Short-term loans hurt Air India

Poor or faulty initiatives to monetise Air India's assets led to dip in the company's revenues: CAG

The Comptroller and Auditor General of India (CAG) has poked holes in the government’s claim that state-owned Air India was on a turnaround path.
 
In its audit of the turnaround plan and financial restructuring plan of the airline, the auditor said the airline had failed to achieve many of the objectives in various functional areas mandated under the financial restructuring plan, which has provided equity infusion of Rs 30,231 crore till FY21.
 
These failures hurt the airlines’ revenue generation, leading to more short-term loans being issued. Such lending eroded the benefits of the financial restructuring plan. CAG said this might result in another financial restructuring for the airline.

 

According to the report, Air India earned passenger revenue of Rs 15,773 crore, almost 20 per cent lower than the projected Rs 21,297 crore, in FY16. The failure to meet the target was despite meeting load factor targets. This meant the airline lost revenue due to its own inefficiencies involving aircraft availability, faulty deployment, low utilisation of human resources and lack of ancillary revenue.
 
The CAG also said poor or faulty initiatives to monetise Air India’s assets — one of the primary requirements of meeting the revenue deficiency — led to a dip in the company’s revenues. The audit said the terms and conditions made it impossible to monetise five of 12 properties. The turnaround plans envisaged that Rs 500 crore would be earned from monetisation of 12 properties, but Air India had till February 2016 marked only six.

 
The audit said there was mismatch in demand and availability. There was over-provisioning of wide-body aircraft whereas it didn’t have the required number of narrow-body aircraft. A consultant had recommended inducting A320 to reduce maintenance cost. But it took the airline three years to float a global tender. It could induct only five A320s till March 2016, jeopardising the plan to reduce maintenance cost. “Such long delays point to the inefficiency of the procurement process given the urgency of the requirement,” the audit report said.
 
CAG also pointed out that more-than-required granting of bilateral seats to carriers of foreign countries has hurt Air India’s prospects. For instance, bilateral seats were enhance from 13,330 to 50,000 in the India-Abu Dhabi route, benefitting Etihad Airways at the cost of Indian carriers. “Considering the significant equity funds committed by the government to Air India, the decision to grant additional bilateral rights to foreign carriers should have taken into consideration its impact on Air India,” the audit added.

 
Air India might be on an expansion drive to new international destinations but the audit said most such routes burnt a hole in the airline’s pocket, as these have failed to recover cost. For instance, flights to North America and Europe resulted in a loss of Rs 2,323.76 crore in 2015-16. 
 
The CAG also said the company had 11,433 employees against the requirement of 7,245. Under-utilisation of pilots and cabin crew led to loss for the airline.