Air India gets $173 million government cash injection, but carrier’s future still uncertain

Air India gets $173M government cash injection

MUMBAI, India — India approved a cash infusion for ailing national carrier Air India Thursday, part of an expected $432 million bailout of a company many once considered a proud symbol of the nation.

The $173 million injection “would not only ease the cash flow situation of the company but would also preclude borrowings from the markets at a high cost,” the Ministry of Civil Aviation said in a statement.

Other carriers have stumbled in the wake of the global financial crisis — notably Japan Airlines which filed for bankruptcy in January. Analysts say many of Air India’s problems are homegrown, born of decades of mismanagement and underinvestment.

And some feel the proposed fixes don’t go far enough, largely because political pressures make layoffs difficult.

The National Aviation Company of India Ltd. (NACIL), which runs Air India, has agreed to trim costs by 19.1 billion rupees ($412.7 million) in the fiscal year ending in March.

The airline will cull its fleet from 146 aircraft to 105 by March 2011, to save an estimated 9 billion rupees ($194.4 million) in annual maintenance, inventory, personnel and fuel costs, the ministry said.

But, unlike Japan Airlines which has said it will lay off 16,000 staff, Air India has not announced layoffs — a politically delicate issue analysts say is necessary for a meaningful turnaround. Instead, the airline plans to farm off staff to newly created subsidiaries.

An attempt to trim performance-linked pay resulted in a five day strike by pilots in September, with some 400 canceled flights.

“I don’t see in the current political environment how you can have layoffs,” said Kapil Kaul, chief executive of the India unit of the Center for Asia Pacific Aviation, an independent aviation research group.

But, he added, “If they are to do a meaningful restructuring, they will have to first ensure that headcount is substantially reduced.”

He estimates that the airline’s 30,000 staffers cost about $800 million a year and should be slashed by half.

He said Air India has also accumulated an unserviceable debt burden of about $8 billion, which could rise to $15 billion as the company completes its acquisition of new aircraft.

The Ministry said Thursday that Air India managed to reduce its operating loss for the first half of the fiscal year by 23 percent, to 20.3 billion rupees($438.2 million) from the year-ago period, but Kaul says that’s far from enough.

“Air India’s financial troubles are part of their unviable business model,” Kaul said. “Its cost structure is not viable anymore.”

It has been a long fall from grace for the airline, which was founded by JRD Tata, one of India’s most revered industrialists, who built the salt-to-SUV Tata Group.

In 1932, Tata flew from Karachi to Mumbai in a single-engine de Havilland Puss Moth to inaugurate the first commercial air mail route in his budding corporate empire.

After India’s independence, the government took a majority stake and Tata’s airline — which was ultimately christened Air India — became the nation’s flag carrier.

Kaul said that when India opened its skies to foreign carriers in the early 1990s, Air India, plagued by years of political interference and underinvestment, could not compete.

“It was an international symbol of India before we initiated liberalization,” he said. “It was a world class airline.”

Today, he sees only one option left: Privatization.

“The only viable option is to privatize the airline,” he said. “If we continue to deteriorate it over the next couple of years, that also might not be an option.”