Strike may derail Air India turnaround plan

Strike may derail Air India turnaround plan

Mumbai/ New Delhi: Losses incurred because of an ongoing strike of pilots may derail Air India’s hopes of turning profitable by 2014, as well as force the airline to delay the disbursement of salaries for April and some other payments, two of its executives said.

“Air India is incurring an estimated revenue loss of 15 crore per day as 90% of the domestic flights have been cancelled owing to the pilots strike," said one of the executives. “The total revenue loss suffered as a result of the cancellations from 27 April to 3 May is around 100 crore."

The strike by 840 pilots, who constitute nearly half the airline’s pilot workforce, is set to enter its 10th day on Friday. The pilots are demanding parity in wages and a Central Bureau of Investigation (CBI) inquiry into how the state-owned company ran up a debt of 36,000 crore in four years.

Air India expects ticket prices to fall in May because of a decline in forward bookings on account of passengers losing confidence in the national flag carrier, the executive said, requesting anonymity.

In addition, Air India will have to pay private carriers such as Jet Airways (India) Ltd and Kingfisher Airlines Ltd for accommodating its passengers who are left stranded by the strike.

“Apart from the loss of goodwill, there would also be costs associated with providing hotel accommodation to the stranded passengers in India and abroad due to the delays in operating the flights. Airport booking office collections have also dropped substantially as refunds are processed at airports for cancelled flights," he said.

Although Air India will not have to pay charges for landing, navigating and catering to the extent its planes have not been flying, the airline still has to make daily payments to oil marketing companies for jet fuel.

State-run oil marketing companies such as Indian Oil Corp. Ltd, Bharat Petroleum Corp. Ltd and Hindustan Petroleum Corp. Ltd put the carrier on a so-called cash-and-carry sales model after it failed to repay huge dues.

“Air India pays 12.5 crore daily to oil marketing companies. This has come down to 8.5 crore as a large number of planes on the domestic sector are not flying because of the strike," the second Air India executive said, also on condition of anonymity. “The daily collections from the international flights are sufficient only to meet requirements of oil marketing companies."

The strike now poses a threat to the company’s financial turnaround plan, he said.

Air India has accumulated 13,300 crore in losses since its merger with Indian Airlines in 2007. It has 22,000 crore in long-term and 18,000 crore in short-term loans.

It was expecting to turn profitable by 2014 with the help of its third restructuring plan in as many years, prepared by investment banker SBI Capital Markets Ltd and vetted by consulting firm Deloitte Consulting India Pvt. Ltd.

“There is no financial hardship for the airline in terms of long-term loans as a majority portion of these aircraft loans were fixed at interest rates less than 1%. The critical issue is about the short-term working capital loans. The revenue loss due to the strike is going to put more pressure on working capital loans," the second executive said.

The government is yet to pay Air India dues for using special chartered flights.

“The government owes 325 crore to Air India for carrying out special flight operations for VVIPs (very, very important persons). In addition, it owes 800 crore for carrying out dedicated VVIP operations with the jumbo plane, B747," the second executive said.

On Thursday, Air India operated 198 flights, including 14 additional flights—10 of them with B737 aircraft and four with wide-body B777 aircraft—on its entire network, offering a capacity of more than 32,500 seats, it said in a statement.

Air India also operated 32 domestic flights as contingency operations from the six metro cities—Delhi, Mumbai, Kolkata, Chennai, Bangalore and Hyderabad—on Thursday.

Since the beginning of the strike until Thursday, Air India transferred some 18,000 domestic and 9,000 international passengers to other carriers, the airline said. Hotel accommodations were provided to more than 5,200 passengers of disrupted flights.

The pilots on strike were employees of the erstwhile state-owned Indian Airlines, which was merged with Air India in 2007. Talks between their union, the Indian Commercial Pilots Association (ICPA), and aviation ministry officials ended inconclusively.

“Both the parties are trying to settle the issue amicably," said a third Air India executive, who also didn’t want to be identified. “Today’s meeting with members of ICPA was fruitful. There would be another round of meeting with ICPA members led by civil aviation secretary Nasim Zaidi, joint secretary in the civil aviation ministry Prashant Sukul and Air India chairman and managing director Arvind Jadhav."

Pilots, said this executive, have no right to go on strike as they draw a huge salary. “The total wage bill of Air India is 3,200 crore a year. There are 2,400 employees, including pilots, who are earning 1,000 crore. Even after claiming one-third of total wage bill, they are resorting to the strike," he said.

ICPA officials did not reply to phone calls seeking comment.