Since the past few months the front page of the orange newspaper ( read Economic Times) has been carrying headlines on the aviation sector. Be it Kingfisher's king-sized problems or Air India, the national carrier, problems akin to the stature of the Maharaja. But this has raised quite a few doubts on the Indian Aviation sector as a whole. India is the second fastest growing economy in the world boasting of a population of 1.20 billion but only 50 million prefer this luxurious n fastest mode of transport. And there are reasons aplenty.
To start with, aviation was started in India by the visionary, J.R.D.Tata who himself was a pilot, under the name Tata Airways. Incidentally he flew the first flight as well from Karachi to Mumbai. The airlines was given to the nation as a gift by the large hearted tatas or in government's words it was nationalized. And from there the airlines problems have grown each day. The domestic routes were covered under the Indian Airlines brand while international routes were served by Air India. The government flagship enjoyed exclusive dominance in the Indian skies till the 90's until the aviation sector was opened up. This saw a rush of airlines like Jet Airways, East-West, Damania and so on out of which only Jet Airways has survived and grown to become the largest carrier in India.
Come 2001 and an air force officer, Captain G.R.Gopinath who dreamt of making the Indian skies affordable to the common man of India. He introduced Re.1 special fares and the lottery system which made flying affordable and attractive. But as they say finance is very important in a business which I completely agree and Gopinath made the mistake of growing without caring for the profits. So it accumulated huge debts and finally had to be sold to the ever-so charismatic Dr. Vijay Mallya of Kingfisher fame. Even though the Chief Financial Officer warned against such an acquisition, Mallya was adamant to grow his Kingfisher brand ( the beer is what I'm talking) through the aviation sector by modernising the airline and bringing the oomph factor to it . And the result is that Kingfisher has never posted profits since its inception and is now saddled with debt of over 7000 crores which is a huge amount but is dwarfed by the Air India case discussed further. None of the banks are ready to lend more to the king of good times and he has been forced to pledge his stake in flagship companies like United Breweries which is a cash cow for him and has also decided to sell his non core companies.
So what are the options left with Kingfisher? Not much would be my answer as soaring crude prices and the high taxes levied on Aviation Turbine Fuel (ATF) by the government have left no room for cost cutting. Vijay Mallya can either sell the airline to a big corporate house like the Reliance who are eager to get into this business and have more the 70000 crore of free cash. Another option is to trim the airlines' operation by cutting down on non-profitable routes and on a lighter note less clothes to the air-hostesses( no offence intended and I have the highest respect for females) and sell all the assets that the airline has in the form of land banks and guarantees. Though this will hurt Mallya's image as a flamboyant businessman he will atleast be out of this mess and will be able to concentrate on his love, alcohol.
Now comes the case of Air India. Though the airline continued to make profits till around early 2000s, the tenure of Mr. Praful Patel who used the airline as his family business and ruined the business. The first decision was the untimely merger of Air India and Indian Airlines with a view to rationalise the operations. But it backfired miserably as the merger is still pending in terms of codes shared and this has created problems in the new Air India. The total number of employees are more than 70000 and the average number of employees is around 150 which is quite high as per industry standards. Coupled that with around 40000 crore of debt is a serious problem for the airline. Even though the new aviation minister has announced a 30000 crore package to be infused in the airline by 2020 in stages, it is like throwing good public money behind bad money.
But the case of Air India turnaround is somewhat simpler as compared to Kingfisher Airlines. The airline has the backing of the Government and hence funds are not an issue. Taking this as an advantage it should offer a voluntary retirement scheme (VRS) for its employees and those ready to opt for it must be compensated with a large heart just like Ajay Piramal who chose to share the wealth with all concerned when he sold his formulations business and pocketed a huge sum. This will phase out the old and less efficient staff and will increase the operational efficiency. Another advantage that Air India has is the huge tracts of land which are in some valuations valued at 30000 crore. This itself wipes out most of the debt. Yet another source of income could be partial stake sale in the Maintenance , Repair and Overhaul ( MRO) division of the airline which is among the best in the world. After this the airline would only have the operations as the primary function and could lead to better utilization of resources.
The only successful carrier in India today is Indigo Airways but that airline too has been witnessing delays which is not going down well with the customers. Other players in this industry are Spicejet and Go Air which are smaller players and have managed resources efficiently.
Thus the Indian aviation sector will witness growth if the troubled carriers find a pragmatic solution to their problems else the whole sector will suffer as these are too big to die. Also the government must relax rules in the sector and allow foreign carriers to invest directly and also help the industry with pro- industry policies at least till the sector is out of this mess.
To start with, aviation was started in India by the visionary, J.R.D.Tata who himself was a pilot, under the name Tata Airways. Incidentally he flew the first flight as well from Karachi to Mumbai. The airlines was given to the nation as a gift by the large hearted tatas or in government's words it was nationalized. And from there the airlines problems have grown each day. The domestic routes were covered under the Indian Airlines brand while international routes were served by Air India. The government flagship enjoyed exclusive dominance in the Indian skies till the 90's until the aviation sector was opened up. This saw a rush of airlines like Jet Airways, East-West, Damania and so on out of which only Jet Airways has survived and grown to become the largest carrier in India.
Come 2001 and an air force officer, Captain G.R.Gopinath who dreamt of making the Indian skies affordable to the common man of India. He introduced Re.1 special fares and the lottery system which made flying affordable and attractive. But as they say finance is very important in a business which I completely agree and Gopinath made the mistake of growing without caring for the profits. So it accumulated huge debts and finally had to be sold to the ever-so charismatic Dr. Vijay Mallya of Kingfisher fame. Even though the Chief Financial Officer warned against such an acquisition, Mallya was adamant to grow his Kingfisher brand ( the beer is what I'm talking) through the aviation sector by modernising the airline and bringing the oomph factor to it . And the result is that Kingfisher has never posted profits since its inception and is now saddled with debt of over 7000 crores which is a huge amount but is dwarfed by the Air India case discussed further. None of the banks are ready to lend more to the king of good times and he has been forced to pledge his stake in flagship companies like United Breweries which is a cash cow for him and has also decided to sell his non core companies.
So what are the options left with Kingfisher? Not much would be my answer as soaring crude prices and the high taxes levied on Aviation Turbine Fuel (ATF) by the government have left no room for cost cutting. Vijay Mallya can either sell the airline to a big corporate house like the Reliance who are eager to get into this business and have more the 70000 crore of free cash. Another option is to trim the airlines' operation by cutting down on non-profitable routes and on a lighter note less clothes to the air-hostesses( no offence intended and I have the highest respect for females) and sell all the assets that the airline has in the form of land banks and guarantees. Though this will hurt Mallya's image as a flamboyant businessman he will atleast be out of this mess and will be able to concentrate on his love, alcohol.
Now comes the case of Air India. Though the airline continued to make profits till around early 2000s, the tenure of Mr. Praful Patel who used the airline as his family business and ruined the business. The first decision was the untimely merger of Air India and Indian Airlines with a view to rationalise the operations. But it backfired miserably as the merger is still pending in terms of codes shared and this has created problems in the new Air India. The total number of employees are more than 70000 and the average number of employees is around 150 which is quite high as per industry standards. Coupled that with around 40000 crore of debt is a serious problem for the airline. Even though the new aviation minister has announced a 30000 crore package to be infused in the airline by 2020 in stages, it is like throwing good public money behind bad money.
But the case of Air India turnaround is somewhat simpler as compared to Kingfisher Airlines. The airline has the backing of the Government and hence funds are not an issue. Taking this as an advantage it should offer a voluntary retirement scheme (VRS) for its employees and those ready to opt for it must be compensated with a large heart just like Ajay Piramal who chose to share the wealth with all concerned when he sold his formulations business and pocketed a huge sum. This will phase out the old and less efficient staff and will increase the operational efficiency. Another advantage that Air India has is the huge tracts of land which are in some valuations valued at 30000 crore. This itself wipes out most of the debt. Yet another source of income could be partial stake sale in the Maintenance , Repair and Overhaul ( MRO) division of the airline which is among the best in the world. After this the airline would only have the operations as the primary function and could lead to better utilization of resources.
The only successful carrier in India today is Indigo Airways but that airline too has been witnessing delays which is not going down well with the customers. Other players in this industry are Spicejet and Go Air which are smaller players and have managed resources efficiently.
Thus the Indian aviation sector will witness growth if the troubled carriers find a pragmatic solution to their problems else the whole sector will suffer as these are too big to die. Also the government must relax rules in the sector and allow foreign carriers to invest directly and also help the industry with pro- industry policies at least till the sector is out of this mess.
Hmmm..Very Insightful Vineet..
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