Air India in need of a complete overhaul to stay relevant, say experts
3 min read . Updated: 25 Jun 2018, 09:22 AM IST
PremiumThe key is to restructure the Air India debt, and take off the debt burden from the airline's books and save on interest costs, says an expert
Mumbai: With plans for privatizing Air India off the table, the government, which aims to infuse liquidity into the debt-ridden national carrier, will have to take a slew of tough measures to make it competitive and profitable again, aviation experts say.
Most experts say the immediate need for a complete overhaul of Air India’s current model in order to make it a more agile unit that can compete with low-cost carriers as well as international full-service airlines that many Indians prefer to take.
“The key is to restructure the huge debt of the airline, and take off the debt burden from the airline’s books and save on interest costs," said an executive with a domestic full service carrier, who didn’t want to be named.
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Air India has not reported net profit after its merger with Indian Airlines in 2011. As part of the airline’s expansion plans, Air India had in 2006 placed orders for 68 Boeing aircraft. The multi-billion dollar order continues to contribute to a large portion of the airline’s current debt.
“Since most of Air India’s debt is backed by solid assets, some of the loan tenure could be increased while others can be restructured or paid off by selling existing non-core assets," the person mentioned above added.
Aviation analyst Mark Martin, founder and chief executive of Martin Consulting LLC, said, “Air India, which has some of the most lucrative slots and bilateral, should aggressively monetize new international routes, for instance connect India to new lucrative South American routes," he said.
Martin, however, added that the airline’s board will need to be made more accountable about the airline and also come to an understanding with employee unions to work together for achieving an improvement in performance.
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The national carrier, nicknamed the Maharaja, is often identified with a lax work culture that is identified with government offices.
“The ‘sarkari’ culture at the airline has to go, and an aviation professional, not Indian Administrative Service official, should be given charge to run the airline," said an analyst tracking the sector with a foreign brokerage.
“The airline is forced to serve on several loss-making routes because of compulsions from the government. This has to change and the government must keep a hands-off approach and let professionals run the airline if it wants to revive Air India," this person added.
A senior executive at a no-frills carrier said that the cost structure at Air India, which is essentially a full-service carrier, is one of the highest in the industry and needs to be examined immediately.
“For instance, some of the contracts at Air India, including ones for maintenance, are much higher than that paid by no-frills carriers," the official said adding that the national carrier will have to bargain like a no-frills carrier with its vendors and other facilitators to keep costs down.
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During May 2018, Air India had a 12.8% domestic market share, behind market leaders IndiGo (40.9%). The national carrier currently has a net debt of over ₹ 50,000 crore. It hasn’t yet reported its financial results for 2017-18.
The government which was hoping to divest 76% stake in Air India didn’t find any takers and had to put off the sale.
Civil aviation minister Suresh Prabhu on 19 June attributed the divestment freeze to the tough global environment for the aviation industry. On Wednesday, Prabhu told reporters in New Delhi the government would review the national carrier’s divestment.
A person close to the development said that transaction adviser EY hasn’t yet been formally told about the government’s plan to shelve the divestment for time being.
CAPA India’s Kapil Kaul said the government should focus on a comprehensive enterprise-wide restructuring of Air India under a special administration to scale down losses significantly.
