Thursday, April 15, 2010

Air India's woes

To many, Air India (which now encompasses the erstwhile Air India as well as Indian Airlines) sums up all that is bad about commercial enterprises run by government. It has made huge losses and people would say that is very typical of the public sector.

I argue in my ET column, Why Air India is in trouble, that this explanation does not hold nor is it true that Air India's losses are the result of the troubled merger between Air India and Indian Airlines.

The two basic reasons for Air India's mounting losses are huge investment in fleet expansion and high leverage arising from the failure to strengthen the two airlines' equity base before exposing them to greater competition. Needless to say, in government there are huge incentives for signing contracts for the purchase of aircraft.

There was talk of bringing on board some luminary from the private sector who would wave away Air India's problems. Now, the government has settled for high-profile businessmen and a foreign COO. Neither can make a big difference- N Vaghul, formerly of ICICI, was on the board of Air India for many years until it ran into its present crisis.

4 comments:

manish said...

i think the question is why shall the government be running an airlines company. I see this as a prime example of small number of employees' will against millions of tax payers because they are better organized.

Pinky said...

Manish I agree with you. Government should take some positive decisions to upgrade Air India.

Business Community

Venkatesh Sridhar said...

Sir, I know you were a frequent visitor to Dubai during its heydays as you used to teach the emba guys while we pgdm guys never got you as our prof.

Don't you think Emirates is a good example of how a govt owned airline can also be profitably run even in tough economic conditions. The reason for that is very clear - The Govt of Dubai has made it very clear to Emirates that it is in the business to make profits.

I think that sort of straight talking is missing and that sets the tone for the airline. As you rightly pointed out, the crisis seems to be more because of financial mismanagement and bad timing of fleet acquisition, though I don't fully agree with you as that being one of the reasons, because coming back to EK, it has made very aggressive acquisitions in its fleet and continues to do so, but they are tough negotiators and have driven prices down dramatically and force both Boeing & Airbus to provide rates at which it makes commercial sense for Emirates - that's their internal motto. Even during the current crisis, all purchases except fleet purchases were frozen. Emirates keeps expanding its routes and AI keeps floundering because its in utter chaos and doesn't know what to do.

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