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The Rediff Business Special/Neena Haridas

Air-India told to cut flab, streamline operations

The Maharaja has been asked to get his act together. Cut the flab, streamline operations and plug the leaks. In other words, look pretty for the marriage. For, whoever comes seeking his hand will want a trim, fit suitor.

Union Civil Aviation Minister Sharad Yadav has already directed his men to check revenue drainage, evolve a policy on appointment of general sales agents, or GSAs, rationalise the airline's fleet and route network, and improve passenger services.

However, there are some bitter pills to swallow. Consider this:

• The airline has accumulated losses of over Rs 13 billion.
• It has an old, depleting fleet. After its recent decision to sell off seven aircraft, it will be left with just 16 aircraft, which is quite embarrassing for any international carrier. Which means Air-India's employee per aircraft is a whopping 750 compared to the world standard of 150.
• It has a fat, perennially inflating wage bill. Air-India's staff accounts for 21 per cent of the airline's operating income. A-I spends several billions of rupees on salary to pilots alone. And all that they fly for is 45 hours in a month, which is not even half the global average!
• Air-India's available tonne kilometer -- which is a measure of productivity indicating how much the airline can fly -- is 125,000 compared to Singapore Airline's 485,000 or Cathay Pacific's 510,000.
• Archaic policies, which do not allow Air-India to outsource services, costs the airline an additional Rs 1 billion. For instance, Air-India cannot outsource services for, say, loading and unloading of baggage. In other words, of the total staff of 18,000, Air-India has about 6,000 people performing jobs that can be outsourced -- on an average annual salary of Rs 250,000 per employee, this fattens the wage bill by Rs 1.50 billion. While outsourcing would cost just about Rs 500 million.

The issue of paring losses is prime. Thankfully, for the first time in five years, Air-India has ended a fiscal with an operating profit on its books posting a Rs 150-million operating profit in 1999-2000. But the troubles continue with a net loss of about Rs 800 million, even as the accumulated losses remain at a daunting Rs 13 billion.

On this front, Air-India is putting in place a three-pronged strategy. The plan entails offering its staff a voluntary retirement scheme once it gets government approval; leasing eight aircraft to its fleet for the winter, and expanding its network to include a few key European destinations.

On the question of distortion in revenue management on account of unscrupulous agents, the carrier is likely to introduce an 'automated space revenue management system' which will enable the company to enhance revenue and minimise offloadings. The airline is in the process of hiring a Delhi-based company to implement software solutions that would aid this process, sources said.

"Block bookings and last minute cancellations affect genuine sales and encourage unwarranted upgrading. Unscrupulous agents resort to block bookings that are cancelled at the eleventh hour. The vacant seats that result from such fraud are then utilised to upgrade favoured passengers with the connivance of corrupt elements. This results in revenue loss to the company. But with the new system this problem can be sorted out," an Air-India source said.

Another area which is being looked into immediately is 'route rationalisation'. The source said, "The minister has told us to reduce the number of types of aircraft used. He has suggested that the focus should be on lease of 'combination' aircraft (of the Boeing 747-type used by the company to carry both cargo as well as passengers) so that cargo business is not neglected."

As for increasing the fleet size, Air-India is finally about to take leasing seriously. The airline is planning to dry-lease at least eight aircraft which are likely to be inducted from the forthcoming winter season. The company is looking for Airbus 310 and Boeing 747 aircraft to fill the gap caused by its shrinking fleet.

And in a bid to salvage A-I's image, the minister has asked the carrier to focus on punctuality, courteousness, quality food and helpful approach.

Even as the Air-India top brass is getting ready for the marriage, eyebrows are being raised over the issue of retrenchment and operational philosophy in the wake of a joint venture.

Says Y Eswara Reddy, secretary, Air India Employees' Guild, "Potential suitors will not touch the airline unless they are guaranteed operational freedom and flexibility. With a dozen state-owned airlines globally trying to attract the big-ticket aviation investors, Air-India's attempts to attract a partner will not be successful unless the government can sort out these issues.

"Among the major re-assurances any partner will look for is management control. This where the problem will start. We are not really for privatisation because the issue of employees will be totally overlooked by the foreign partner. In fact, I think this employee stock option plan that is being thrown at us is an eyewash to make us forget the other serious implications of privatisation," he said.

Meanwhile, aviation experts suggest that Air-India will not just need to revamp its revenue management, but bring about a change in its attitude itself.

Says a former managing director of Air-India, "The problem is that Air-India has never been managed in a thoroughly competitive manner. There have been almost no commercial considerations. With 40 per cent stake still with the government and with the government planning to have its chairman, there could be still a lot of interference. As of now, the government decides which routes the airline should fly, which fleet type, etc. This attitude will have to go out of the window."

"The strategic partner will want landing rights to various stations across the globe. Now, the government negotiates with other governments for bilateral flying rights between the two countries. But the rights vest with the Government of India. No airline will want to come in as a strategic partner unless these rights are transferred to Air-India," he says.

"Another issue where I think the government needs to change its policy will be employees. With this vast staff structure -- most of which is unproductive -- the partner would want to redeploy or even retrench personnel. And I doubt if the government will give the partner a right to hire and fire. A-I has a large regiment of drivers, cleaners, printers and even tailors on its payroll. It is ironical that in a recent belt-tightening phase, the airline was able to reduce its workforce abroad substantially but was unable to fire a single person in India," he said.

"A lesser known financial aspect is that of the debt situation in the airline's balance sheet. At last count, Air-India had repaid less than 50 per cent of the loans taken for its fleet of six 747-400s. The aircraft are hypothecated to various international banks and the increasing burden of interest payments on these debts has eroded the net worth to zilch," he lamented.

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