iipm think tank
> CAG on AI – what we said comes true
Daily Indian Media
4P's Business and Marketing
Business and Economy
The Daily Indian
The Sunday Indian
CAG on AI – what we said comes true
In a recent report, CAG highlighted Air India’s wrongs and ways to get it right. Surprisingly, B&E’s analysis a few weeks earlier was fantastically similar!
At last it came. After much talk, CAG tabled pages of criticisms about Air India’s operational and financial irregularities in the Parliament on September 9, 2011. Why did the CAG wait for AIL’s total reported losses to cross the Rs.1.56 trillion mark (FY01-02 to FY09-10) to suggest corrective measures, when red blotches had started appearing on its books way back in FY06-07 (a year when AIL bled Rs.68.82 billion; even before the AI-IA merger) is a huge question. And interestingly, this 144-pager sensation seems to take a lot from the 6 page-long journalistic report (B&E’s cover story titled ‘The Shame of being a Maharaja…’) released three weeks before the report went public!
Here are some direct “topical” lifts from the B&E piece. First, the AI-IA merger. B&E’s take: “The imagined post-merger synergies remained a reverie... Most employees of the two companies continue to work under the terms and conditions of their respective pre-merger employer.” This the CAG report rephrases in Paras 4.4 and 4.4.3: “HR integration below the level of DGM, representing 98% of the staff, has still not taken place.” Second, financial and operational performance. B&E’s take: “Of the aggregate reported losses of $5.43 billion by airlines in India over the past five years, losses incurred by AI contributed to 87.85%... Unlike other successful carriers, during FY2010-11, AI’s domestic load factor (PLF) suffered at 23.7%. Even in June 2011, it operated with a PLF of 24.6%. In 2010, AI had a less than 50% On-time Performance record.” CAG’s ‘translation’: “The overall financial position of IAL/ AIL and the merged entity has been abysmally poor during the period from 2004-05 to 2009-10. Expenditure increased dramatically... Cash profits and marginal net profits in 2004-05 and 2005-06 turned into substantial cash losses and net losses... IAL’s On-time Performance – a critical parameter of service – was dismally low, compared to both full service carriers and low cost carriers (Paras 18.104.22.168-4). AIL’s PLF suffered drastically vis-a-vis its competitors. AIL’s On-time Performance for arrival and departure was significantly low at 62 and 52 per cent respectively during 2009-10 (Paras 22.214.171.124-4).” Third, the three strategies for turnaround given by B&E. First was “Route rationalisation to get back stronger on the large number of profit-making routes which were literally gifted away.” Second – “Rationalise fleet count. AIL’s passenger count per aircraft in FY2010 was 64,817, proving how at the minimum, AIL is under-utilising each aircraft by two-thirds.” Third – “Reduce employee count by at least two-thirds. One just needs to look at AIL’s mammoth and utterly irrational Employee to Fleet ratio of 241 to realise that there is a gargantuan disguised employment machinery operating inside AIL.” [Calculations by B&E were based on standards of well-recognised profitable airlines.]” The first was advocated by CAG too. “The main reasons for low route profitability were the liberal increase in bilateral entitlements, which benefited foreign carriers and the failures of AIL to contain losses (Paras 126.96.36.199 & 188.8.131.52.1). As regards erstwhile IAL: route economics revealed that most services were not meeting cash costs or total costs, both in domestic & international sectors (Para 184.108.40.206).”
As far as the second advice is concerned, CAG complained, “In our view, the potential benefits for the merger would have been far higher, had this been undertaken before finalization of the massive and separate fleet acquisition exercises undertaken by AIL and IAL (Para 4.1)... Substantially enhanced fleet acquisition, in fact, justified AIL to operate a larger number of routes. Even earlier, most routes were incurring losses, and only the Gulf/Middle East and Far East Asia routes made profits till 2005-06. By 2009-10, all routes were loss-making.” Of course, the report missed on the third advice on excess manpower, only adding, “The airline is in a crisis situation. Salary payments and ATF obligations are becoming difficult.” B&E had said: “A base of 6,727 employees is what it should ideally require; not a swelling paycheck for 32,000-odd!” and, “Over the years, AI’s management has blamed losses on escalating fuel prices or intense price wars. Not hard to disbelieve.”
CAG does, however, claim that its “examination was carried out in late 2010 and early 2011”. Trusting that, all one can conclude is that the date of the release was an incredible coincidence [before the CAG report was flashed across news channels, a new issue of B&E was already nearing twilight on the stands]. So is the fact that almost “all” issues covered in both the B&E story and the CAG report are common. There is a conspiracy theory though – 21 days is a long time and besides, B&E first informed the taxpayers about the closet full of skeletons. Taxpayer – now this is a word that had ZERO appearances in CAG’s report. Mr. CAG – we’re pumping our fists this time!
By:- Steven Philip Warner
Copyright @2010 iipm think tank. All rights reserved.