Case Air India

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Air India Crisis The National Air

Carrier on a FreeFall

21st June

2011

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How it started

Air India (Hindi: ) is a state-owned flag carrier, theoldest and the largest airline of India. It is a part of the Indian

government-owned Air India Limited (AIL) which is renamed

as Air India Ltd. The airline operates a fleet

of Airbus and Boeing aircraft

serving Asia, Australia, Europe and North America. Its

corporate office is located at theAir India Building at Nariman

Point in South Mumbai. It is the 16th largest airline in Asia. AirIndia has two major domestic hubs at Indira Gandhi

International Airport and Chhatrapati Shivaji International

Airport. An international hub at Dubai International Airport is

currently being planned.

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Some six decades ago in August 1953, the Indian airtransport

industry was nationalised to provide safe, smooth and economic air

travel to the people. It involved eight warring airlines with different

work cultures, horrendous safety record, disastrous financial

conditions because of cut-throat competition and inefficient

management in some.

Thus come into existence Indian Airlines Corp and Air India Ltd to

operate domestic and international long haul services. The

nationalisation was also expected to spur growth, promote economicactivity, rush assistance in times of natural calamities like flood,

famine and earthquake, foster national integration and, above all,

serve as the second line of defence in the event of war with another

country.It must be conceded that the nationalised airlines fulfilled most of

the expectations of the nation, particularly at times of natural

calamities and during the wars with China and Pakistan. This apart,

bringing remote places of the country into the mainstream byconnectin them with air service need not be told.

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Timeline

1. Founded by JRD TATA in 1932

2. 1953 Indian Govt. acquired major stake

3. 1960 purchased first boeing 707 and entered jet age

4. Renamed to Air India Ltd. In 1996

5. Was set for disinvestment in 2001 but it failed due to global slowdown.

6. In 2006 the airlines began showing signs of financial distress. Estimatedloss Rs. 770 crores ( 7.7 billion).

7. In 2007 Air India and Indian Airlines merged along with their subsidiaries to form Air

India Limited.

8. Senseless merger of the two wings of the airline took loss figures to Rs7,200 crores

( 72 billion) by March 20099. This was followed by various restructuring plans which were not at all effective.

10. May 2011 : Already reeling under financial crunch because of the ten day pilot

strike Air India finds itself in a tight spot as State-run oil companies the Indian Oil

Corporation, the Bharat Petroleum Corporation Ltd. and the Hindustan Petroleum

Corporation refuse to supply the fuel to the bleeding carrier.

11. For the financial year 2010-2011 a loss of Rs 7000 crore is expected.

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From a business case standpoint it

should have ceased to operate a few

years back had it been a privatecompany.

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Problems (part 1) Was not prepared for competition it started getting after the

liberalization of India economy in 1990.

Bloated workforce. Air India has 28,000 permanent staff, doubleJet's headcount. It operates 127 aircraft, compared with Jet's115.

Highest Employees per Aircraft in the world 200:1 where as

desirable is 130-170:1.

Bad management and faulty policies has brought Air India to thiscrisis level.

A culture of complete sloth in administration.

Complete lack of Ownership.

Lake of responsibility for results and failures. Deeply ingrained corruption in all levels.

Instead of renting out unused portions of iconic Nariman Pointbuilding for the huge sum, the debt-ridden airline is paying Rs 22lakh each month for its upkeep; 15 of its 23 floors are lying

vacant.

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Problems (part 2)

Old gas guzzling air crafts still running.

Poor marketing and campaign management,competitors like spicejet, jet, and kingfisher do

effective marketing.

Employees not paid salaries.Employee strikes further taking it out of business,

and competitors taking advantage.

The airline has not posted a profit since mergingwith former duopoly partner Indian Airlines in 2007

and relies on handouts from New Delhi to survive.

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Flight to survival

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It needs :

to secure a massive debt and operational overhaul if it is

to survive in a market growing at 20 percent a year.

$4 billion of working capital debt

Privatization free from govt interference.

to Lure customers and grab lost market share.

to lease some of the 14 vacant floors in its landmarkbuilding in south Mumbai to raise about $1 billion over

five years

to clear $9 billion in debt as well as outstanding dues both

to airport developers and state oil firmsto tackle a bloated cost structure, a difficult task given a

workforce that is heavily unionised.

to do some downsizing.

To cut unprofitable routes and create a new plan that

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Recent strategic implemetations.

from June 15 to July 25. AI launched an economy class

package worth Rs.30000 and also a business class package

worth Rs.50000 which will allow passengers to enjoy

unlimited number of flights along the length and breadth

of the country.

Long Pending salaries of its employees would be disbursedby the end of June 2011.

Company in talks with 26 banks to restructure debt.

The latest plan would focus on a hub-and-spoke route

model, cut costs by redeploying staff and unload non-corereal estate.

According to the restructuring plan, part of the debt would

be converted to long-term loans at fixed rates of interest

with the remainder converted into preference shares to be

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References :

http://www.reuters.com/article/2011/06/13/idUS250886910520110613

http://www.telegraphindia.com/1110614/jsp/business/story_14110511.jsp

http://www.livemint.com/2011/06/14065321/AirIndiamay-post-loss-of-7.html?atype=tp

http://www.prokerala.com/news/articles/a220209.html

http://www.citizeneconomists.com/blogs/2011/06/13/indias-privatisation-problem/

http://economictimes.indiatimes.com/news/news-by-industry/transportation/airlines-/-aviation/appoint-administrator-with-political-

backing-in-ai/articleshow/8835308.cms

http://news.in.msn.com/national/article.aspx?cp-documentid=5181909

http://www.hindustantimes.com/Airline-on-a-freefall/Article1-708680.aspx

http://www.psuindia.in/psu-news/5077-air-india-to-combine-13-flights-to-tackle-fresh-financial-crisis

http://ncrkhabar.com/india/air-india-in-crisisoil-companies-refuse-fuel

http://boardingarea.com/blogs/flyingwithfish/2011/06/13/is-air-india-finally-ready-to-really-join-star-alliance/?utm_source=twitterfeed&utm_medium=twitter&utm_campaign=Feed%3A+boardingarea%2Fflyingwithfish+%28Flying+With+

Fish%29&utm_content=Google+International

http://en.wikipedia.org/wiki/Air_India

http://www.livemint.com/2011/06/13232142/Air-India-to-get-the-required.html

http://www.dnaindia.com/india/report_come-out-with-white-paper-on-air-india-bjp-to-centre_1554667

http://articles.economictimes.indiatimes.com/2011-06-11/news/29643035_1_govt-releases-rs-air-india-vvips

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Thank you