State aid for Air India a ‘tragic waste of taxpayer funds’

MUMBAI // Pressure is mounting on Air India to improve its financial performance.

India’s government in 2012 approved a turnaround plan for the airline, which aimed to restructure debt and improve the state-owned carrier’s operational efficiency. This included a government injection of 300 billion rupees (Dh16.69bn) to be drip-fed to the airline over eight years. The plan outlined that the airline would be able to achieve profitability in 10 to 15 years.

“The funding required by the carrier is even greater than projected in its turnaround plan,” according to the Capa Centre for Aviation. “For a government with so many other pressing economic and social priorities to address, subsidising an airline when there are so many capable private operators is a tragic waste of taxpayer funds.”

The airline’s debts amount to 360bn rupees and it has more than 20,000 permanent employees – one of the highest numbers of workers per aircraft of any airline in the world.

Air India in the last financial year posted a loss of 55bn rupees, which was an improvement on its loss of more than 75bn rupees in the financial year to the end of March 2012.

Ashwani Lohani, an engineer and bureaucrat, was in August appointed as the chairman and managing director of Air India. Although he has no prior experience of running an airline, he has been credited with the turnaround of the Madhya Pradesh Tourism Development Corporation and the India Tourism Development Corporation.

“The service and the on-time performance have to improve,” Mr Lohani told Reuters this month.

The airline spends about one-fifth of its revenue on employee salaries and benefits compared to the one-tenth spent by Jet Airways.

“What does he need to do? The first thing is to tackle the staff issues,” an Air India company executive told Reuters. “There are too many people working in Air India and morale is low. There are some talented people in the airline, but also a lot of deadweight.”

Lower fuel costs are likely to help to reduce Air India’s expenses this year but the structural challenges make for a grim future for the airline, analysts say.

Air India is “a loss making airline that has no direction or future” and would not survive in its current state without government backing, says Saj Ahmad, the chief analyst at StrategicAero Research.

All airlines in India face a challenging operating environment of high taxes and price wars but India’s newer private carriers are fast gaining market share from Air India.

“Air India has neither a viable domestic nor a long-haul business model and is the only carrier in the country without a long term fleet plan,” says Capa.

The more funds the government invests in the airline, the more difficult the situation becomes, it adds. “Already US$3bn has been invested under the turnaround plan to date.

“Apart from the cash infusion, the other cost of state ownership is that it impacts policy decisions and prevents genuine market-based reforms in an effort to protect the national carrier.”

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