Wednesday, August 1, 2012

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 6.1.2.2-4). 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 6.1.3.2-4).” 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.]”


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