A buyer needs to see Air India beyond its balance sheet: Chairman & MD Ashwani Lohani
As the government intensifies its efforts to sell Air India, the carrier's Chairman and Managing Director, Ashwani Lohani, says the real strength of the airline cannot be understood by looking at its balance sheet alone.
Earlier this week, Air India’s subsidiary Alliance Air started its first international flight - from Chennai to Palaly airfield in Sri Lanka's Jaffna. This is a big move.
I am excited. As you know, Alliance Air flies ATRs - the small planes mainly to smaller cities. That the airline is going international means a lot. Secondly, it will help our relations with Sri Lanka. I will call it a historic moment for the Air India group.
This is your second term as the chairman and managing director of Air India. You headed the airline in 2015-17 before being made the Railway Board chairman (2017-18). How has the current term (since February 2019) been different from the earlier one?
One difference is that I was younger by three and half years then! But on a serious note, my mandate in the first term was mainly to set the airline right and take it towards a growth path. This time, the primary mandate is to disinvest the airline. In my last innings, Air India saw an operating profit for two years. But then the question of disinvestment came up. After all, operating profit is not sufficient to handle the debt servicing requirements. We can’t manage even if we have a robust operating profit.
But you were initially not so excited about divesting the airline, right?
In fact, it is a compulsion to disinvest Air India. Rs 60,000 crore debt is no joke. And that debt occurred because the airline was allowed to go on in losses for almost a decade (2005-2015). The airline found itself in a debt trap. The debt serving liability itself became very big. Also, with so many government rules and processes, how will I compete with a private airline? Unlike us, private airlines can implement decisions faster.
But why will a private company show interest in buying such a hugely indebted airline?
Air India’s balance sheet does not reflect its real strength. A potential buyer needs to see AI beyond its balance sheet. We are the second largest airline in India; we were the largest till last year. We fly to 70 domestic and 40 international destinations. We are a truly international airline; 65% of our revenue comes from international operations. Also, we have the best lot of pilots, engineers and other staffers. On the safety front, we are the best. It is a damn good functional airline.
But Air India made a huge loss of Rs 8,400 crore in the last financial year. How do you see the financial health of the airline during the current financial year?
It is difficult to make forecasts about an airline’s business as margins are very thin. It depends on oil prices, among others. Also, we are now on the block. The environment during a growth phase is different from the environment during a sale. Still, I expect Air India to break even at the operating level during this financial year. When we are put on the block, we can’t have additions to the fleet. Naturally, we can’t grow now. But all our competitors are growing. What we are doing now is just flogging our planes and adding new routes, such as Delhi-Toronto, Amritsar-London, Mumbai-Nairobi, Mumbai-Doha, Delhi-Kuwait, during the last six months. We have simply increased the number of flying hours of our planes.
What kind of impact did the closure of airspace by Pakistan have on Air India’s balance sheet?
It had an impact of over Rs 100 crore per month for four and a half months.
Of late, there have been a series of challenges for Air India, including threats by oil marketing companies to stop giving fuel unless the dues are cleared. How are you dealing with these?
All problems are because we have a shortage of funds. We are not operationally bad; the problem is related to debt servicing. It is like a household earning Rs 10,000 a month and spending Rs 11,000. We are paying the oil marketing companies on a daily basis. Yes, past dues are still unpaid. We don’t have enough funds for that.
What about resignation of pilots? There were reports 120 pilots have resigned.
That figure is wrong. Only 55 pilots had submitted their resignations in the last year, out of whom five have left the organisation. We have about 1,800 pilots. So, it is not a major cause of concern. When a public sector organisation is being sold to a private company, there will always be some apprehensions. So, it is natural that a section of our staff will look for opportunities outside the organisation.
How are you dealing with the trade unions that have opposed the privatisation of the airline?
We have had two rounds of discussion so far. The idea is to tell the trade unions what is going on. If we don’t tell them, they will speculate, and there will be rumours. Air India, with 12,000 employees, is not overstaffed at all. We have Boeing 777s. The staff required for handling such an aircraft is 7-8 times more than that of an A320.
The government has tried to sell Air India earlier also, but failed. How will it get a buyer now?
My primary job is to keep the airline running. I can only hope that we get a good buyer. There are lessons to be learnt from the previous attempt to sell the airline.
Have you identified more assets that would be moved to the special purpose vehicle - Air India Assets Holding Ltd formed to warehouse loans not backed by any asset?
This is outside my purview. The government will decide.
What is your advice to the new buyer?
The buyer of Air India must add more planes. I feel, it should also recruit more youngsters. Presently, the average age of Air India employees is 54. The buyer must undertake major administrative reforms as well.