will have to completely re-haul its operations and come out with a profitable model for domestic operations. Thirdly, it will have to shed excess weight both in terms of staff as well as unrelated operations which need to be hived-off to raise cash.
Finally, the fact that this is the last chance that Air India has needs to be registered in the mind of every employee of the company. The government’s plan to revive the airline may well work with the right team in place. A profitable airline with a motivated team can easily be sold too as no one wants to be associated with a bleeding chained giant.