Why is Air India always in a loss? Long thread explaining root causes. This is a lesson in economics on why socialism looks like a beautiful concept in theory, except that it doesn’t work in practice. Let’s start with a related story that has strikingly similar context.@TheJaggi
I witnessed an interesting incident long back in Delhi when private buses were introduced and Delhi Transport Corporation (DTC) started making even more losses.I observed an interesting pattern wherein the DTC buses were almost running empty & the private buses were over-crowded.
So why were private buses running full & DTC always empty? The private operators used to pay the DTC driver. Why? The DTC bus should always be behind the private bus on route by about 5 min. Result: people waiting at bus stand are likely to get on the first bus that came along.
The private guy gets all the passengers and the DTC bus follows 5 minutes later when there is hardly anyone at the bus stand.The driver earns his salary as a govt servant and also earns “incentives” to run late. As a govt employee, his job is safe.
With this context, let's see the Air India story. To understand money, we’ll need to see where the money comes from and what it is spent on. Let’s see the balance sheet, profit & loss account of Air India.Notice the highlighted sections. Rs 52,000 crores ($7.3 Bn). What is it?
It is the debt, the money Air India borrowed to buy planes. In a business where all efficient carriers lease Air India chooses to buy planes.Why? The story of socialism where every stakeholder in PSUs tries to maximize the wealth, "personal wealth" that is, not for the country!!
Rewind to Year2005:
The year Air India became a cash cow like never before. But why such a hurry to buy planes when nobody buys them ? I quote from “the statesman” article by Devendra Saksena ( IRS officer):
The year Air India became a cash cow like never before. But why such a hurry to buy planes when nobody buys them ? I quote from “the statesman” article by Devendra Saksena ( IRS officer):
Praful Patel was the aviation minister from 2004 to 2011. He was from the “Nationalist Congress Party”. Hmm…some nationalism this was !! May be nationalism meant different things those days. We're in far better times these days I think !
Forward to 2012:
Ajit Singh takes over in 2011 & stayed till 2014. The shoe started to pinch, but who cares. Restructure at the tax payers’ expense. Here is a snapshot of what he did in the drivers seat.
Ajit Singh takes over in 2011 & stayed till 2014. The shoe started to pinch, but who cares. Restructure at the tax payers’ expense. Here is a snapshot of what he did in the drivers seat.
So firstly, government gives away the profitable international routes to private players outside India under bi-lateral arrangements and then goes ahead to order 90 new planes when it could easily have leased. With a liberal agreement that had no penalties for delayed deliveries
So every minister in a hurry to buy planes. Some coalition dharma this was? Looks like the “drivers of Air India” got a fairly good deal. And the press freedom was on leave, I guess. This was 2012 by the way. Does the below plan look like restructuring to you? Press freedom?
So why is the debt such an issue ? After all it was used to buy the planes ?Not really. First of all, the planes were bought at much “favourable prices”. Favourable to the sellers that is. But that is another debate.
More importantly, what does this debt of Rs 52,000 crore do to Air India every year? See the Income statement :
Look at the section in red. Rs 4500 crores of interest cost every year. EVERY YEAR!
Look at the section in red. Rs 4500 crores of interest cost every year. EVERY YEAR!
Interest payment is more than the entire employee cost of Air India. Try making a profit with that kind of interest. So here is a “national interest”, which is not in national interest ! Now for those of you who argue that Air India is doing fine operationally, see the losses.
At 55,000 crores, losses are more than the interest payments. So, even if there was zero debt, AI would still be making losses. Have you seen a business run where expenses are 103 % of revenue? And all this when you own the planes !! CheckIndigo P&L & see how it manages below 85%
Air India expenses are 103% of revenue even before any interest payments. So they own the planes,no lease payments & still can’t run operations under budget. Beat that !!Want to compare how the debts look like for other airlines?
If Jet Airways can go down with the same aircraft strength but much lower debt, the Maharajah should have been dead long back but for tax payers grants.This debt is like a guillotine around the neck for Air India. It is not going away and the airline can’t make a profit anyways.
Employee strength & related costs: With 122 aircrafts, AI has 221 employees per plane compared to 127 per plane at Lufthansa (38,000 employees: 299 aircrafts) and 140 at Singapore Airlines (14,000 employees: 100 aircrafts).This is the worst employee per plane ratio in the world!
Not only overstaffed but at much higher wages. Air India's average employee cost in 2017 was Rs 21 lakh per annum. The average cabin attendants’ cost was even higher at Rs 24 lakh pa. IndiGo's average staff cost was Rs 14 lakh and average cabin attendant cost was just Rs 6.1 lakh
So an Air India Air Hostess gets paid 4 times compared to the Indigo crew. Wow! Now with that high staff costs, you would expect the services of a “Maharajah” on air India. No sir, it actually means that "the employees are the Maharajahs". AI runs for public service after all !!
Service levels: Is it really necessary to talk about it? Well if you insist, I’ll quote from the statesman article again as I have nothing more to add.
2019: The brazenness continues.
The airline, with total debt of around Rs 58,000 crore, sought the govt approval to borrow Rs 2,400 crore to meet its working capital. The ailing Maharajah has thus far already devoured over Rs 27,000 crore of the allocated amount by end 2018.
The airline, with total debt of around Rs 58,000 crore, sought the govt approval to borrow Rs 2,400 crore to meet its working capital. The ailing Maharajah has thus far already devoured over Rs 27,000 crore of the allocated amount by end 2018.
This is aside of the Rs 58,000 crore debt that is already looking difficult to recollect. Want to know who gave this debt in the first place? Look at the list of banks below. Do you see any private sector bank in the list ? It is all PSU banks with tax payers money again.
Still wondering why Govt run organizations always run in losses? Well, because nobody cares. Just like our DTC driver above as well as people right at the top who have distorted nationalism benchmarks. Until it is time to shut down. And the time is now.
n/n Meanwhile there are small mercies that we should be thankful to. In view of the upcoming divestment, the Maharajah has put its “expansion plans” on hold. Thank Air India for this. Let this be their last favour to the nation!! @monikahalan @prasannavishy
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