At Air India, losses and a brawl in the sky

The struggling government-owned carrier’s already uneven reputation has been further tarnished in recent months by rats on a plane, a strike by senior pilots and a midair fistfight between pilots and flight attendants. In September, a flight to Riyadh was grounded after a passenger saw sparks coming from an engine.

The embarrassing chain of events and the airline’s dire financial situation — it is expected to lose more than $1 billion (Rs 4700 crore) in the current business year, and the government tentatively pledged about $1.1 billion in bailout money to it recently — has prompted many to ask: Why is the Indian government still running an airline?

The question is particularly relevant in a country that has more poor people than any other nation and where just a tiny percentage of the people fly. Frequent domestic and international fliers prefer airlines other than Air India, which has lost significant market share since the country liberalised commercial aviation in the 1990s.

Rajeev Malik, an economist with Macquarie Securities, said Air India’s problems are becoming a metaphor for India’s incomplete economic reforms: policy makers have a long to-do list but they are handling the tasks inadequately. “There is little certainty over the  final outcome,” he said.

Many analysts say government ownership is a root cause of Air India’s most pressing problems. In 2007, for instance, the government forced the airline into a poorly conceived merger with Indian Airlines, which was also state-owned. Politicians have influenced the company’s dealings with labor unions, leaving the airline with a much bigger and better-paid staff of 31,000 than it can afford.

Sanat Kaul, a former board member of Air India who also was a senior official in the aviation ministry, said policy makers had frequently overruled the airline’s management on major decisions and had been “erratic and irrational” in removing top executives.

Since mid-2003, for instance, the airline has had four Managing Directors, the carrier’s highest-ranking manager. At well-run government-owned airlines like Singapore Airlines and Emirates Airlines, which is owned by the Dubai government, politicians hire experienced professionals and give them significant authority, analysts say. Employees, too, say Air India is rudderless. “We feel like an orphan. Every three years we get a new mother and a new father,” said Capt Shailendra Singh, President of the Indian Commercial Pilots Association.

He said he had repeatedly asked government officials and the newest Managing Director, Arvind Jadhav, “What is your plan?” So far, Captain Singh said, “They cannot come up with one.” A spokesman for the airline, Jitendra Bhargava, said the carrier had a three-year turnaround plan. Acknowledging that Air India’s losses were big, he attributed them to high oil prices, intense competition and a sharp drop in demand. He estimated that Indian carriers received only 13 cents of revenue per mile that each passenger was flown, compared with 40 cents in Western countries. Air India lost $1.1 billion on revenue of $3 billion in the most recent fiscal year at current exchange rates, or 37 per cent of revenue. The two largest privately owned competitors also lost money: Kingfisher Airlines lost about $350 million on revenue of $1.1 billion, or about 30 per cent; Jet Airways lost $209 million on revenue of $2.8 billion, or 7 per cent.

Bhargava said Air India’s performance could not be directly compared with those of other airlines because it did not outsource functions like ground handling and because policy makers required it to fly unprofitable routes to remote areas and to religious pilgrimage destinations.

The bailout

The government bailout proposal calls on Air India to match $1.1 billion in aid with a similar amount in cost reductions and increased revenue, said Praful Patel, the Minister for Civil Aviation. Air India needs to fly more passengers, lease unused aircraft and defer the delivery of other planes, he said. A committee of senior ministers has to approve the plan. But Patel said the government was not interested in privatising the airline.

“Air India is under a lot of social responsibility,” said Patel, who has led the ministry since 2004. Without it, “a large part of India would not be well connected in case of an emergency.” Moreover, he said, Air India transported government employees. Several efforts to privatise Air India has faltered because of political opposition. In 2001, the government scrapped a plan to sell a stake in the airline after Singapore Airlines walked away from a proposed deal in which it and the Tata Group would have taken operational control of Air India. In the last 15 years, both the airline’s reputation and its market share have eroded. While it continued to fly years-old planes, and passengers complained that its staff treated them in the surly manner Indians have come to expect from government employees, more nimble rivals like Jet Airways and Kingfisher flew shiny new planes and built reputations for indulgent service. Air India has recently begun adding dozens of new planes to its fleet. The series of unfortunate events in the last two months has only heightened the perception that Air India is troubled.

Recently senior pilots began calling in sick to protest the airline’s plans to cut their pay as much as 50 per cent. The incident disrupted dozens of flights for four days, ending only after senior policy makers promised that pay packages would not be reduced without negotiations with the senior, or executive, pilots, who are not represented by a union.

Earlier this month, pilots and flight attendants brawled in front of passengers on a plane flying to India from the United Arab Emirates. One attendant said a pilot had molested her and shoved her. The pilots said that was not true. A  pilots told a  reporter that the cockpit had been unmanned for 10 minutes during the fight, a claim that the airline has denied. The public travails of Air India have been “worse than the drama in a bad Bollywood movie,” said Malik, the economist, referring to India’s film industry. But, he added, “even the worst Bollywood movie has a happy ending.”

New York Times