Mumbai: Air India, which has defaulted on interest payments and has been forced to delay salaries, blamed its dismal financial performance on what it called the government’s liberal grant of traffic rights to foreign airlines between January 2004 and March 2010.
The accusation is contained in a note that Air India, in the midst of a government rescue plan, sent to the group of ministers monitoring the turnaround plan of the state-owned carrier. Air India chairman Arvind Jadhav’s position is also under threat, as reported by Mint on Tuesday.
Capacity entitlements were raised by 282% during the six-year period, when Indian carriers were not in a position to take advantage of these routes, claimed the note, a copy of which Mint has reviewed.
If Air India is reduced to blaming its condition on liberal bilaterals, that would be a misjudgement of the actual dynamics and misdirection of attention away from the carrier’s intrinsic weaknesses, said Craig Jenks, president of Airline/Aircraft Projects Inc., a New York-based air transport consulting and advisory services firm.
“Most industries globally are liberalized, and consumers and citizens at all economic levels, indeed the common man, are better off for it,” he said. “In a liberalized system, companies exist to serve consumers and succeed or fail in relation to how well they do this.”
Praful Patel was civil aviation minister during period mentioned in Air India’s note, but his name isn’t mentioned in it. Patel declined comment.
Air India had debt of Rs.42,570 crore and accumulated losses of Rs.22,000 crore as of 31 March. The carrier has asked for Rs.6,600 crore as an immediate equity infusion from the government to stay afloat.
The airline is seeking a total equity support of Rs.42,920 crore till fiscal 2021. This includes guarantees for aircraft loans worth Rs.30,584 crore up to 2021. The current government bail-out package is worth Rs.5,000 crore. Of this, Rs.2,500 crore has been infused, with Rs.1,200 crore having been approved last week.
Traffic rights played a role but aren’t the only reason for the bleak balance sheet.
“Liberal exchange of traffic rights to foreign carriers is one of the major the problems that led Air India to post huge losses,” said M.S. Balakrishnan, former director of finance at Indian Airlines, which was merged into Air India. “But there were other issues that led to Air India to report huge losses. This includes the merger of Indian Airlines with Air India, which was unwarranted. Also, the plan to go for 68 planes by the international carrier at one go” was also responsible for Air India’s losses, he added.
Many foreign carriers were given access to a large number of destinations in India, negating the Indian carrier’s home country advantage. Dubai-based Emirates has more international flights from India than any local carrier—185 weekly flights from 10 Indian cities connecting 113 destinations across 66 countries.
“Since the increased opportunities to capture Indian market (by way of liberally increased entitlements) were given to the foreign carriers much before the Indian carriers, as well as the country was ready to capitalize on this opportunity, the foreign carriers have created strong hubs outside India by funnelling the Indian traffic over their hubs,” the note said. “This has adversely affected the growth of strong hubs in India to the detriment of the Indian carriers (in terms of not only international but also their domestic operations), Indian airports and other agencies involved in civil aviation industry in India.”
The main bilateral agreements with excess entitlements are with France, Germany, Qatar, Bahrain, Dubai, Sharjah, Abu Dhabi, Saudi Arabia, Malaysia, Singapore, Hong Kong, Thailand and Sri Lanka.
“Since the foreign carriers operate much more than the Indian carriers and also pre-empt the Indian carriers from expanding in various markets, the utilization of entitlements by the Indian carriers appears to be low,” the Air India note said.
A person who was close to the policymaking process during 2004-2010 said international traffic grew 200% and bilaterals were opened correspondingly.
He added that bilaterals are decided between two countries and not between airlines. He did not want to be identified.
“Bilaterals are not Air India’s assets, but national assets,” said Kapil Kaul, chief executive officer (Indian subcontinent and Middle East) of the Centre for Asia Pacific Aviation, an international aviation consulting firm.
Kaul said the bilaterals policy is largely rational though there were some aberrations that appeared to favour West Asian carriers.
“But the problem was (that) Indian carriers were not ready when the country opened up bilaterals in 2004 after keeping it restricted,” Kaul said.
Air India has also attacked local private carriers, saying Jet Airways (India) Ltd and Kingfisher Airlines Ltd have opened up few new markets.
Out of a total of 436 weekly frequencies operated by Jet Airways and Kingfisher, 327 are on the international city pairs served by Air India and its subsidiary Air India Express.
Many advantages that Air India should have had remained on “paper” as the airline couldn’t start more flights before new aircraft started joining its fleet.
Air India has recommended the withdrawal of access to some destinations from foreign carriers, a freeze on bilaterals for five years and not allowing Indian private carriers to operate on sectors served by Air India.