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Thursday, 03 November 2011 00:00
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Let AI’s pilots fly away

Intro: Deloitte suggests Rs 43,000 cr on AI is a big waste

The blackmail by 120 pilots of Air India—they’ve threatened to quit because pilots of the erstwhile Indian Airlines have been chosen to train on the Dreamliner—appears to have worked, with the airline deciding to defer the training by a month. Both the threat and the management’s reaction, however, are a blessing in disguise since they very clearly show the airline isn’t anywhere near taking off. Despite the aviation ministry packing off the previous management that included a well-reputed professional, the airline remains hopelessly divided into the Air India and Indian Airlines camps; it is equally clear the new management hasn’t made much of a difference, that’s assuming the ministry will allow it to function. In which case, the government should use this opportunity to do a serious rethink of the bailout package—is it worthwhile to spend R40,000+ crore on the airline over the next decade or is that money better spent by giving VRS to staffers and selling off the planes the airline has, assuming that no strategic investor is interested in buying the airline. Apart from the fact that the government does not have unlimited funds, any bailout will imply huge bank loans—a subsequent failure of the airline will just put that much more pressure on PSU banks.

Air India’s management, and the aviation ministry, will certainly put up a case arguing that Air India is poised to make a huge recovery provided the funds are made available to it. This is why it is vital the Deloitte report on Air India’s turnaround be read carefully. The report says the turnaround is ‘ambitious’ and ‘conceivable in principle’ but needs ‘massive reorientation efforts’. The turnaround plan envisages Air India’s cost structure becoming much lower than that of rivals like Jet and Kingfisher over the next five years! If you believe this is possible, the next step follows—this increased competitiveness will result in Air India’s domestic market share growing at 22% annually as compared to 10% for its rivals (15% for Air India versus 3-4% for rivals in the international market). If the government is unable to take a clear call on this, perhaps the standing committee on aviation or RBI, which is also to examine the matter, will focus on this.

 

 

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