Six reasons why Air India is going downhill

Benefits from fin restructuring plan have been eroded by high volume of short-term loans: CAG

The Comptroller and Auditor General of India ( CAG) pointed out numerous holes in the government version that state-owned Air India is on a path to turnaround its fortunes. In its audit of the Turnaround Plan and Financial Restructuring Plan of the airline, the auditor said that the airline has failed to achieve many of the objectives in various functional areas mandated under the financial restructuring plan which provided equity infusion of Rs 30,231 crore till FY21.

This failure resulted in less revenue generation for the airline leading to requirement of more short-term loans for the airline which eroded the benefit of financial restructuring plan.

1) Less income in passenger revenue: Air India earned passenger revenue of Rs 15,773 crore, almost 20% lower than projected Rs 21,297 crore in FY16. The failure to meet the target was despite meeting load factor targets. So that means that airline lost revenue due to its own inefficiency like lack of aircraft availability, faulty deployment, low utilisation of human resources and lack of ancillary revenue.

2) Low monetisation of assets: Lack or faulty initiatives to monetise its assets- one of the primary requirement of meeting the revenue deficiency led to dip in the company’s fortunes. The audit noticed that for five out of 12 properties the terms and conditions made it impossible to monetize. The turnaround plans envisaged that Rs 500 crore will be earned from monetization of 12 properties but Air India till February 2016 has marked only six.

3) Non-availability of proper aircraft: The audit finds that there has been a mismatch in demand and availability of the airline. For instance, there was over provisioning of wide body aircraft where as it didn’t have required number of narrow body aircraft. For instance, the airline after the recommendation by the consultant to buy induct A320 aircraft to reduce maintenance cost, it took three years for the airline to float a global tender. Till March 2016,  it could only induct five A320 s which jeoparadised the plan of reducing maintenance cost “ Such long delays points to the inefficiency of the procurement process given the urgency of the requirement,” the audit report said.

4) Mismanagement in granting bilateral agreements with foreign countries: The audit pointed out that more than required granting of bilateral seats to carriers of foreign countries hurt Air India’s prospects. S a result sixth freedom traffic carried by foreign airlines rose significantly which had an adverse impact on Air India’s business plans. For instance bilateral seats was enhance from 13,330 seats to 50,000 seats in the India-Abu Dhabi befitted Etihad Airways at a cost of Indiancarriers. “Considering the significant equity funds commited by the government to Air India decision to grant additional bilateral rights to foreign carriers should take into consideration its impact on Air India,” the audit said.

5) Loss making international operations: Air India can be on an expansion drive to new international destinations but the audit says that most of such routes burn a hole in the airline’s pocket as it fails to recover the cost. For instance flights to North America and Europe results in a loss of Rs 2,323.76 crore in 2015-16. In the Delhi-NewYork-Delhi route the occupancy stands at 77% as Air India faces completion from from other airlines.

6) Mismanagement of manpower: According to the requirement, the company had 11,433 employees as against the envisaged requirement of 7,245. In addition there was under utilisation of of pilots and cabin crews led to loss for the airline.

For instance, for widebody and narrow body aircraft the airline required 291 pilots and  554 pilots respectively whereas it has excess excess 86 pilots as of 2015-16.