Are foreign airlines responsible for Air India’s failure?

Though foreign airlines operating in India in the last couple of years observed an enormous growth, they severely affected the business of state-run Air India. Due to mounting losses of the national carrier, the cabinet secretariat decided to stop allowing rights to foreign airlines on profitable routes to and from India.

Last month, Air India asked for Rs.20,000 crore to recover from the worst financial losses in its history. The Civil Aviation Ministry did not agree with its proposal and decided to give Rs.3000 crore. The issue of financial subsidy to Air India provoked a serious discussion in the Loksabha. Many even questioned the credibility of Civil Aviation Minister Praful Patel.

In his defense, Praful Patel said that back in 2004, when the NDA government left office, foreign airlines operated 711 flights to and from India which rose up 1,315 flights every week till the summer of 2009. The number of passengers during these period rose from 14 million to 27 million. In his written statement, Mr. Patel also said that international airlines specify their routes, which are based on the traffic demand, from the very beginning in their contracts. Allowing foreign airlines on various routes also help the country’s economy by boosting tourism and creating jobs for people.

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The Economic Times

Air India asks for more money: Government demands better performance

Air India would need Rs.20,000 crore to recover from the worst financial losses in its history. The current amount is five times higher compared to the carrier’s October 2008 proposal of Rs. 1231crore and a soft loan of 2750 crore with 5% interest payable over 15 years.

On July 25, 2009, Air India and SBI Capital Markets Limited made a presentation on the restructuring plan of Air India to the Committee of Secretaries (CoS) which suggested an infusion of Rs. 10,000 crore from the government and collecting funds through bond issue or soft loan. The plan also included various cost cutting and revenue increasing measures, revival plan and revenue projection for Air India.

The Civil Aviation, on the contrary, believes that the carrier would not require more than Rs.3,000 crore. The CoS asked the finance ministry to further determine the extent of assistance necessary to revive the carrier. Demanding a further concrete plan for the next one and half year, the CoS said that the financial assistance asked by the carrier should be matched by serious cost reduction and “better revenue management.” The next CoS meeting would be held in August where the financial restructuring of Air India will be reviewed further.

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Economic Times

Air India defers insurance premium for three months: Not a good move.

Already the Indian aviation industry is under serious financial pressure and the Air France aircraft crash added another problem for the Indian aviation companies; reinsurancing their planes. Before reading this news, I did not know that airlines have to insure their planes and they have to pay a large amount of money for premium. Already the Indian air lines, both private and public, incurred huge losses and facing cash crunch. At such a situation, paying premiums to renew their insurance is really a serious issue.

Vijay Mallya’s Kingfisher Airlines paid more than half billion rupees ($10.5-11 million) in foreign currency to cover its 74 aircrafts against Rs. 380 million in 2008. The company is looking forward to raise money to cover its losses. Kingfisher bought insurance worth $3.09 billion from ICICI Lombard that became effective from June 24, 2009. Indigo Airlines, another domestic airlines, is scheduled to pay its premium within July 31, 2009. Jet Airways cleared its insurance premium at the beginning of the current financial year and it did not have to pay higher insurance premium.

However, Air India, the state-run airlines, deferred the renewal by three months. It is afraid that it would have to pay higher amount of premium and it does not have the capacity to do so. Air India took government bailout money and could not even pay the monthly salaries of its employees. Under government rule, Air India has the capability to defer its renewal by three months.

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Business Standard

Air India employees will boycott their work if they are not paid in time

The issue of foregoing salary created a major crisis for Air India, the national flag carrier airline of India. The state run airline is the 16^th largest airline in Asia and employs thousands of people. On June 13, 2009, National Aviation Company of India Ltd (NACIL) issued a circular saying that it would defer the June salary and productivity linked incentives to all its employees till July 15. After the circular came out, the employees declared to go on strike if their pay is delayed. The Times of India reports:

Earlier, about 24,000 employees has threatened to go on an agitation later this month if their salaries are delayed by a fortnight as decided by the management.

"Members of Air Corporation Employees Union (ACEU), Aviation Industry Employee's Guild (AIEG) and Indian Aircraft Technicians Association (IATA) will jointly boycott their work on June 30 by adopting 'no pay, no work' policy if the management fails to give us our salary on June 30," ACEU General secretary J B Kadian had said.

However, it is not only the employees who are told to forgo their June salary. On June 19, 2009, CMD of Air India also asked its top directors and senior management to forgo their July salary as the company is experiencing a “resource crunch.” In the last fiscal year, Air India’s losses were estimated at around Rs.40 billion against 22.26 billion in previous fiscal year. However, top Air India officials denied this estimate.