Mumbai: Beleaguered national carrier Air India unveiled an ambitious turnaround plan on Sunday that envisages the airline reaching operational break-even and wiping out the Rs14,000 crore of accumulated losses and Rs18,000 crore of debt on its balance sheet by 2014-15. The plan includes raising its fleet strength to as many as 275 planes in five years from 148 now.
The new 100-page turnaround plan for 2010-14, which ruled out any job cuts or wage reductions and, was approved by the board and would be adopted after incorporating suggestions by representatives of the airline’s 33,500 employees, said chairman and managing director Arvind Jadhav.
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The new plan to turnaround the fortunes of the debt-ridden, loss-making carrier has been prepared on the assumption of an expanding aviation market, with robust growth in passenger traffic and yields, unlike previous blueprints that had been based on a “shrinking demand scenario,” Jadhav told a press conference.
“We will be revisiting this fresh turnaround plan every three months on the basis of changing dynamics of competition and demand,” he said.
The plan was presented to employee unions on Sunday by civil aviation minister Praful Patel and Madhavan Nambiar, secretary in the ministry of civil aviation.
They were accompanied by Air India’s five independent directors—Anand Mahindra, vice-chairman and managing director of Mahindra and Mahindra Ltd; Federation of Indian Chambers of Commerce and Industry secretary general Amit Mitra; Ambuja Realty Development Ltd chairman Harsh Neotia, former air force chief Fali H. Major and Yusuf Ali M.A., managing director of Emke Group.
“I am seeing a favourable tailwind now for Air India. Union leaders have also extended their cooperation,” said Mahindra.
“We are now making them accountable to deliver this plan. Like in any conventional business transformation process, Air India would also set up a change management (office) and a business transformation office to oversee the progress,” Mahindra said. “In India, companies survive because of pride, people and plan. Now Air India has a plan. I must say I am very pleased to see that Air India is coming out of turbulence.”
Under the new turnaround plan, Air India will be either selling its land and buildings or offering them as security to raise fresh loans.
Jadhav said the airline will hive off its aircraft maintenance and overhaul and ground-handling units as separate business entities in the current fiscal, helping the carrier to reduce its headcount and enhance profitability. The airline will also spin off its catering, hospitality and training centres as separate business units.
Air India has a fleet of 148 planes, with 30 more to be added as a part of a 2005 order.
According to the new plan, Air India is looking at a fleet strength of 250-275 in the next five years.
The fresh turnaround plan is “forward-looking with a series of revenue generation measures unlike past plans with a focus of merely cost-cutting,” said George Abraham, general secretary of the Aviation Industry Employees Guild that represents 8,000 Air India employees, after a two-hour meeting with the minister and the airline board.
However, Abraham said the turnaround exercise would be in vain if the government doesn’t give the airline initial financial support.
“The government should pay Air India the promised equity of Rs5,000 crore upfront rather than giving it in phases,” he said, adding the money would help the state-owned airline compete better with rivals. “Or else, Air India will end up running from banks to banks to service its debt burden.”
Aviation minister Patel said the government will support Air India to reduce its cost of debt by financial restructuring and has hired SBI Capital Markets Ltd (SBICAPS), the merchant banking arm of State Bank of India.
“SBICAPS will submit its report by August-end. The government has already infused Rs800 crore and allocated Rs1,200 crore that will (be) disbursed” provided certain conditions are met, he said.
Patel also said the government planned to offer a sovereign guarantee to the lenders of Air India to bring down its cost of debt.