Mumbai: Beleaguered flag carrier Air India has appointed three foreign consultancies to help redraw its flight network and save fuel costs, in a bid to cut down on expenses and earn a much needed equity infusion from the government.
The airline, run by National Aviation Co. of India Ltd (Nacil), needs to meet a cost-cutting target of Rs1,991 crore by March to get Rs2,000 crore as the first tranche of the equity infusion. But it has managed to save only Rs1,000 crore in the last six months, two senior airline officials said on condition of anonymity.
Aviation experts said the operational restructuring can only help in the short term, and even that could be thwarted by industrial action. Air India, they added, needs more autonomy to take commercial steps that the government is unwilling to allow.
Photo: Abhijit Bhatlekar / Mint; Graphic: Ahmed Raza Khan / Mint
Nacil, which was formed by merging Air India and Indian Airlines, had hired Ireland-based consultancy Accenture Ltd to advise on the integration process.
It has now appointed US-based aviation consultant Simat Helliesen and Eichner Inc. (SH&E), Flugwerkzeuge Aviation Software GmbH of Austria and Texas-based technology company Sabre Holding Corp.
“Simat Helliesen has been hired to prepare a profitable and best optimal route plan,” one of the officials said.
Flugwerkzeuge Aviation will help Air India pilots locate the best flight path for optimum use of jet fuel.
The company will also generate customized modules for pilots, outlining all technical details of the airports and aircraft they fly. SH&E will focus on the hubs and plan alignment with other international flights for smooth transfer of passengers across flights.
Nacil is also in talks with McKinsey and Co., Booz and Co. Inc. and NM Rothschild and Sons Ltd. One of them is likely to be hired to help in Air India’s financial restructuring, one of the officials said.
But aviation experts are not enthused. “Overstaffed Air India needs to downsize and go for route and fleet rationalization,” said Rishikesha T. Krishnan, professor of corproate strategy at Indian Institute of Management, Bangalore, who has been tracking the sector for a long time.
Unless it is given genuine autonomy to take bold commercial decisions, Air India will not be able to turn around on a sustainable basis, Krishnan added.
The airline, which posted a loss of Rs5,548 crore in 2008-09 and runs up a monthly cash deficit of Rs400 crore, is seeking a total of Rs5,000 crore from the government to increase its debt raising capacity. Its current equity base is Rs145 crore. It has cut costs by Rs500 crore since August through reworking its network and discontinuing loss-making routes. Another Rs500 crore has been saved through fuel efficiency measures and by revising the salaries of its top officials.
But one of the officials quoted above said Air India was yet to achieve targets such as a 50% reduction of productivity-linked incentives (PLIs), for its 31,500 employees.
“We are planning to link PLI to certain productivity targets of a department. We were trying to save at least Rs600 crore by implementing 50% cut in PLIs, but couldn’t do that following protest from employees,” he said. “Cutting cost is not an overnight job. Achieving even 10% cost reduction target is commendable for us as fuel and wages account for 55-60% of total operating cost,” he added.
The second official said the airline had phased out 11 old Airbus 320 planes in the current financial year. Another nine would be phased out in the year ending March 2011.
“By and large, we will have a brand new fleet. With Simat Helliesen’s network restructuring programme, we could increase average flying hours of our domestic planes from 10-12 hours to 13-15 hours,” he said. The official added that on international routes, Air India would replace Boeing 747-400 planes with Boeing 777s. “With new network restructuring plan, the new aircraft could save Rs1.5 lakh per hour,” he said.
But it may not be such a smooth ride, said Centre for Asia Pacific Aviation. The aviation consultancy’s outlook report, released in December, said the restructuring is likely to be challenged by industrial action at various levels.
“The airline will continue to post losses. Completion of the merger between Air India and Indian (Airlines) under one code is unlikely to be achieved in 2010, although there will be one balance sheet under Nacil. Weaknesses in the organization capability will be a key challenge for Air India,” the report stated.