|Letting Air India take off|
|Wednesday, 11 May 2011 00:00|
Both Air India’s management and the civil aviation ministry have reason to be worried about the contents of the Deloitte review of Air India’s turnaround plan. As FE reported yesterday, the consultant has poured a lot of cold water on the turnaround plan, using terms as ‘ambitious’, ‘conceivable in principle’ and requiring ‘massive reorientation efforts’. None of this should be too surprising when you consider that, when it comes to the domestic market, the market share AI is targeting—21% in five years, from the current 17%—assumes competing airlines, which are beating the pants off AI, will grow at 10% annually as compared to Air India’s 22%. In the international market, the plan assumes that while the overall market will grow by 8-9% annually, AI’s traffic will grow by 15% as compared to the competition’s 3-4%. Even more ambitious is what’s planned in terms of cost structure which, Deloitte points out, will imply AI’s cost structure will be significantly lower than that of Kingfisher and Jet over the next 5 years and only higher than that of low-cost carrier SpiceJet.
What Deloitte says about the ministry is even more scathing. It begins by talking of how AI’s consultants had suggested 87 narrow-body aircraft be bought, but 143 such planes were bought. Deloitte doesn’t formally talk of the liberal policy of giving out bilateral rights to competing airlines in the past while getting AI to buy more planes—that’s hugely increasing the competition while saddling AI with debt whose servicing alone requires AI to raise revenues 2-3 times! But while evaluating the global plan, it quotes the aviation minister on his plans to go easy on awarding bilateral rights to competitors and says the plans ‘seem to be achievable’ if there is no relaxation in the ‘competitive scenario’. That’s a big if, and the government needs to be clear on whether it will in fact restrict competition in the international market—earlier, Praful Patel had argued more bilaterals lowered air fares and he was the minister for India, not Air India.
So, should AI just be shut, given what’s been said? As this newspaper has held, if the government is serious about reviving AI, it needs to make a commitment on restricting global competition, it needs to give AI the necessary equity to get it out of the debt trap it was put in. Above all, as Deloitte says, the business model entails ‘huge operational complexities’ and requires an ‘experienced transformation team’. Think of how Gustav Baldauf, an important part of that transformation team, was hounded out, and you see just how shallow the commitment is; think of how easy it is for pilots, loaders and freeloaders to get an audience with the ministry. This is Arvind Jadhav’s job, not Vayalar Ravi’s. Let’s agree on that to begin with.