Praful Patel should be removed as the minister of civil aviation

I was shocked to read a report in ET that the number of foreign flights operating out of India increased from 711 services a week to 1315 services a week, an increase of nearly 90% since summer of 2004. The number of passengers have gone up from 14 million to 27 million in the same period. But Air India is losing money and market share while the foreign airlines are making hay. Air India and Jet share has come down drastically from 40-50% to 10% now.

Now I am all for competition because competition is good for everybody including the common man. Allowing more International airlines to fly from India is good but at the same time it was Praful Patel’s responsibility to see where Air India would fit in in the new competitive structure that he was promoting. The options available to Praful Patel and the Congress government were as follows:

(a) Make drastic changes in the functioning of the airline so that it can compete with the growing competition. If I am not mistaken, most of the national airlines of various countries are government owned or partly government owned and they are surviving.

(b) Sell majority holding and let the government hold 49% ownership. This way the government would have got funds as well as the value of their balance shares would have gone up.

(c) Let the airline die a slow death. Forget about cashing in on the brand value of Air India, it seems that today the value of the airline is almost zero as it is loaded with high cost Rs. 16,000 crore debt.

I think Praful Patel and the Congress government felt that option (c) was the best. They also found it the easiest to implement. All they had to do to successfully let the airline go down the tube is just do nothing which is what they are famous for doing. The managers at Air India did the rest. Today, the airline is saddled with Rs. 16,000 crores of debt. Banks are unwilling to lend and want government guarantees. Its enterprise value is probably zero.

What was the minister of aviation Shri Praful Patel doing till now? Zilch. Under his watch, the airline has gone under and can only be saved with infusion of more money. The best part is that we will be throwing good money after bad if one accepts the plan proposed by CMD of Air India.

The best part was that after the elections, Shri Praful Patel made aggresive statements about the drastic action being planned to revive Air India. He had said heads will roll. But let us review what the plan is. Once you hear the details of the plan, you will start praying.

CMD Arvind Yadhav has presented the following plan which I am assuming has the backing of our minister Shri Praful Patel:

(a) Start a low cost airline. The logic, we can’t run one airline successfully but it may turn out that we are good at running two airlines. Air India top brass is probably thinking that by the time somebody’s reviews the situation again, we would have all retired. It will then become the responsibility of whoever has taken control.

(b) Air India, which cannot control its expenses and has one of the highest employee to aircraft ratios will run a low cost airline? You have got to be kidding me.

(c) It plans to have 4 subsidiaries one each for cargo, maintenance and repairs, ground handling and engineering. First, it wants to shift employees to these 4 subsidiaries. I am unable to understand how this will reduce costs. The number of employees will remain the same. Second, it wants these subsidiaries to handle work for other airlines also. Maybe you can get some work from other airlines but with the same management and the same employees, I am not sure how this will help. If you want to handle work of other aiirlines, you can still do it. You don’t need 4 subsidiaries.

The idea of the subsidiaries would make sense if you take in strategic partners, sell part of the stake, introduce an ESOP to take the workers along and bring in professional management. Otherwise this plan is a plan which will delay the inevitable, that is, more money going down the drain. If Air India hives off these 4 areas of their business units into truly independent units, there is a good chance that Air India will be able to utilise its workforce more effectively as it will have more work to handle.

(d) Air India wants to terminate aircraft leases. With less aircrafts the employee to aircraft ratio will get worse. As such, it needs to prune its workforce as soon as possible and bring it in line with the international norms or as close to it as possible.

Economic Times in its article has commented on the current plan by suggesting that more than cosmetic surgery is required. I think ET needs to do a rethink. We all know that cosmetic surgery at least makes you look good for a short period of time. However, the current plan is going to take Air India down the tube and tax payers money down the drain.

According to me, the following needs to done to put Air India back on track:

(a) First, it has to decide on its positioning, that is, the kind of airline the market needs and that it is capable of becoming.

(b) Second, it needs to bring its organization structure and workforce in line with the above strategy. The idea is to make the selected strategy work. Any excess employee cost has to be dealt with seperately. The competitive strategy has to be based on the market conditions and the strength of Air India and not on how to utilise the excess workforce and its associated cost.

(c) Establish a plan to reduce costs associated with any excess infrastructure, assets and workforce that is not required to implement the above strategy.

Hope Air India and Shri Praful Patel is listening.

thanks

avinash