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Why Air India is like a house of cards?

Just when the airline companies started posting record profits, the national carrier is going from bad to worse. National carrier reported net losses of Rs 8,400 crore in 2018-19, up 57 per cent from Rs 5,337 crore in 2017-18

twitter-logoManu Kaushik | September 17, 2019 | Updated 19:10 IST
Why Air India is like a house of cards?
Air India hopes to turn operational profitable in the current financial year with expected operating profits of Rs 700-800 crore.

The recent set of financial numbers for Air India is indeed a matter of concern. Just when the airline companies started posting record profits, the national carrier is going from bad to worse. National carrier reported net losses of Rs 8,400 crore in 2018/19, up 57 per cent from Rs 5,337 crore in 2017/18. Air India's losses in the last financial year are attributed to elevated ATF (aviation turbine fuel) prices, rupee depreciation, airspace closure over Pakistan and debt servicing.

The airline hopes to turn operational profitable in the current financial year with expected operating profits of Rs 700-800 crore on conditions that the crude oil prices don't go up and rupee exchange rate remains stable.

The airline has reportedly lost Rs 430 crore - or about Rs 3.5 crore per day - after neighbouring country Pakistan decided to shut down its airspace for Indian carriers following the Balakot strikes in February. On some days, the per-day losses were even higher at Rs 6 crore. Air India flights have to take longer routes to destinations such as the United States, London, Paris, Rome, Madrid and Frankfurt as it could not suspend flights due to legal and diplomatic reasons. Since Air India is the only long-haul carrier out of India after the suspension of Jet Airways, the airline's share of loss due to Pakistani airspace closure was far bigger than other carrier - SpiceJet lost Rs 30.73 crore, IndiGo Rs 25.1 crore and GoAir Rs 2.1 crore.

ALSO READ:Air India posts net loss of Rs 8,400 crore in 2018-19, aims to turn operationally profitable in FY20

Ironically, the airline's regional subsidiary Air India Express has been reporting net profits for four consecutive years. For instance, the budget carrier reported a net profit of Rs 169 crore for the financial year 2017/18, which is in stark contrast to the performance of the parent company. Despite a slowdown in air passenger traffic growth, Air India Express is expected to benefit from the Jet Airways' shutdown.

Last year was tough for the aviation sector, particularly for long-haul international carriers such as Air India and Jet. Without any financial support, the Jet was forced to shut down operations but Air India continues to survive on public money. Of late, the national carrier is struggling to get adequate funding from the government, and mostly depends on its own funds.

Air India losses have raised fundamental question about whether it can be revived under the present management. After a failed sale attempt last year, the government is chalking out another plan. Recently, the civil aviation minister Hardeep Singh Puri reiterated the government's stand to privatise Air India. The minister said that they will soon have the meeting of Group of Ministers (GoM), headed by home minister Amit Shah, to decide on the express of interest (EoI). The airline has shifted about Rs 26,000 of its debt (working capital loans) to an SPV (special purpose vehicle) in order to make the airline attractive for potential buyers.

ALSO READ:Air India Assets Holdings' maiden bond issue fully subscribed; raises Rs 7,000 crore

The EoI floated in 2018 did not receive a single response from potential bidders who were concerned about high debt (of Rs 54,742 crore at that time, and it has swelled to about Rs 60,000 crore now) and certain conditions pertaining to workforce.

Air India was able to ignite fresh hopes when it posted operating profits of Rs 403.3 crore for two consecutive years - 2015/16 and 2016/17. If the government is determined to privatise Air India, it should set the house in order first - not merely restricted to the transfer of debt - but to make the airline efficient and streamline the costs, routes and other operational aspects.

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