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False sense of revival at AI

False sense of revival at AI
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First Published: Mon, Jul 26 2010. 09 23 PM IST

Illustration: Jayachandran/Mint
Illustration: Jayachandran/Mint
Updated: Mon, Jul 26 2010. 09 23 PM IST
Air India (AI), the problem child in the government’s stable of “commercial” enterprises, is in the news again. Some would say, this time for the right reasons. It has launched a “revival plan” to get back on the rails.
If only that were true.
The plan, as reported in Mint on Monday, envisages AI achieving operational break-even by 2014-15 and also wiping out Rs14,000 crore of accumulated losses and Rs18,000 crore of debt by that date. In addition, AI plans to increase its fleet strength to 275 planes in five years, up from the current 148 aircraft. There will, of course, be no wage cuts and retrenchments in the workforce.
Illustration: Jayachandran/Mint
This is as close to science fiction as a revival plan can get. It would be amusing, were it not for the seriousness with which the plan—not the final version if Union civil aviation minister Praful Patel is to be believed—was launched. Consider first the wiping out of losses. AI has approximately five years in which to get rid of the Rs14,000 crore loss on its balance sheet. So on an annual basis it has to shave off Rs2,800 crore every year. For a company that has been in the red so often, to erase such losses in a market that has witnessed price wars and serious competition is a tad hard to believe. Getting rid of the debt is a similar story. One can either earn profits and use them to pay off debtors, or the owner—in this case the government—can simply write a cheque. No amount of debt refinancing and financial juggling can make that figure disappear, unless, of course, AI begins to earn magic profits. That is not about to happen.
Then there is the question of fleet expansion. This can either be through renting of aircraft or purchasing new ones. Both options are expensive. In case it rents planes, there will be a constant cash outflow to meet rent payments, something that will put pressure on the balance sheet. In case of purchases, there are other costs as well: Given the scale of airline fleet expansion worldwide, the two main manufacturers, Boeing and Airbus, have difficult delivery schedules. The cost of waiting for the planes includes passengers moving to other airlines and ultimately market share loss.
There are other options for revival. They, however, are beyond the realm of the AI board to contemplate. Getting rid of employees and cutting costs is the way forward, if the financial aspects of the plan have any chance. And AI’s politically powerful unions are not about to let that happen.
Is AI in too much trouble for a revival plan to work? Tell us at views@livemint.com
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First Published: Mon, Jul 26 2010. 09 23 PM IST
More Topics: Ourviews | Air India | AI | Nacil | Debt |