New leader for troubled Air India

A new chairman has a near-impossible mandate of resuscitating the financially troubled national carrier amid growing calls for privatisation.
Air India reportedly lost more than Dh394m (Rs600 crore) due to the industrial action.
Air India reportedly lost more than Dh394m (Rs600 crore) due to the industrial action.

The Indian government has appointed a top bureaucrat as the chairman of Air India, its third in as many years, to meet what industry analysts say is a near-impossible mandate of resuscitating the financially troubled national carrier.

"My challenge would be bringing back smiles to the face of Air India employees and restoring the airline's financial health," said Rohit Nandan, 54, as he took charge last Friday from Arvind Jadhav, blamed by striking employees last month for the airline's pressing financial woes.

The appointment of Mr Nandan is the latest in a series of desperate government measures - including generous bailout packages - to revive the ailing airline, once viewed as a symbol of national pride.

Air India is reeling under a debt load of 400 billion rupees (Dh32.49bn) and its losses amounted to 60bn rupees in the fiscal year that ended on March 31.

The airline earns 360m rupees a day from its operations but spends 570m rupees daily, said Vayalar Ravi, India's civil aviation minister. Criticised for gross mismanagement, it is said to be unable to exploit the sharp rebound in travel demand - which rose by 20 per cent to 52 million passengers last year compared with 2009. Mr Ravi said the airline was losing money even on routes that were profitable for most airlines.

Its underperforming workforce is often criticised for flight delays and poor service. The airline had 2,700-plus flight cancellations this year, the highest among domestic carriers.

"Fundamentally, the airline has reached a dead end," said Kapil Kaul, the chief executive for the South Asian region at Center for Asia Pacific Aviation, a New Delhi-based aviation research group. Mr Kaul is one among several analysts who call for the airline to be privatised to improve its performance.

But the government has resisted those calls so far.

The view, analysts say, reflects the government's dilemma of how to deal with loss-making public-sector enterprises, viewed as strategic national assets, but which are a considerable strain on the exchequer.

More than 20 state-owned companies, including Hindustan Fertilizer Corporation and Indian Drugs and Pharmaceuticals, are said to be "chronically sick".

In 2009, an economic survey tabled in parliament recommended the government "auction all loss-making public-sector units that cannot be revived. For those in which net worth is zero, allow negative bidding in the form of debt-write-off."

It also recommended the government sell off a minimum 10 per cent stake in all unlisted public-sector companies, a plan that could generate an income of 250bn rupees every year.

The government, instead, has chosen to subsidise operations of most loss-making enterprises. Last month, it injected into Air India a bailout of 2.65bn rupees, one of many in recent months, to help it partially clear interest payments for loans taken from a consortium of 22 banks. The banks threatened to label Air India a non-performing asset if it defaulted on payments.

But analysts say the recurring financial stimulus offerings will not help the airline tide over its problems.

"The bailout provides temporary relief to Air India creditors, including Indian banks," said Vineet Gupta, a senior analyst at the rating agency Moody's Investors Service.

"We believe that the government has the ability and willingness to support strategically important companies as well as sovereign-owned public-sector enterprises, including banks. But the government has only provided temporary solutions to Air India's financial troubles."

The airline had to ground several of its aircraft in recent months due to non-payment of dues to oil companies.

In February, the Comptroller and Auditor General of India — an anti-corruption watchdog that has long recommended a reduction in the airline's staff and fleet size — criticised the airline for buying 50 Boeing aircraft the company "did not need" in 2006. The deal cost the debt-burdened company US$11bn (Dh40.4bn).

Mr Nandan said his immediate priority was to oversee Air India's turnaround and financial restructuring plans that have been prepared in recent weeks by the leading investment bank SBI Capital Markets.

Published: August 16, 2011 04:00 AM


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