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Air India set to post Rs5,000 cr loss this year

Air India set to post Rs5,000 cr loss this year
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First Published: Tue, Oct 06 2009. 12 39 AM IST
Updated: Tue, Oct 06 2009. 12 39 AM IST
Mumbai: State-owned National Aviation Co. of India Ltd, or Nacil, which operates Air India, is headed for a Rs5,000 crore loss for the fiscal year ending March, said a top official at the ministry of civil aviation.
The airline, saddled with cumulative losses of Rs7,226 crore in 2008 and 2009 fiscal years and awaiting a government bailout, has posted losses of Rs2,000 crore in the first six months of the current one, this official told Mint. The losses are mainly on account of excess capacity in the industry and high jet fuel costs, said the official who did not want to be identified.
Confirming the estimate, Jitender Bhargava, executive director (corporate communications) at Air India, said, “There is no surprise about the Rs2,000 crore loss as we are estimating a total loss of Rs5,000 crore in the current fiscal.”
If these estimates are borne out, accumulated losses will rise to at least Rs12,226 crore.
Domestic carriers reported a combined loss of $2 billion (Rs9,500 crore) for fiscal 2009, and are expected to report similar losses this year as well.
Last month, the national carrier lost at least Rs100 crore in revenues in five days after around 200 executive pilots resorted to a work stoppage beginning 26 September to protest against a proposed cut of up to 50% in productivity-linked incentives, or PLIs.
The proposed PLI cut, which would have saved the airline Rs700 crore, was part of a turnaround plan to enable Air India to get an equity infusion and soft loans from the government of about Rs15,000 crore. Air India’s debt had risen to Rs15,241 crore at the end of June, up from Rs6,550 crore in November 2007. Its current equity capital is a mere Rs145 crore.
Following the work stoppage, the government set up a committee with representatives of executive pilots to re-examine the PLI cuts and explore alternative routes for cutting costs.
“With the recent developments, I would say the turnaround of Air India would happen in four-five years instead of three-five years,” said Saikat Chaudhuri, assistant professor of management at The Wharton School, University of Pennsylvania, and whose work centres on mergers, acquisition and innovation management.
“I still believe it is very much possible to turn around the carrier as the brand Air India is still strong,” Chaudhuri said. Air India chairman Arvind “Jadhav is the right man for (the) Air India turnaround job, he is a no-nonsense guy.”
In the long run, the airline will need to be privatized, said M.S. Balakrishnan, former director of finance at Indian Airlines. “It has got a vast infrastructure, very skilled manpower and some modern aircraft. However, it cannot continue to be run by the government as there would be a requirement of huge capital infusion or frequent bailouts, which the nation can ill afford.”
While cutting pay is a reasonable expectation, Chaudhuri added that the Air India chief could have spoken with stakeholders before taking a unilateral decision to implement the cuts that led to the pilots’ stir. “If the government had taken stern action during the strike, it would have sent out strong signals. For a turnaround, eventually the carrier will have to increase revenue and cut costs.”
Meanwhile, the government has decided to lend up to Rs5,000 crore to the airline in three instalments to help it manage the crisis. The government will also extend a sovereign guarantee as it restructures Rs16,000 crore of working capital loans to help it save at least Rs500 crore. The governmental help is contingent on cost savings.
In a media statement on Monday, Air India said the carrier has regained the booking levels it had before the pilots’ stir. “While Air India was averaging bookings in the range of 26,000-28,000 prior to September 25 and the same had come down to as low as 9,000 on September 30, the last day of the strike, Air India has in the two days once again began averaging bookings in the range of 26,000-28,000 per day, significantly higher than those recorded in the same period last year,” the statement said.
pr.sanjai@livemint.com
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First Published: Tue, Oct 06 2009. 12 39 AM IST
More Topics: Air India | Loss | Aviation | Nacil | Government |