What sent Air India crashing?

Manju V , TNN 16 July 2009, 04:18am IST

AI’s decline can be traced to a series of bad decisions taken over the past few years.
TOI examines how these missteps cost the airline

For the national carrier, the spiral dive began in 2006-07. Air India made a loss of Rs 541
crore and Indian Airline's loss was Rs 230 crore. In about 700 days, from March 31, 2007
to March 31, 2009 — during which the airlines merged — the losses rocketed to a
mind-boggling Rs 7,200 crore.

Aviation is a risky business, and carriers around the world have lost big money for a
variety of reasons — from rising oil prices to a slowing world economy. What separates
Air India from other carriers, both private and state-owned, are the reasons that led to the
losses. Yes, it's been hit by ballooning fuel bills and falling demand. But the crisis at Air
India is man-made to a large extent. The 800% increase in its losses in two years has
much to do with the manner in which:

Air India and Indian (formerly Indian Airlines) were merged; aircraft were leased or
purchased;
capacity was gifted away to foreign airlines under bilateral agreements; ground-handling
in Bangalore and Hyderabad was relinquished to a proposed joint venture (and attempts
are on to do the same elsewhere); flights were withdrawn from profitable routes; pilots
weren’t sent for proper training.

Route to bigger losses: “The losses really began from 2006 onwards when a decision
to aggressively dry and wet lease aircraft was taken to increase market share. There was
no proper route study, marketing or pricing strategy. The airline took heavy losses till the
market built up,” said an aviation analyst.

In 2006, Air India dry-leased four Boeing 777s for a period of five years, only to get
delivery of its own aircraft from July 2007 onwards. The result: In the last two years it
kept five Boeing 777s and five Boeing 737s on ground at a loss of Rs 840 crore from
2007 to 2009. Luckily for Air India, Boeing could not meet the delivery schedules for its
new B 787 Dreamliners. If these aircraft had arrived on time, all of them would have
been on the ground.

Three dry-leased B-747s on the Los Angeles route and one B-767 on the Bangkok and
Kuala Lumpur route, flew from 2006 till 2008 with less than 40% load, leading to a
combined loss of about Rs 200 crore in 2006-07 and again in 2007-08. “It takes time
to develop a route. Just when the LA route had developed and had started getting full
loads, it was shut down (in 2008) because the lease for the B-747s expired. Would any
airline in the world do that? Stop flying to a route after developing it?” an aviation
analyst asked.
No method in merger: Down South, in airports like Chennai, Kochi, Thiruvananthapuram
passengers booked incredibly cheap fares to destinations like Sharjah, Muscat and
Singapore as Air India Express and Indian Airlines flights competed with each other —
even after they merged.

Grounding ground-handling: Air India's given up one of its money-spinning operations

for no good reason. In Bangalore and Hyderabad airports, Air India now has to share its
revenue from ground handling with Singapore Airport Terminal Services (SATS).
“The airline earned Rs 900 crore in 2007-08 from ground handling. From next year,
the airline will have to pay AI-SATS even to handle its own flights,'' a senior airline
official said. The previous AI chief Raghu Menon opposed the revenue-sharing because it
was loaded heavily in favour of the Singapore company; Menon was removed from AI
abruptly.

In the pits: In the aircraft cockpits of Boeing 747s and 777s, first officers who were
eligible to be commanders wondered when they would be sent for command training. The
industry average for a first officer to become a commander is four years. In AI, pilots
spend close to 10-11 years as first officers. “The airline's inadequate planning for
command training from 2003 onwards meant hiring over 160 expatriate pilots and paying
them double the salary paid to their Indian counterparts. It cost AI Rs 390 crore from
2007 to 2009,” said a source.

Ceding market share: But what hit the airline most has been the civil aviation ministry's
generosity towards foreign airlines. Every country in the world protects its interests when
it enters into bilateral agreements. But not India. Thanks to liberal bilaterals, foreign
competitors are pounding Indian carriers not just in airports like Mumbai and Delhi, but
also in places like Nagpur, Kochi and Ahmedabad. As a result, AI's share of the overseas
market has been steadily declining.