a case study on air india

8/2/2019 A Case Study on AIR INDIA

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CASE STUDY ON AIR INDIA


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INTRODUCTION

Air India limited is the national flag carrier airlineof India.

Air India is state owned and administered as a

part of National Aviation Company of Indialimited (NACIL).

The main bases of operation of the airline areMumbai`s Chhatrapti Shivaji international airport

and Delhi`s Indira Gandhi international airport. Air India is the 16th largest airline in Asia, serving

25 destinations worlwide.


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ORIGIN OF AIR INDIA

Air India was founded by J. R. D. Tata in July 1932as Tata Airlines, a division of Tata Sons Ltd. (now TataGroup).

Tata Airlines became a public limited company on 29July 1946 under the name Air India.

In 1948, after the independence of India, 49% of theairline was acquired by the Government of India, withan option to purchase an additional 2%.

In return, the airline was granted status to operateinternational services from India as the designated flagcarrier under the nameAir India International.


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EXPANSION

Air India International entered the jet age in 1960

when its first Boeing 707-420, named Gauri

Shankar(registered VT-DJJ), was delivered.

In 1971, the airline took delivery of its first Boeing747-200B named Emperor Ashoka (registered VT-

EBD). This coincided with the introduction of the

'Palace In The Sky' livery and branding. In May 2004, Air India launched a wholly

owned low cost airline called Air-India Express.


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LIBERALISATION OF AVIATION

INDUSTRY

In the year 1990, open-sky policy wasadopted by the government and it allowedair taxi- operators to decide their own flight

schedules, cargo and passenger fares. The monopoly of IA and AI in the air

transport services were ended by IndianGovernment, as a part of its open sky

policies in the year 1994. Now Private operators were permitted to

provide air transport services.


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By this time, Indian Airlines began to losemarket share to Jet Airways and Sahara.

Today, Indian aviation industry is

dominated by private airlines such as

Kingfisher airlines, Jet Airways, Deccan

Airlines, GoAir, SpiceJet etc; these

include low cost carriers who have made

air travel affordable.


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DISINVESTMENT PLAN

AIR INDIA was put for disinvestment in2001.

Air India should in theory be an attractivebuy.

As a national carrier, it has the rights toabout 90 routes, but with only 27aircraft, it doesn't take full advantage ofthem.

However it carries six years of losses anda debt burden of $70m.


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India's ambitious plans to raise more money

through privatisation collapsed as Singapore

Airlines' decided to pull out of a joint bid with

Tata group to take over Air India. INDIANgovernment was hoping to raise $2.5bn in this

process.


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REASONS FOR DEBT ACCUMULATION

Was not prepared for competition it startedgetting after the liberalization of Indianeconomy in 1990.

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

Highest Employees per Aircraft in the world200:1 where as desirable is 130-170:1.


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Bad management and faulty policies has

brought Air India to this crisis level.

Complete lack of Ownership.

Lack of responsibility for results and failures.

Deeply ingrained corruption in all levels.

Poor marketing campaign management,

competitors like spicejet, jet, and kingfisher do

effective marketing.


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The discontinuation of 32 profitable routes. This

has enabled private Indian and foreigncompetitors to eat into Air India's market share.

Giving the best timing slots to private airlines.

While Kingfisher airlines owned by the Mallyashas been bailed out with loans infused by SBI andother PSU Banks, no such move by thegovernment regarding Air India.

Under utilization of its large fleet strength, and itshuge and skilled labour force, under variousexcuses.


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MERGER OF AI AND IA

In 2007, the Government of India announced

that Air India would be merged with Indian

Airlines. As part of the merger process, a new

company called the National AviationCompany of India Limited (NACIL) was

established, into which both Air India (along

with Air India Express) and Indian Airlines(along with Alliance Air) were merged.


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POST MERGER IMPLICATIONS

The airline has not posted a profit since merging withformer duopoly partner Indian Airlines in 2007 andrelies on handouts from New Delhi to survive.

Senseless merger of the two wings of the airline tookloss figures to Rs7,200 crores ( 72 billion) by March2009.

The merger itself was hastily carried out. The pilots ofthe erstwhile Indian Airlines were promised parity with

Air India pilots. For three years, nothing was doneabout it. Discontent built up and pilots went on strike.


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EYE RAISING FACTS May 2011 : Already reeling under financial crunch

because of the ten day pilot strike Air India went in atight spot as State-run oil companies the Indian OilCorporation, the Bharat Petroleum Corporation Ltd.and the Hindustan Petroleum Corporation refuse to

supply the fuel to the bleeding carrier. Out of the total daily average collections in India of

Rs 22 crore, a sum of Rs 16.7 crore is being paid to oilcompanies, which have put Air India on cash andcarry basis with effect from December 7, 2010,

leaving only Rs 5.3 crore to meet repayment ofaircraft loans and part of interest payment ofworking capital,


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SWOT ANALYSIS

STRENGTHS

Huge fleet strength

National carrier status

Highly recognized brandname

Huge Airport Infrastructure

Modern Airways

Infrastructure

Skilled Resources

WEAKNESSES

Enormous wasteful

expenditure

Involment of politics Discontinuation of

profitable routes

Giving away of best timing

slots Non professionalism


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SWOT ANALYSIS

OPPORTUNITIES

Huge market size and

rapidly growing market

Growing tourism Rising income levels

Liberal Environment

Economic Growth

THREATS

Rising fuel prices

Competition from the other

operators Terrorism

Political instability


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UNEXPLORED OPTIONS

The Airlines industry in India has been anextremely fast growing sector of the economyin the past 15 years.

Air India has by far the largest fleet strength,compared to the private competitors, and ithas enormous fixed assets, including highlypriced land and properties, in India as well asin major cities of the world.

Just the fixed assets of Air India will more thancover all the accumulated losses. Air India has

a brand name which is recognized worldwide.


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FAILURE OF TURN AROUND PLANS

The various turnaround plans prepared by

outside agencies and experts are virtual non-

starters as their implementation requires a

modicum of normal corporate behaviour thatis apparently not possible in a politically

vitiated and demoralised environment. The

Maharaja is not just sick; it seems to haveentered a stage of terminal decline.

RECENT STRATEGIC


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RECENT STRATEGIC

IMPLEMENTATIONS

From June 15 to July 25. AI launched an economyclass package.

Long Pending salaries of its employees weredisbursed by the end of June 2011.

According to the restructuring plan, part of the debtwould be converted to long-term loans at fixed ratesof interest with the remainder converted intopreference shares to be redeemed after 15 years,

giving the lenders equity in the airline. Rohit Nandan became the new CMD of Air India.

Capital infusion of Rs.1200 crore by GOI.


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If not full privatisation, at least a partial one canbe carried out through disinvestment. This willbring in funds to run the airline instead of the

government constantly raiding taxpayers' moneyto feed it.

The management of Air India should also beprofessionalised.

The airline should not be allowed to become atraining ground for officers of the IndianAdministrative Service who have no knowledge ofthe aviation sector.

There should be less interference from theministry.


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I believe Air India is an important asset to

Indian skies, and it has helped keep airfares in

check. The moment the pilots went on strike

airfares rose significantly. I hope this issuewould be resolved and the government will

take some good decisions on the airline.

a case study on air india

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