|Good money after bad|
|Monday, 16 April 2012 01:30|
Even richer govt would baulk at a R30,000 cr bailout
Given that Air India's management was asking for a R30,000-40,000 crore bailout, it was always obvious the R800 crore or the R1,200 crore doses of equity infusion the government was doling out were neither here nor there. Once Air India had ordered, or was asked to order, $11 bn worth of airplanes, it was clear its R145 crore equity was completely inadequate to service the debt—even if a Singapore Airlines was running it, a $11bn debt on a R145 crore equity is unserviceable. It was equally obvious that, with 27,000 staffers, no one could turn the airline around.
To that extent, the Cabinet has done the right thing by clearing a big package dealing with several of these aspects at the same time. So, Air India’s long-pending demand to allow it to set up two subsidiaries—one for engineering and the other for ground handling—and to transfer 19,000 staffers to them has been cleared. The two will be profit centres and Air India will then have a staffers-to-aircraft ratio that won’t be as adverse as it looks today. R21,000 crore of debt is to be restructured, allowing Air India to save around R1,000 crore in interest payments each year. All told, by 2020, the government has committed R30,000 crore of funds to Air India.
Whether this will work is now the question. Air India’s unions have already come out against the plan and, it is obvious, unless their salaries and operations are appropriately restructured while moving to the new subsidiaries, just putting them in a separate structure is really evading the issue. While it is critical that Air India’s management be given the freedom to run the airline, the hounding out of the airline’s transformation team headed by a professional COO tells its own story. More important, keep in mind the report of Deloitte, which was asked to evaluate the turnaround plan. Deloitte said it was ‘ambitious’, ‘conceivable in principle’ and requiring ‘massive reorientation efforts’—not surprising, since the plan projects Air India’s market share rising with its revenue growing at over double the speed of competitors that are beating the pants of its today. If this wasn’t enough, Deloitte put in another proviso, of there being no relaxation in the ‘competitive scenario’—that is, don’t go around adding to the competition by giving out more bilaterals. Since it’s not at all certain the government is going to stop giving out bilaterals to protect Air India’s turf, the plan seems pretty much kaput from day one. While it is understandable that the political class wouldn’t want to pay attention to this, considering that the R30,000 crore has to be juxtaposed with the interests of 27,000 staffers, surely the finance ministry should have paid some attention? For the record, performance riders have been put in place for on-time performance and load factors, but if these are not met, will the equity be taken back, the bank loans reversed to the old rates? The only way to retrieve what could be the costliest mistake in a long time is to now use the likely change in FDI policy to find a buyer for the airline.