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Government funding urgently needed, says Air-India MD

Air-India Managing Director Michael Mascarenhas has said the national carrier which was facing mounting non-operational losses was in immediate need of government funding if it was to survive in the highly competitive market.

''Aircraft purchase is not in the pipeline, survival is,'' Mascarenhas shot back when asked last night during a briefing about Air-India's expansion plans.

During an elaborate presentation, Mascarenhas explained how Air-India had managed to achieve cost savings to the tune of Rs 2.19 billion in 1997-98 by taking several measures.

''While Air-India will require no external assistance in generating surplus on operational account in the next few years, notwithstanding the unfavourable aviation scenario in our region, non-operational losses can only be liquidated through infusion of additional funds.''

The managing director said many governments in the world had at one time or the other provided this kind of an assistance to their national carriers. Among the airlines which were bailed out by their governments were Air France (Rs 160 billion), Alitalia (Rs 80 billion), Sabena, Belgium (Rs 72 billion), Olympic, Greece (Rs 72 billion), Iberia, Spain (Rs 70 billion), Garuda (Rs 18.80 billion) and Kuwait Airways (Rs 13.20 billion).

He said with the success achieved on the operational front during the last one year, losses being suffered on account of non-operating factors had become Air-India's prime area of concern.

The Disinvestment Commission's recommendation for infusion of funds was therefore significant, he said.

''On the cost side we have had major cuts which resulted in the over Rs 2 billion saving in 1997-98. This year we will bring down the operating loss to less than Rs 1 billion. It is a slow process. To climb your way back is very difficult,'' Mascarenhas said during his hard-hitting presentation.

The managing director said Air-India's biggest problem was that it was grossly over staffed.

''Labour legislation in this country, unlike in other nations, does not allow you to out-source. The employees-to-aircraft ratio in Air-India is the highest in the industry. We have 770 employees to an aircraft while the industry average is around 300,'' he said.

A teeth-to-tail analysis in Air-India showed while the airline had 7,767 essential staff, it had a supporitng staff of 10,000. The surplus staff was 6,800, Mascarenhas said.

Air-India, after recording growth in profitability in successive years in the period 1988-89 to 1992-93, began registering a declining profit from 1993-94 and losses from the next year.

In 1996-97 it had a net loss of Rs 2.97 billion and operating loss of Rs 4.13 billion. After implementing a series of measures, the net loss has been brought down to Rs 1.81 billion in 1997-98 and operating loss to Rs 1.93 billion.

Mascarenhas said the airline had frozen 153 vacancies in India and abroad and abolished local posts. He said ten per cent of the work force abroad which was 950 will go. Surplus staff were being retrenched, bought out and cajoled to leave, he added.

Emphasising that no voluntary retirement scheme had been launched nor was a proposal put up to the ministry, the managing director said Air-India had two schemes -- shorter working week and leave without pay for two years extendable for five years. Over 500 people had come forward to avail this offer.

Air-India offices everywhere were being downsized. The downsizing of the New York and London offices had resulted in savings of Rs 50 million. ''You won't see any Air-India staff floating around in Mercedes Benz cars anymore,'' Mascarenhas said while explaining the cost-cutting measures being taken.

Cost-cutting steps taken by the airline included withdrawal from inherently loss-making routes, suspension of operations from once- or twice-weekly frequency stations, suspension of operations to seasonal stations, redeployment of capacity withdrawn to marginal and profitable routes and consolidation of capacity to improve frequency to station ratio.

This was in addition to the formulation of a core and subsidiary route strategy expansion of alliance to serve subsidiary routes and entering into new code share and block-seat arrangements with other airlines.

Simultaneous effective measures were taken to reduce costs of administration, communication, engineering spares and inventories and establishment, marketing and operations related costs.

According to Mascarenhas, in the first five months of 1998-99, Air-India has recorded an impressive 10.6 per cent increase in operating revenue -- up from Rs 15.27 billion to Rs 16.89 billion. The operating loss has declined to Rs 589.1 million from Rs 790.1 million in the corresponding period last year.

However, the net loss has increased to Rs 1.06 billion from Rs 840.7 million largely on account of increase in interest payout on the working capital loans taken in the past couple of years, he said.

The interest liability in 1998-99 was Rs 440 million higher at Rs 1.07 billion as against Rs 630 million in the preceding year. This was in spite of Air India not having availed of any loan for working capital needs in the current year, he said.

Air-India, Mascarenhas said, was going through a rough time especially because of the downturn in the economic activities of the five asian countries -- Malaysia, Indonesia, Thailand, Hong Kong and South Korea.

The mismatch between capacity deployed and market potential had become wider and price wars were taking place even in peak periods for originating traffic. A review of fares to and from India revealed that during the last five years increase in rupee fares had been below three per cent per annum, much below the rate of inflation.

The international yield per kilometre ex-India had either been static or growing very slowly in rupee terms while declining significantly in US dollar terms thus severely affecting the financial viability of most airlines, including Air-India.

Mascarenhas said Air-India would be going all out to make money from its facilities like the engine overhaul department. Advanced negotiations were on with five airlines for traffic handling. He did not commit himself on which worldwide alliance, Air-India had plans to enter.

He said the disinvestment issue would be taken up soon by the Air-India board but it was upto the government to decide how to go about it. The Kelkar Committee report, on revival of Air-India and Indian Airlines, was 95 per cent complete and would be out in a few weeks from now, Mascarenhas said.

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