"Only God can save Air India," Russi Mody, a former chairman of the airline who is better known for his piloting of the Tata Iron & Steel Company, had said in 1995. Fifty-two-year-old Michael Mascarenhas, Air India's managing director since October 1997, begs to differ. He feels some human intervention is needed too. And the burden of that intervention falls on his shoulders, naturally.
In his five-year term as MD, Mascarenhas has to show that India's Rs 4,015 crore national carrier can be turned around and start showing profits again. Certainly, a sense of urgency exists, since the government has accepted, in principle, the Disinvestment Commission's recommendation on the airline's privatisation, sometime in the near future.
It's a really tough task, by any standards. Years of unwise decisions, lack of planning, ad-hocism and sheer mismanagement have pulled the airline into the red, mired it in a tangled web of problems that would take a gargantuan effort, perhaps combined with a lot of luck, to unravel. Mascarenhas is going about it practically, taking it step by step.
The foremost problem, one that has the airline stuttering on many fronts, is money. Air India has been making losses for four years now, showing a net worth dip of just under Rs 1,000 crore, from Rs 1,375 crore in 1996. Another Rs 3,500 crore, around Rs 1,000 crore of which constitutes working capital loans, weighs it down further. The airline's debt-equity ratio is an alarming 10:1, and employee salaries have been growing by leaps and bounds, even as losses added up.
"Manpower accounts for around 25 per cent of our total costs currently," says Jitender Bhargava, AI's official spokesperson and director - public relations, inflight service & national marketing division. Just check out the rise in salary percentages since 1994! That year saw a hike of 22 per cent, followed by 19 per cent in 1995, 14.44 in 1996, 18.35 in 1997 and 10.8 per cent in 1998-99 -- amounting to Rs 1,122 crore.
Staggering, to say the least! But the management at AI has not lost hope. "We have a track record of profitability for over 36 of our 45 years of existence. We have to get back to profitability again, and we're now seeing light at the end of the tunnel. By the end of this financial year, we see ourselves breaking even on operating costs."
A lot of faith is being placed in Mascarenhas, who has spent his entire career of 32 years with Air India and is its first internal appointee to the MD's position. A small beginning towards sunnier times also has the management looking peppier. Air India managed to cut its losses from Rs 413 crore to Rs 140 crore in the year ended March 1999.
A few weeks ago the Union cabinet gave it the nod on reducing retirement age from 60 to 58, and this resulted in 339 people retiring on June 30. The current financial year will find as many 600 employees retiring, followed by 250 every year thereafter.
"Overall," says Bhargava, "this decision will see savings to the tune of Rs 60 crore immediately. Besides, there's a complete freeze on fresh employment, and we've re-deployed manpower to higher operational areas from non-operational ones.'' The freeze on employment will find 1,500 vacancies left alone, and 750 positions have been scrapped.
In addition, AI has introduced two schemes that employees seem to have no objections to: the first is the option of working three days in the week for 60 per cent of the salary; the second is the offer of job security, with medical and air travel benefits if an employee wishes to take unpaid leave for two to five years. Around 600 employees are said to have accepted these schemes already.
And that is not where it all stops, either. Mascarenhas is gunning for the toughest of them all: inducing a pay cut across the board, with cuts ranging between 40 to five per cent, with those earning more giving up more. As an example, Mascarenhas has given up his own productivity-linked income, which accounts for nearly half of his current Rs 50,000 a month salary. He wants to effect the cuts with employees on their productivity linked income rather than their primary salary cheques.
Understanding the need to cut costs to maybe avoid going to the Board for Industrial and Financial Reconstruction, senior executives and five of the seven AI unions have seemingly seen the wisdom in the cuts, but the two unions representing the pilots and engineers are holding out.
Though these two sets account for less than 10 per cent of the total employee strength, they take away the lion's share in salaries. This is one battle still remaining to be fought, but Mascarenhas might just get tough, since the savings would be considerable and ease the pressure on operations.
Air India has also made some noises towards getting rid of its subsidiary, the Hotel Corporation of India, which owns the Centaur chain of hotels. Nothing concrete has happened on this yet, however. And then, the airline is expressing greater hopes of some icing on the cost cake, ever since Union civil aviation minister Ananth Kumar announced on 24 June that the government is considering injecting Rs 1,000 crore to help AI cope with losses to some extent.
This money could wipe out the airline's debt burden at a sweep. The Kelkar Committee, appointed by the government in 1997, had recommended this help from the government and the Disinvestment Commission, set up later, had endorsed the proposal.
Will all these moves work? The feeling within is that if they are effected and get full support, then AI will be able to hold its head up again. "Three factors have led to our running up losses," muses Bhargava. "The first, of course, is the sharp increase in costs, specially on manpower. The second has been our Rs 3,500-crore investment in the purchase of three aircraft. And the third, virtually static fares out of India in rupee terms, side by side with negative dollar earning growth, thanks to the rupee's devaluation against the dollar."
Besides the range of efforts on the first factor, aircraft and earnings are also under the microscope right now. Two aircraft deals are currently pending: following last year's sale of two 747-200s, plans for the sale of three more 747-200s have been finalised. With the existing fleet, route rationalisation has found South Africa, East Africa, Canada, Israel, Amsterdam, followed by Manchester and Frankfurt being blanked out from the flight map. That leaves just Paris and London on Air India's European route map for now. Of course, AI intends to add some of the routes back once it is able to reverse its downturn in fortunes.
For now, better revenues are being pushed for through the alliance agreement with Air France to fly AI passengers to several cities in Europe, and code-sharing agreements with just under a dozen airlines. For example, there's a weekly 80-seat block booking arrangement with Singapore Airlines to fly AI passengers to Los Angeles from the Singapore hub; with Austrian Airlines and Swissair to Vienna and Zurich respectively; and with United Airlines to Washington.
In addition, significant improvements are being made on in-flight services for the executive class, to begin with, in order to increase customer preference in a highly competitive environment. By July-end, AI intends to customise its services to a fine art. "We are the first airline, worldwide, to be doing this on such an elaborate scale," states Bhargava. "We're calling this initiative 'One-to-One enterprise', and the effort will be to cater to personal tastes in food, drinks and reading preferences as closely as we can."
This is how it is intended to work: a passenger booking a seat on AI from any part of the world will be presented with a pre-formatted set of services befitting an executive class customer, but with options that he/she can change to, if so desired. "We would therefore know exactly 'who' is travelling with us 24 hours in advance. This is what the Internet can now help us do." In addition, the airline is going regional with its menus in its hub sectors.
Revenue efforts from the India sector are also being beefed up. "We have large aircraft and we have them flying through two domestic gateways sometimes (Mumbai-Delhi-London on four days of the week, for example) before embarking out of the country. If we can discount and give better services, why shouldn't people opt for our flights?" And again, AI has increased the network of cities it flies out of to 12 -- it covers three gateways in Kerala now, Cochin being its latest on the list.
Revenues could also accrue from the expertise AI has in maintenance and overhaul of aircraft engines. The first steps have been taken, with AI's overhaul facility in Mumbai being upgraded recently. The idea is to offer, with FAA certification, the services to not only aircraft that fly into Mumbai, but also to those that don't. There''s a lot of scope in this line of activity, and it is being exploited across the world.
Israel Aircraft Industries, for example, is tuning up this business as a separate profit centre, to cater to clients worldwide, and has already started earning significantly from it. Air-India has, on its part, managed to bag one agreement with a US operator, reportedly for Rs 35 crore.
No one at AI is saying the airline is anywhere near the end of the tunnel. But as long as there's that spot of light in sight, there's hope. There's total denial on the possibility that AI could fade out. "We have an equity base of Rs 154 crore and an asset base of Rs 10,000 crore," says Bhargava. And that's big, is the argument.
With privatisation on the horizon, Bhargava says people in the organisation are coming around to the reality of having to accept change in the work culture in order to be more dynamic. The privatisation proposal runs like this: the government will continue to hold a 40 per cent stake, offer 40 per cent to a strategic partner -- whether an airline or an investor has not been defined yet; offer 10 per cent to a financial institution; and 10 per cent to employees.
The strategic partner would be expected to invest a sum of Rs 770 crore, if par value at Rs 10 stands. But the government will want a premium. Will there be any takers for a bleeding airline? The talk is there have already been enquiries on investment, even though the disinvestment timeframe is nowhere close to being defined.
In the meanwhile, three grand alliances have happened -- Star (consisting of Varig of Brazil, United and Air Canada, Lufthansa, Singapore Airlines, Thai International, Air New Zealand and South African Airways); One World (American Airlines, British Airways, Iberian Airlines and Qantas); and between North West, KLM and Al Italia. But there's a big gap in the Indian subcontinent, where there's immense traffic potential. Who better to fill that up but Air India?
No question about it, Air India will see privatisation sometime in the future. How much it can manage to turn around, is a question not even Mascarenhas can answer. No one can, actually. But the pressure is nonetheless severe, since the premium the government decides to place on the final sale price for AI will depend solely on how well the existing management turns the airline around.
(The illustrations have been taken from Air India advertisements)