Air India story: the airline that was destined to crash
Rumors are afloat that the Tata Group is interested in buying the white elephant of the Indian government, Air India. The business angle is still hard to fathom but there is a nostalgic value since they were the actual owners of Air India. While speculations rage, let's take a look how Air India became the headache it is today. Here's all about it.
A look at the ruins
Just to recap, Air India now commands only 14% of India's domestic aviation market. While budget airlines, like Indigo and Jet Airways, are ruling the market, the national carrier bears a debt of Rs. 52,000 crore. Finally, the government has come to its senses and has decided to get rid of this elephantine loss making machine by disinvestment.
This could have been solved long ago
The roots of this mayhem go long back; Atal Bihari Vajpayee government wanted Air India and Indian Airlines privatized and its Naresh Chandra Committee also suggested that government should get rid of both the airlines and place an autonomous civil aviation regulator instead. When Manmohan Singh government came to power, the report was canned; moreover, aviation minister Praful Patel then pushed for their modernization.
A terrible move
The Manmohan Singh government bought 111 aircraft coughing up Rs. 70,000 crore and Air India shook hands with Boeing, agreeing to pay Rs. 33,197 crore for 50 aircraft. The idea was to buy all these aircraft by making a sizeable debt, then pay off the debt by generating revenue, which the Comptroller and Auditor General (CAG) of India report called a "recipe for disaster".
"Synergy" being the operative word
Two losses don't make a profit, but a bigger loss. After going through with its whimsical large-scale acquisition, UPA government in 2007 decided that they should merge Air India and Indian Airlines together for "synergy". Synergy had the combined Air India-Indian Airlines entity rack up a debt of Rs. 20,000 crore; no wonder current AI chairman Lohani blames it for AI's "downfall".
Medicine for a dead body
The next effort came with UPA coming into power again in 2011; it allocated an equity of Rs. 48,212 crore to AI to be paid over 20 years ending in 2031-32. Not only AI exhausted Rs. 25,000 crore of its turnaround plan, but now had Rs. 52,000 crore in losses due to interest payment failure, instead of cash surplus in 2017 as estimated then.
There are more stories underneath
Meanwhile, CBI has filed an FIR against erstwhile aviation minister Praful Patel and others for making purchases sans transparency leading to losses; it has also raised charges against AI's irregular leasing of aircraft without adhering to marketing pricing strategy and other key factors. As per CAG report, between March 2011 and May 2014, losses due to leasing stood at Rs 405.8 crore.
Sell, before it takes us all down
Not only leasing, according to CAG, AI sold five Boeing 777-200 long-range aircraft below its cost price to Etihad incurring a loss of Rs. 671 crore. It should also be noted that only 17 of AI services had managed to recover costs in 2015-16, while 36 went under losses. After all these, only a fool would want to revive and not sell Air India.