The Descent of Air India (44 page)

Low-cost disasters

There are innumerable examples of decisions that were taken to help Air India but not implemented. One that stands out in my memory is the way we dithered over setting up a low-cost airline. The economic downturn of 2008 affected airlines worldwide. Most organisations, even Indian carriers, cut costs by either pruning down staff or pay or both. Air India failed to cut pay or reduce the number of employees because the unions would not allow any of that. As losses doubled, Air India had to find a solution. What was the way out of the mess? Focus on enhancing revenues, if you can’t control costs. Even as the market trend showed that low-cost airlines were garnering increasing market share month after month at the expense of the legacy carriers and that Jet Airways had launched its low-cost airline JetKonnect and Kingfisher had Kingfisher Red so that they could cater to both segments of the travelling public to shore up their bottom lines, Air India acknowledged the need for a low-cost airline—even announced on more than one occasion its intent to start one—but, curiously, did not launch one. The first time we got to hear of it was when Arvind Jadhav shared his plans with the media on 7 August 2009 in Delhi. The next time it was mentioned was when Praful Patel held a press conference in Mumbai on 25 July 2010. The announcement came just after a board meeting that was attended by Anand Mahindra, Amit Mitra and Gustav Baldauf, besides the government directors. Presumably, the intention to set up a low-cost airline was serious, or else why would a minister talk about it to the media after he had met the board members? However, the low-cost airline never saw the light of day. Meanwhile, Arvind Jadhav, in a knee-jerk reaction to falling market shares month after month, transformed Air India into a low-fare airline. Flying Air India became a cheap option, almost as cheap as the low-cost airlines. But Air India’s costs were high; unlike other low-cost airlines, it could not keep its wage bill low or cut expenditures. This was a surefire recipe for disaster, and Air India ended the year 2011–12 with a record loss of almost
7,559 crore. The amount could have been higher but for a quirk of fate as Kingfisher had to reduce capacity deployment due to its inability to pay the airport operators, oil companies, aircraft lessors and employees, resulting in a bonanza for other airlines by way of higher load factors and enhanced revenues.

THE DELHI AIRPORT
CASE

Air India has had its base for international operations in Mumbai ever since the first international flight was operated to London on 8 June 1948. However, when the new terminal at the Delhi airport, popularly referred to as T3, was commissioned in 2010, Air India decided to transfer most of its flights to that terminal. It therefore reduced its operations out of Mumbai, which meant that traffic originating from Mumbai and other cities in the western part of India were handed over to private airlines on a platter. This was despite the fact that Air India wasn’t ready for a shift to T3. It could not handle the increased number of flights from that terminal as it did not have enough people to run the operations. While the commissioning of T3 was a matter of pride, Air India’s first two weeks of operations were chaotic and an unmitigated disaster, with flight schedules going awry and passengers seeing their baggage misplaced, resulting in adverse news in the media day after day. Considering that almost 200 pilots, engineers and cabin crew had to be accommodated in hotels at substantial cost—at a time when employees weren’t getting their salaries on time and oil companies were randomly forcing suspension of flights—for operating the enhanced number of flights, one is left wondering who ordered the shift, and for whose benefit?

Additionally, while Air India faced teething problems at the airport— like glitches in the sophisticated baggage software—that marred the T3 experience for passengers, the aviation authorities, taking a cue from the fiasco, asked Jet Airways and Kingfisher to adopt the opposite strategy: first shift only existing operations to T3, and wait for them to stabilise before increasing operations. Air India was clearly treated as a guinea pig for testing the new systems at the new airport. It was made to face customer wrath while private airlines were protected from a similar fate.

MERGER PLAN OR MURDER PLAN?

The merger plan put forth by Accenture can’t be faulted on all counts even if it has run into several hurdles thus far. It had numerous salient features, including the setting up of strategic business units so as to fully leverage strong assets, capabilities and infrastructure of the two airlines and to develop them into profitable businesses. These included the ground handling services and the maintenance, repair, and overhaul services (MRO) to generate much needed additional revenues by undertaking third-party work. As the ministry picked up only the ‘convenient’ recommendations made by Accenture while ignoring other key changes, Air India has suffered enormously; these SBUs have been non-starters for six long years. Of course, the consultants will be in a position to wash their hands of the matter on the plea that the recommendations were justified but implementation was a problem.

Incidentally, the foresight of J. R. D. Tata had helped Air India build a huge engineering infrastructure in Mumbai. Ground handling business evolved over the years as the airline began providing all the arrival and departure services at all the international airports in India to most foreign carriers, earning sizeable revenues.

However, like all policy decisions likely to prove beneficial being ignored, the creation of SBUs too received no attention. Even though the subsidiary companies for ground handling (Air India Air Transport Services Limited) and engineering (Air India Engineering Services Limited) had been created as early as 2004–05 and the certificate to commence business was obtained in the case of AIESL almost seven year ago on 17 January 2006, no headway was made. With its large infrastructure, technically qualified workforce, the plan was to develop this subsidiary company into an MRO facility, with Air India providing the necessary initial support in terms of infrastructure and domain knowledge.

As a matter of fact, the board of directors of Air India, at its meeting held in August 2010—a good three years after the merger—had approved the operationalisation of the Air India Engineering Services Ltd and submitted a note to the ministry to get the cabinet’s nod. It took the ministry over two years to get the government’s green signal, which was finally received on 6 September 2012. In fact, even though the fleet acquisition proposals of the two airlines had provided for joint ventures for the creation of a Maintenance, Repair and Overhaul Centre for Airbus and Boeing aircraft and an agreement to this effect had been signed by Air India with the European Aeronautic Defence and Space Company (EADS) in October 2008 for Airbus aircraft, no significant progress was achieved. The press release issued on the occasion said, ‘This new MRO centre, after it receives the approval of the government, will start its operations with effect from early 2009 at Indira Gandhi International Airport, Delhi. It would become a member of the Airbus MRO Network.’ There was naturally no urgency displayed, and one wonders if anyone, whether in Air India or the ministry, will ever be hauled up for this inexplicable delay. The release in October 2008 had further quoted EADS, ‘This is a new milestone in the long history of cooperation between India and EADS. For the last ten years, we have continued to expand our industrial relationship by launching several initiatives between different EADS’ divisions and the Indian Industry. EADS is keen to support the fast-developing aeronautical sector in India.’

The facility would also cater to the markets in the South Asia region and neighbouring countries. By 2013, over one hundred single-aisle aircraft and around 10 wide-body aircraft per year would be maintained, and the centre would employ 250 to 300 Indian technical personnel. Other Indian as well as foreign operators/airlines would also benefit from its services soon. India today has an expanding fleet of Airbus family in its aviation industry, and this MRO centre will contribute to the development of this market. Air India said, ‘This first-of-a-kind Joint Venture Airframe MRO in the country is of immense importance in today’s growing aviation market. With the setting-up of this facility in Delhi, NACIL will see an increased availability of aircraft following reduction in major maintenance check times through enhanced productivity. Besides, catering to our Airbus family aircraft, the facility will also be able to attract other airlines’ jobs, thus not only leading to savings, but also generate earnings for the company.’

Even though Air India foresaw an increased availability of aircraft due to a reduction in time spent on major maintenance checks, neither the engineering department nor the management pressed the ministry to get the cabinet’s nod, which took almost four years after the joint venture agreement was signed. The commissioning of the joint venture with Boeing in Nagpur is also slated for 2013, though we have seen many deadlines fixed and not honoured in the past. We can keep our fingers crossed and see if this deadline will indeed translate into reality. The opportunity for transforming Air India into a pioneer offering MRO and engineering services to all operators—domestic or international—through the SBU, with a staggering 9,000 engineers and technicians on its rolls, has thus been significantly delayed, if not lost. Ironically, even now the thrust appears to be on transferring manpower from Air India to the SBUs rather than on making these subsidiaries leaders in the business. One only hopes that the affirmation this time around of the process of the transfer of assets and manpower from Air India to Air India Engineering Services Ltd and the initial capital infusion by Air India will materialise, and that the subsidiary will be treated as a separate profit centre.

The MRO company is projected to turn profitable during 2017–18. Civil aviation minister Ajit Singh recently said that the proposal to hive off the MRO business of Air India Engineering Services Ltd will allow the firm to tap MRO business of an estimated USD1.5-billion in the Asia–Pacific region. Aircraft maintenance and engineering contracts from Indian carriers alone are estimated to be worth USD400 million (around
2,182 crore today) annually by 2020 as the relatively young fleets of Indian carriers age. Let us hope that Ajit Singh’s optimism is not misplaced and that the MRO can deliver.

If it’s a good idea, let’s wait

Air India and Indian Airlines, between them, were monopolising the ground handling business by providing services at various Indian airports to foreign airlines. Whilst the business should have logically expanded manifold once unrestricted rights to operate services to metro and non-metro cities were allowed to foreign carriers, in Air India’s case, the reverse occurred. The revenues it was generating almost dried up. Ground handling was, in fact, an area where pre-emptive action had been taken, with Air India Air Transport Services Limited being registered as a fully owned subsidiary of Air India on 9 June 2003. With the government deciding to have at least three operators at each airport to ensure economical and efficient services through competition, Air India had begun hiring staff under AIATSL so that the two negatives of Air India—high cost of manpower and poor productivity norms—could be eliminated. This was to be ensured by introducing an improved quality of services benchmarked to global standards, new work culture with customer focus, quick response to customer requirements, reduction in overhead costs, improved productivity on a low-cost platform, accountability for growth, and profits. The idea was to develop the business first and then consider getting into a joint venture agreement for the ground handling business of Air India. This was nine years ago, when the Air India Employees Guild, more concerned with serving its own narrow interests, thwarted the move even after over 100 employees had been hired. Hiving off is now part of the turnaround plan with which the infusion of funds is linked. Air India’s business prospects in ground handling were, however, compromised when the government allowed private airport operators in Hyderabad and Bangalore to make international experience mandatory for bidding. The ministry failed to protest, and Air India’s interests were ignored.