There was a time when Air India was the pride of the country and its standards of service were among the best in the world. Now it lurches from crisis to crisis.

Small things can tell a big tale. Take last month’s payment of salary to Air India staff. The salaries for March were disbursed on April 7, late by a few days. No big deal. It wasn’t the first time either. Last June, salaries were delayed by a fortnight due to paucity of funds. But for the national carrier—Maharaja, the bearer of the Indian flag and one-time envy of many renowned airlines—it is a sad indicator of just how low it has fallen. There was a period when Air India was the pride of the country and its standards of service among the best in the world. Now it lurches from crisis to crisis. It is numbered among potential defaulters on payments made to the Airports Authority of India and the oil companies. It is living from hand to mouth. In what shape is an organisation that cannot even pay its personnel on time?

Mountain of Debt

Optimists, however, have a different view. According to Praful Patel, Minister for Civil Aviation, “The worst is over and Air India is continuing on a path of recovery.” His belief rests on the fact that airline losses are showing a declining trend—Rs 300 crore a month. But in 2009-2010 alone, Air India incurred a loss of Rs 5,400 crore, and the total losses have ballooned up to Rs. 12,774 crore. The carrier is sitting on a mountain of debt—Rs 15,241 crore as of last June. According to estimates, the government may have to pump in Rs 5,000 crore annually for the next few years, just to keep it afloat. But in a country where only two per cent of the population travel by air, keeping an airline going—even if it happens to be the national carrier—is hardly an aam admi consideration.

Is the worst really over? Air India is certainly benefitting from the recent surge in domestic passenger traffic, a 20.54 per cent rise during January-March. It is tempting to think that this growth will last forever. But air traffic is notoriously prone to “shocks” and the recent volcanic ash attack is only the latest in a series. Consider an eminently possible spike in the price of a barrel of oil to $100 (Rs 4,425) or more. That would again send the airline’s operating bill skyrocketing and scotch hopes of early recovery.

Acts of God and OPEC vagaries, however, are hardly the reason for the plight of the National Aviation Company of India Limited (NACIL). Many believe the root cause is the injudicious order that NACIL’s erstwhile components—Air India and Indian Airlines— placed for 111 airliners in 2006. The bill is estimated at Rs 44,000 crore, though some fear it could cross Rs 55,000 crore. NACIL may have to pay Rs 22,000 crore for deliveries this year against Rs 12,000 crore last year. It has reportedly borrowed about Rs 25,000 crore already, and interest payments will only add to its burden. The pain at present may be inevitable for gain in future. But it is sad that for years after these new aircraft have been inducted, NACIL may suffer from substantial excess capacity. And what of the resulting plethora of aircraft types—ATR 42, CRJ700, A320, B737NG, A310, B777, B747-400 and B787 on order—hardly conducive to operational, maintenance or logistical efficiency? Consider the stark contrast with the huge US Southwest Airlines fleet—537 aircraft, all B737 variants.

The newly reconstituted NACIL Board recently appointed a Chief Operating Officer on a monthly salary of about Rs 20 lakh, plus allowances and perks. What an airline pays its executives should ordinarily be its own affair. But for a severely cash-strapped organisation this easily becomes a PR disaster. What about the allegations of flights diverted to ferry IPL teams? And the long list of freebies and perks offered to serving and retired airline and government functionaries? More small things that tell a big tale.

Turnaround And Around

In August last year, egged on by the Indian Government, NACIL came up with a turnaround plan. However, the plan met with scant success, saving less than half the projected amount. The government has now demanded another revival roadmap, based on which it will decide whether the airline gets more money or not. It is unlikely that the second plan will fare any better than the first.

Indeed, Air India’s options to reduce expenses seem limited. A common misconception is that trimming its bloated workforce is a solution. Apart from the obvious difficulty of firing employees in India, the scope for reducing losses through wage cuts or staff reductions is limited, since wages account for just 16 per cent of an airline’s costs. Even now, Air India breaks even on very few routes. So why not drop some unprofitable ones? Because this would render a large part of its fleet and workforce surplus to requirement. Unprofitable operations, unfortunately, have a logic and life of their own. The carrier has ambitious plans to slash its 150-strong fleet to around 105 aircraft by March next. But it may not easily find parties to buy or lease so many airliners.

Privatisation is also proposed as a way to end Air India’s troubles. This begs the question that who would invest in an airline in such dire straits? Besides, private airlines are hardly trouble free. Ask Kingfisher Airlines or Paramount Airways. Public sector enterprises are not incapable of making profit. Many have successfully weathered post-liberalisation competition and are doing better than ever. Since 2001, while Air India made a profit every year until 2006-2007, Indian Airlines made a profit in three out of six years.