The Descent of Air India (43 page)

For nearly two years after the merger, the recommendation was frozen in the files. Finally, when Air India was faced with an empty coffer, the management came up with a turnaround plan that required the infusion of funds by the government. The Committee of Secretaries had two meetings, one on 25 July and the other on 29 August 2009, and recommended the following:

•   An equity infusion of
  5,000 crore over a period of three years towards fleet acquisition
  
•   A governmental guarantee for working capital of
  10,000 crore
  

The benefits package was way below what Air India had asked for while deposing before the parliamentary committees in 2009. It had sought the following concessions from the government:

1.  A one-time equity support of
10,000 crore for the repayment of the aircraft principal.

2.  A 10-year interest-free loan of
10,000 crore with a five-year moratorium to support working capital reduction.

3.  Setting up of a group of ministers (GoM) to supervise the turnaround of Air India.

4.  Support on bilateral routes suggesting freeze, roll back of sanctioned bilateral rights and curb on sixth freedom traffic, which allows airlines to carry passengers beyond the home country; and a review of access (number of cities served and frequency) for foreign carriers.

5.  Support for preferred slot negotiation at key international airports (timing, quantum), especially at the Frankfurt hub.

6.  Permission to defer or cancel part of the new aircraft order as well as pre mature return of old leased aircraft.

7.  Ensure that government employees travel by Air India and can avail of commercial concessions/promotional offers (especially frequent flyer miles)

8.  Aviation turbine fuel to be considered as ‘declared goods’, which would have brought down the sales tax to be charged to 4 per cent instead of the 25–30 per cent that was being charged by the different states at the time; and pricing to be brought into line with the international ‘basket’ price.

9.  Amendment of the definition of ‘workman’ under the IDA 1947 to exclude pilots, flight engineers and aircraft maintenance engineers from the purview of the said act. (Also, Air India should be exempt from Contract Labour (Abolition and Regulation) Act of 1970 which would have allowed the airline to outsource certain functions.

10.  Prudential norms to be applied by the banking industry on loans to the civil aviation sector.

11.  Restructuring of the top management team and appointment of independent directors (finance, IT , hospitality, legal and economic disciplines).

As far as we know, most of these pleas have not been accommodated till date, barring the commitment to infuse
30,000 crore by 2021.

DEATH BY DELAYS

What was the ministry’s response to the consultant’s report and Air India’s pleas? Delays, delays and more delays. And finally, when it became impossible for Air India to pay its employees and vendors or meet mandatory expenses, funds were released on a piecemeal basis with a view to meeting short-term operational expenses. At no point did the ministry take the long-term view and offer a viable financial package to the airline. But one expert group followed another; reports piled up everywhere; and the Cabinet Committee on Economic Affairs took inordinately long making up its mind on the suggestions given by hordes of consultants. It was as if Air India could afford to wait endlessly.

A
30,000-crore package was finally approved in April 2012. But by that time, the injection of funds had become more like a financial bailout package that would last for over eight years, ending in 2021. And to ensure that the public did not erupt in anger over the large sums of money involved, Air India was set milestones to track the use and impact of the money being poured into its revival. The tragedy is that this could have been avoided. Air India knew what the problem was. The ministry was aware of its difficulties. And if the objective all around was to keep the airline on its feet, why has it been crippled for life?

Star Alliance: an uneasy pact

Consider this laudatory statement made by Glenn Tilton, the chairman and CEO of United Airlines, in Beijing on 13 December 2007:‘Having now come to an agreement with Air India makes us the first airline alliance to secure a member in India, which will enable our customers to receive more benefits when travelling to, from and within India in the future.’This statement was made after the CEOs of Star Alliance member airlines voted to accept the application of Air India to become a future member of the alliance. But in August 2011, the same group denied Air India membership on the specious plea that ‘Air India had not met the minimum joining conditions that were contractually agreed in December 2007.’ Star Alliance membership, with its global network providing a range of benefits, such as faster and smoother transfers, frequent flyer programmes and lounge access for a convenient, smooth and efficient worldwide travel experience, could have catapulted Air India into a different orbit. It would have helped generate at least
1,000 crore of additional revenue every year; besides, membership of the Star Alliance was cited as a major factor for merging Air India and Indian Airlines. We were told that it would make the organisation a strong contender for a place in the elite club. The Star Alliance press release issued on 1 August 2011, stated, ‘The member airlines of the Star Alliance network and Air India have jointly concluded that the integration of Air India into the global airline alliance will be suspended.’ If it had been jointly concluded following a review of the status of Air India’s application at a meeting held in New Delhi between the Ministry of Civil Aviation, Star Alliance CEO Jaan Albrecht and Air India CMD Arvind Jadhav, one wonders why the then Civil Aviation Minister, Vayalar Ravi, expressed surprise at the public pronouncement. The specialised team at Air India, which had worked tirelessly with Star Alliance and its member carriers on the integration process, was shocked at the development because all integration conditions had been complied with and the same had been confirmed by the Star Alliance team coordinating with them. Will those responsible for poor networking with Star Alliance members ever be taken to task?

Passenger service system

The upgrading of the Passenger Service System (PSS) was critical both for complying with the technology conditions that were laid out by Star Alliance and for Air India to demonstrate the success of the merger by operating flights under a common code. The PSS is a set of applications and services that are provided in an automated environment for handling of passengers by an airline, which broadly includes airline reservations, fares, inventory management, ticketing (including e-ticketing), departure control system/check-in, boarding pass and baggage tag printing, baggage reconciliation system, automated boarding control, weight and balance and such others. But the upgrading of systems was inordinately delayed. Even after the procedural formalities had been completed and the contract was in its final stage of being entered into, a complaint by a Delhi-based company (Amadeus) that Air India was deviating from the conditions specified in the tender nixed the process. The problem with the complaint was that it appeared to be motivated. The deviation in process was inevitable because even though the tender had specified a period of nine months for accomplishing the work, the appointed company had wanted 13 months for execution after finding out the scale of work involved. There wasn’t any charge of any financial bungling on the part of any official in the complaint, but it was enough for those interested within and outside the management to abort the contract and re-tender the work. SITA and Amadeus, the company that had earlier complained, were in the reckoning. The committee that scrutinised the financial bids, after finding the two companies technically qualified to execute the work, recommended SITA as its bid was lower than that of Amadeus. While SITA was to cost Air India USD185 million over a 10-year period, Amadeus would have led to a bill of USD325 million. Even though it was an open-and-shut case, the ordering was delayed because the political dispensation in Delhi had wanted Amadeus. As no one had the temerity to tell the minister that the contract could not be awarded to a party that had quoted so much higher than the one that had been recommended. The proposal wasn’t put to the board for approval for several weeks notwithstanding its criticality and the fact that Star Alliance membership would remain elusive till its completion and Air India would not be able to operate flights with a common code. In the meantime, pressure was being mounted to find a way to favour Amadeus. When the proposal was eventually placed for the board’s approval, instead of giving it the go-ahead, it suggested that the committee visit Kuala Lumpur and Sydney to see the systems engineered by SITA and Amadeus technology once again. The committee, after undertaking the visit, reiterated its recommendation, refusing to change its stand. Perhaps left with no alternative, the contract was eventually awarded to SITA in 2010, and work was accomplished within the stipulated time of nine months despite several hurdles. Even though Air India finally introduced a common code for its flights in early 2011 and could confirm compliance on all of the 80-odd parameters, the delay, besides causing revenue loss due to non-operationalisation of the passenger service system, also led to Air India losing out on the opportunity of being part of the Star alliance. Whether this was part of a grand design or whether the delay was inadvertent, only a full enquiry can reveal.