The Maharaja Turns Pauper

EVEN as Air-India managing director Michael P. Mascarenhas made public the recommendations of the Disinvestment Commission last week, one point came flying home. In Mascarenhas' ominous words: "The question is now of the survival of the airline." Asking for a bailout from the government, he made it clear that unless there was an immediate cash infusion of Rs 1,000 crore from the government with a strategic investor pumping in an additional Rs 770 crore, there was turbulent financial weather ahead for the national carrier.

 It was a clear indication that the Maharaja's royal days were finally over. To begin with, air fares out of India have either been static or growing very slowly in rupee terms or even declining in dollar terms. More importantly, the carrier has been bogged down by the interest payment of Rs 107 crore due this year on the Rs 1,100 crore working capital loans taken by the carrier over the last few years.

Says an aviation expert, "Air-India is budgeting to cut losses, forget about making profits. It is unprecedented for an airline to accumulate borrowings of working capital for day-today operations. This, plus route rationalisations, code-sharing with other airlines, alliances, an aging fleet, staff salaries and excess manpower has led to this messy situation. It is a self-created one."

While the airline has managed to curb operating losses, those pertaining to the non-operating ones are causing it to go into a tailspin. To get on an even keel, the commission has recommended that the Centre offload 10 per cent of its equity to financial institutions, 10 per cent to the public and employees and 40 per cent to the strategic investor while retaining 40 per cent of the airline's equity. "Operating losses have been reduced by Rs 220 crore and the trend continues this year too," says Jitendra Bhargava, Air-India's director, corporate communications. "But the area of concern is the nonoperating losses and the interest liabilities on the working capital loans."

"Political and bureaucratic bungling, wrong populist measures and a lack of emphasis on the commercial aspect have affected the productivity and competitiveness of the airline. The government, unlike in other countries, does not seem interested in writing off Air-India's losses. And the unions, who are not willing to accept things now, might have to settle for much less later," observes Hormuz P. Mama, an aerospace journalist.

That the Maharaja needed to shed excess baggage became increasingly apparent when the airline started posting losses around four years ago. In spite of that, in a measure of dubious utility, former managing director Brijesh Kumar offered the company's employees populist "productivity-linked incentives", taking the total wage bill to Rs 875 crore.  Outgo on wages alone accounts for 20 per cent of the company's total expenditure.

The 24-aircraft airline has an amazing staff strength of 18,750, of which as many as 8,000 posts would be surplus. Between 1980 and 1998, 3,000 additional contract workers were absorbed by the organisation by virtue of a court ruling. "Air-India has 770 employees per aircraft as against the industry average of 250, which makes the airline a grossly overstaffed one," admits Mascarenhas.

In an attempt to turn into a leaner, meaner machine, 1,531 vacancies have now been frozen, 190 local posts abolished and recruitment has taxied to a halt. Over 200 people have been redeployed in operational areas and the flag carrier is looking at slashing the strength of its 950-strong overseas personnel by 10 per cent. To further trim its wage bill, Air-India has launched the shorter working week scheme and a leave-without-pay plan. The response: a dismal 500 applications. "We have saved Rs 219 crore in 1998-99 by downsizing offices, staff and by outsourcing personnel. Operational losses can be liquidated in three years but to come back to the profitability track, we need the Rs 1,770 crore fresh equity infusion," says Bhargava.

The contradictions within the government have not helped. Nor has the fact that civil aviation is not a priority area. "On the one hand, they talk about democratising the airline sector to bring air travel within everybody's reach; then fares are hiked to impossible levels. In the case of Air-India, the government has been intentionally vague. They want to hold on because allowing a foreign airline to take a stake in Air-India would mean contravening its own policy. Eventually, they will have to settle for foreign investment," says an aviation expert. When the Tata group submitted its initial proposal for a domestic air service in collaboration with Singapore Airlines, it was shot down after equity holdings by foreign airlines were banned in the Indian aviation sector.

Already, the postponement of a Rs 100-crore bond issue to January 1999 does not augur well for the airline. If the government does not act quickly on the recommendations by infusing the requisite Rs 1,000 crore and giving the go-ahead for a strategic partner, the national carrier might find itself in financial freefall. Then, the only thing soaring sky-high will be its losses.