Air India

Air India

On 28 Feb 17, Bloomberg reported that the PMO and Finance Ministry were discussing a proposal to sell the government’s majority stake in Air India, the country’s national carrier. By bringing in a strategic partner, the government hopes to turnaround the loss-making airline.

Is a strategic sale finally in the offing?

On 28 Feb 17, Bloomberg reported that the PMO and Finance Ministry were discussing a proposal to sell the government’s majority stake in Air India, the country’s national carrier. By bringing in a strategic partner, the government hopes to turnaround the loss-making airline.

Doesn’t Air India Already have a Restructuring Plan?

Under a restructuring plan implemented in 2012, Air India was to receive US$ 4.5 billion, as equity over a 10-year period. However, even though US$ 3.6 billion has already been received, the airline has not shown significant financial or operational improvement. In 2014-15 Air India reported a loss of US$ 874 million; and 2015-16, it reported a loss of US$ 535 million, with an operating profit of US$ 15 million.

Comment:       With an infusion of US$ 3.6 billion, the reduction in loss has a modest US$ 339 million (874 minus 535).

How is Air India Faring Today?

Air India has also been steadily losing market share since 2007, when it had 35%. In 2014, the market share was only 18% and in 2015, it dipped further to 15%. In 2016, Air India is now ranked third in terms of passenger traffic, after Indigo and Jet Airways.

What are Air India’s Chronic Challenges?

In 2007, the profit-making Indian Airlines was merged with Air India. However, the merger was besotted with challenges of organizational culture, duplication, over-staffing, different compensation packages, amongst others. In 2011, Air India’s order for 111 aircraft came under observation from the CAG. The auditor called it an ‘over-order’ and a recipe for disaster. Inability to take delivery has resulted in payment penalties. Air India has also earned the dubious distinction of being an airline with the highest number of employees on its rolls per aircraft. It also stands accused of hiring staff to oblige political bosses, who run the government.

Assessment

India has a booming aviation sector and with competitive private players, there are little prospects for the national public-sector carrier. There is wisdom in the government leaving the sector; for leaner, more efficient and cheaper competitors. A strategic sale maybe the best option for the government to cut losses and exit.

Comments