Air India is a Palaeolithic case study living shamefully on borrowed time and undeserved tax payers’ money. How did the rot start? What continues to weaken the airline’s operations today? what, if at all, can be a quick revival plan to save the airline? Also, is the youthful King of Good times following a similar pattern and slipping into a coma? Bottomline: Should the troubled titanics be allowed to sink? B&E provides the answers...
The ecosystem that has encouraged both the operational and financial breakdown of India’s national carrier did not grow out of vacuum. [To be fair, the Mallya-led private carrier Kingfisher Airlines is equally in trouble.] For AI, the merger of the-then profitable Indian Airline; (which had made Rs.1.60 billion in net profits between FY2003-04 & FY2005-06) and the deadweight-for-long Air India (in March 2007) played the trigger. The imagined post-merger synergies remained a reverie. Integration could not be completed, the fleet and route rationalisation process took forever, union issues killed flights, weakened the airline’s market share and cost more money because the erstwhile Indian employees demanded the “promised” equality and higher compensation (comparable to that received by the AI crew).
Numbers represent the murk well. As per Accenture, which was paid handsomely by the powers-that-be for consulting related to the AI-IA merger and beyond, the merger was expected to result in a bottomline gain of Rs.10 billion in the very first year. Reality check: In the first year post-merger (FY2007-08), the combine’s loss touched Rs.222.62 billion. The blotches grew bigger in the years that followed – Rs.719.08 billion in FY2008-09, Rs.555 billion in FY2009-10, and Rs.580 billion in FY2010-11. Add to this the accumulated losses of Rs.160 billion and you have the national carrier bleeding Rs.2236.70 billion ($49.28 billion) in the four years following the merger until FY2010-11. To say that AI is in losses is underestimating its potential for disaster. The airline is today the world’s highest loss-making entity in its industry. And if you add up the losses reported by the world’s five largest loss-making airlines in the world since 2007 (United-Continental, Delta-Northwest, American Airlines, US Airways and China Eastern Airlines), AI’s total loss shamefully adds up to 146.28% more! In terms of passenger count, AI is today Asia’s 16th largest carrier. It however is very different from the top 15 in one respect – no other large carrier of Asia (including the three-largest Chinese carriers China Eastern Airlines, Air China, China Southern Airlines and others like Taiwan’s China Airlines, Singapore Airlines, Cathay Pacific et al) has recorded a single year of loss since FY2009. As for AI, the divide between glory & shame has only got wider.
Over the years, AI’s management has blamed its losses on either escalating fuel prices or intense price-wars that are rampant in the domestic airline circuit. Not hard to disbelieve, but is it only a practice of saving one’s face behind a cocoon of excuses? Going by the recent performance of Jet Airways, IndiGo & SpiceJet (which command 59% of the domestic traffic; as of June 2011), the answer is an obvious yes. The three private-run carriers have managed improved report cards over the years, marked with feathers of profits. While Jet managed a turnaround to make profits of Rs.96.90 million in FY2010-11, IndiGo managed a high Rs.5.5 billion & SpiceJet Rs.1.02 billion after making Rs.615 million in FY2009-10. Clearly, it is the very management that deserves the fat pointing finger at AI.
Over the years, the situation at AI has grown into that of a fish rotting from the head. The recent unceremonious ousting of CMD Arvind Jadhav (on August 12, 2011) is one of the fallouts of the turbulent state of affairs that has marred planning and execution in AI’s boardroom for over three years now. From his selection to the manner in which he handled issues at AI, Jadhav, a 1978 batch IAS officer with nil experience in the aviation sector before he took charge, perhaps rightly deserves criticism. When B&E spoke to sources in the government, the AI management and the airline’s union, many unsettling facts emerged. A year before he assumed office in May 2009, Jadhav (the-then CVO at GAIL) had been found unsuitable for the task of turning around the merged entity by a search committee appointed by the Cabinet Committee on Appointments (ACC). The panel thus chose Raghu Menon, a 1974 batch IAS officer – given his expertise in the domain – to handle the complex administrative issues in the areas of personnel and finance management arising out of the merger of the two airlines. A year later, the same panel submitted a list of three officers to the Centre for appointment to the post of CMD – one of whom was Arvind Jadhav. Subsequently, Jadhav was selected to handle an entity whose condition had worsened (with a loss of Rs.941.69 billion in the two years post merger). Jadhav was handed over the shotgun. He did the rest.
Perhaps in his haste to be seen by the political class as the perpetrator of a low-cost vision, Jadhav chose to shoot from the hip at the first thing that moved. On May 4, 2009, his first day in office, Jadhav perplexingly cancelled the appointment of cabin crew who had been selected from five regions across the country – north, south, east, west and central. This marked the sudden end of a process that had been on for a year, and in many cases, where appointment letters had already been issued. Jadhav considered little the fact that the cabin crew were being selected to ensure minimal delays in the on-time operation of the new aircraft that were being inducted in the AI fleet. This single decision of Jadhav, says Rajiv Pratap Rudy, former Civil Aviation Minister to B&E, cost AI Rs.20 billion. During the eight months of delay in hiring cabin crew that resulted, hundreds of flights were either cancelled or delayed due to shortage of crew. Add to this the foxing fact that during the same time as fresh cabin crew appointments were cancelled, long leaves were sanctioned for the already short staffed cabin crew. The endemicity of Jadhav’s shotgun approach resulted in notable and unpardonable devil and the deep sea situations – one being when three Boeing 777-300ER, which Air India acquired at a total price of $852.30 million, could not be used for three full months just because AI did not take delivery of the aircraft!
The ecosystem that has encouraged both the operational and financial breakdown of India’s national carrier did not grow out of vacuum. [To be fair, the Mallya-led private carrier Kingfisher Airlines is equally in trouble.] For AI, the merger of the-then profitable Indian Airline; (which had made Rs.1.60 billion in net profits between FY2003-04 & FY2005-06) and the deadweight-for-long Air India (in March 2007) played the trigger. The imagined post-merger synergies remained a reverie. Integration could not be completed, the fleet and route rationalisation process took forever, union issues killed flights, weakened the airline’s market share and cost more money because the erstwhile Indian employees demanded the “promised” equality and higher compensation (comparable to that received by the AI crew).
Numbers represent the murk well. As per Accenture, which was paid handsomely by the powers-that-be for consulting related to the AI-IA merger and beyond, the merger was expected to result in a bottomline gain of Rs.10 billion in the very first year. Reality check: In the first year post-merger (FY2007-08), the combine’s loss touched Rs.222.62 billion. The blotches grew bigger in the years that followed – Rs.719.08 billion in FY2008-09, Rs.555 billion in FY2009-10, and Rs.580 billion in FY2010-11. Add to this the accumulated losses of Rs.160 billion and you have the national carrier bleeding Rs.2236.70 billion ($49.28 billion) in the four years following the merger until FY2010-11. To say that AI is in losses is underestimating its potential for disaster. The airline is today the world’s highest loss-making entity in its industry. And if you add up the losses reported by the world’s five largest loss-making airlines in the world since 2007 (United-Continental, Delta-Northwest, American Airlines, US Airways and China Eastern Airlines), AI’s total loss shamefully adds up to 146.28% more! In terms of passenger count, AI is today Asia’s 16th largest carrier. It however is very different from the top 15 in one respect – no other large carrier of Asia (including the three-largest Chinese carriers China Eastern Airlines, Air China, China Southern Airlines and others like Taiwan’s China Airlines, Singapore Airlines, Cathay Pacific et al) has recorded a single year of loss since FY2009. As for AI, the divide between glory & shame has only got wider.
Over the years, AI’s management has blamed its losses on either escalating fuel prices or intense price-wars that are rampant in the domestic airline circuit. Not hard to disbelieve, but is it only a practice of saving one’s face behind a cocoon of excuses? Going by the recent performance of Jet Airways, IndiGo & SpiceJet (which command 59% of the domestic traffic; as of June 2011), the answer is an obvious yes. The three private-run carriers have managed improved report cards over the years, marked with feathers of profits. While Jet managed a turnaround to make profits of Rs.96.90 million in FY2010-11, IndiGo managed a high Rs.5.5 billion & SpiceJet Rs.1.02 billion after making Rs.615 million in FY2009-10. Clearly, it is the very management that deserves the fat pointing finger at AI.
Over the years, the situation at AI has grown into that of a fish rotting from the head. The recent unceremonious ousting of CMD Arvind Jadhav (on August 12, 2011) is one of the fallouts of the turbulent state of affairs that has marred planning and execution in AI’s boardroom for over three years now. From his selection to the manner in which he handled issues at AI, Jadhav, a 1978 batch IAS officer with nil experience in the aviation sector before he took charge, perhaps rightly deserves criticism. When B&E spoke to sources in the government, the AI management and the airline’s union, many unsettling facts emerged. A year before he assumed office in May 2009, Jadhav (the-then CVO at GAIL) had been found unsuitable for the task of turning around the merged entity by a search committee appointed by the Cabinet Committee on Appointments (ACC). The panel thus chose Raghu Menon, a 1974 batch IAS officer – given his expertise in the domain – to handle the complex administrative issues in the areas of personnel and finance management arising out of the merger of the two airlines. A year later, the same panel submitted a list of three officers to the Centre for appointment to the post of CMD – one of whom was Arvind Jadhav. Subsequently, Jadhav was selected to handle an entity whose condition had worsened (with a loss of Rs.941.69 billion in the two years post merger). Jadhav was handed over the shotgun. He did the rest.
Perhaps in his haste to be seen by the political class as the perpetrator of a low-cost vision, Jadhav chose to shoot from the hip at the first thing that moved. On May 4, 2009, his first day in office, Jadhav perplexingly cancelled the appointment of cabin crew who had been selected from five regions across the country – north, south, east, west and central. This marked the sudden end of a process that had been on for a year, and in many cases, where appointment letters had already been issued. Jadhav considered little the fact that the cabin crew were being selected to ensure minimal delays in the on-time operation of the new aircraft that were being inducted in the AI fleet. This single decision of Jadhav, says Rajiv Pratap Rudy, former Civil Aviation Minister to B&E, cost AI Rs.20 billion. During the eight months of delay in hiring cabin crew that resulted, hundreds of flights were either cancelled or delayed due to shortage of crew. Add to this the foxing fact that during the same time as fresh cabin crew appointments were cancelled, long leaves were sanctioned for the already short staffed cabin crew. The endemicity of Jadhav’s shotgun approach resulted in notable and unpardonable devil and the deep sea situations – one being when three Boeing 777-300ER, which Air India acquired at a total price of $852.30 million, could not be used for three full months just because AI did not take delivery of the aircraft!
Source : IIPM Editorial, 2012.
An Initiative of IIPM, Malay Chaudhuri
and Arindam Chaudhuri (Renowned Management Guru and Economist).
For More IIPM Info, Visit below mentioned IIPM articles.
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Professor Arindam Chaudhuri - A Man For The Society....
IIPM: Indian Institute of Planning and Management
An Initiative of IIPM, Malay Chaudhuri
and Arindam Chaudhuri (Renowned Management Guru and Economist).
For More IIPM Info, Visit below mentioned IIPM articles.
IIPM Best B School India
Management Guru Arindam Chaudhuri
Rajita Chaudhuri-The New Age Woman
IIPM's Management Consulting Arm-Planman Consulting
IIPM Prof. Arindam Chaudhuri on Internet Hooliganism
Arindam Chaudhuri: We need Hazare's leadership
Professor Arindam Chaudhuri - A Man For The Society....
IIPM: Indian Institute of Planning and Management
