AI to spin off engineering operations

Expects to earn Rs 3,000 crore each year from new venture.

In an effort to utilise its excess workforce and boost revenues, national carrier Air India plans to spin off maintenance, repair and overhaul (MRO) engineering operations by April, Chairman and Managing Director Arvind Jadhav said today.

“We would earn about Rs 3,000 crore annually through the engineering division... Plus, our engineers would be better utilised through the MRO,” Jadhav told reporters.

The airline has formed an alliance with the Sharjah-based Aerostar Asset Management for marketing its engine overhaul facility. The alliance will sell repair services for Boeing and Airbus jet engines.

Jadhav said the joint venture with Boeing for the MRO unit would be a part of the spun-off unit. Boeing is investing $100 million, while Air India will provide manpower, land and hangars at the MRO unit, which will be set up at Nagpur.

Cargo business to be hived off too
The airline also has plans to spin off its cargo business and is working on a business plan for the same. It hopes to garner around Rs 100-150 crore annually from the cargo business post spin-off.

“We would make around Rs 360 crore a month from cargo and engineering business and our cash deficit would come to around Rs 400 crore a month currently,” Jadhav said.

Having recorded losses to the tune of Rs 5,500 crore in 2009-10, the airline is restructuring its operations and cutting costs. The government has agreed to give Rs 800 crore to the airline on the condition it continues to cut costs.

“We expect a net benefit of Rs 563 crore in terms of cost reduction for the entire year (2009-10), because of network restructuring, and route aircraft deployment rationalisation,” Jadhav said. In an effort to redeploy aircraft, the airline is planning to phase out 34 aircraft by March 2011 and induct nine planes during the same period — six Airbus A-321s and three Boeing 777s.

“There is no need to keep surplus aircraft. One aircraft at 80 per cent capacity is better than having two or three at 50 per cent capacity,” Jadhav said.

The airline is also looking at outsourcing its information technology business for manpower rationalisation. The airline said its sales growth was 15 per cent quarter-on-quarter for October-December. According to Jadhav, Air India is seeing better loads and its market share is also rising. In November, the carrier’s market share was 18.8 per cent.