Rising of the Phoenix— Air India

Life had come a full circle for “the Maharaja” on 27th January, 2022 as India’s first commercial carrier, Air India returned to the Tata Group after the Tata’s had won the bid for acquiring the national carrier.

During its long journey, Air India has witnessed both crests and troughs. It has experienced two different systems of ownership – private and government. It is a homecoming for the airline as it goes on to begin a new chapter under the custodianship of Tata Sons. At this juncture, let us take a look back into where it started its journey.

In 1932, Jehangir Ratanji Dadabhoy Tata, fondly known as JRD Tata, the first chairman of Tata Group, founded Tata Air Services which was later renamed as Tata Airlines. It was subsequently nationalised and rechristened as Air India, causing the Tatas to step down from this business. JRD Tata was an aviator and the first civil aviation pilot of India and popularly known as the “Father of Civil Aviation in India.”

Let us now delve deep into the illustrious journey of Air India in the pre-independence and post-independence eras.

BEFORE INDEPENDENCE

India is the world’s third-largest civil aviation market as of 2020. Civil aviation in India traces its origin back to 1911, when the first commercial civil aviation flight took off from a polo ground in Allahabad carrying mail across the Yamuna river to Naini. This was the world’s first official airmail service. 

In April 1932, winning a contract to carry mail for Imperial Airways led to the formation of the aviation department of Tata Sons with two single-engine de Havilland Puss Moths. 

The airline helped the Royal Air Force with troop movements, shipping reinforcements, rescuing refugees, and maintenance of aircraft during World War II.

POST-INDEPENDENCE 

Around the time of independence, the airlines saw a change in the system of its ownership.

On the 29th July, 1946, Tata Airlines became a public limited company by the name of Air India, and after India’s independence in 1947, 49% share of the airline was acquired by the Indian government in 1948. 

Another new introduction was the airline’s first international flight, Malabar Princess from Bombay to London.

Nationalization of Air India

The Air Corporations Act was approved in 1953, and the Government of India purchased a controlling stake in the carrier from Tata Sons.

J.R.D. Tata continued as the Chairman till 1977. Once more the firm was restructured and renamed to Air India International Limited. The domestic services were transferred to Indian Airlines.

An all-jet fleet

In 1960, with the addition of the first Boeing 707-420, the airline became the first Asian airline to enter the Jet Age. In 1971, the airline received its first Boeing 747-200B, the Emperor Ashoka, and a new ‘Palace in the Sky’ livery and branding were introduced. Air India received their first Airbus A310-300 in 1986. Air India received a Boeing 747-400 called Konark in 1993 and flew the first non-stop flight from New York to Delhi.

However, just like Robert Frost said in his poem, “Nothing Gold Can Stay”:

“Then leaf subsides to leaf.
So Eden sank to grief,
So dawn goes down to day.
Nothing gold can stay.”

The golden age of Air India was short-lived owing to  several reasons. Air India got entangled in the vicious debt trap accompanied by a sharp decline in the quality of service and staff, which resulted in the loss of goodwill among flyers.  With falling revenues and rising costs, Air India witnessed its market shrinking further, until the government decided to do away with this apparently permanent liability by resorting to privatisation. 

Let’s take a look at the plausible reasons that have resulted in the sordid and pitiful state of Air India.

• Faulty airplane configuration: The long-haul B777 and B747 planes had “vanity first-class cabins” that were seldom filled. As a result, the break-even load factor capacity for achieving even cash operating expenses exceeded 130%. In addition, Air India’s strategy of using fuel-guzzling wide-body B747s on select domestic routes increased its operational losses by an estimated 350-400 crore each year.

• Inability to provide nonstop direct flights from major development hubs: Air India required customers traveling from Kerala to the Middle East or from Bengaluru to the United States to transit through Mumbai/Delhi, adding 8-16 hours to total journey time. Prior to Air India Express, Air India provided just a few direct flights from the South to the Middle East since its crew and engineering bases were in Mumbai. 

• Forced merger of Air India and Indian Airlines: The merger of Air India and Indian Airlines has only existed on paper. The public sector airlines were brought under a  common roof in 2006-07 to improve resource synergies, although resources, aircraft, men, materials, and machinery remained disintegrated. Without layoffs, the merger simply exacerbated issues. Even after their merger, Air India, Indian Airlines, and Air India Express kept separate kitchens. 

• Inability to adapt to change: With the deregulation of the airline business after 2005, Air India’s monopoly control over the market was no longer feasible. Air India was ill-prepared to tackle the challenges of deregulation due to its reactive management approach (rather than proactive). A lack of customer focus, poor financial management, and the arrogance of unionised personnel worsened the situation. 

• Professional management was lacking: There was no continuity or accountability of senior leadership. The IAS officials appointed to head Air India had no experience in aviation and often failed to recognise that aircraft capacity and pricing must be coordinated with trade winds. Moreover, special benefits in the form of free rides or heavily discounted tickets were made available to a sizable privileged section, which further drained the revenues of the airlines.

• Ordering a new fleet of 111 Boeing planes: This purchase in 2005-06, coincided with the then US President George W Bush II’s visit to India. Ex-CAG (Comptroller and Auditor General) Vinod Rai discusses how Air India’s board of directors first placed an LOI with Airbus for ten MCLR aircraft in his book “Not just an accountant”. However, the Air India board of directors was nudged to alter the order in favour of Boeing and boost the order quantity from 10 to 111 aircrafts. The Planning Commission had raised a red flag, referring to it as a supply-side plan. Air India’s meager equity capital was swiftly depleted, and the airline’s net value became negative as a result of compounded losses.

Several attempts were made to re-privatize Air India.

The Managing Director (at the time), Michael Mascarenhas, was charged with corruption on 23rd May, 2001 by the Ministry of Civil Aviation. According to the ministry reports, it was asserted that the airline had lost approximately ₹570 million because of the extra commissions sanctioned by Mascarenhas, leading to his eventual suspension.

A fully owned low-cost subsidiary named Air-India Express was launched by Air India in 2004 to connect Indian cities with the Middle East and South-East Asia. Air India specialized in international long-haul routes while Indian Airlines in domestic and international short-haul routes until 2007.

As mentioned earlier, its merger with Indian Airlines was so unplanned and impractical that the wound was too deep to recuperate from and might have been the last nail in its coffin. Despite several capital infusions by the government, every attempt to revive the airline seemed to go in vain and the government finally decided to re-privatize Air India to reduce the unnecessary pressure imposed on the national coffer.

Investors were overjoyed to take over the massive airline and utilise its far-reaching connections but were also apprehensive about acquiring its huge debts. Despite these, Air India has finally been privatised.

27th January, 2022 has become a date of special significance for the Tata Group as the country witnessed the final handover of the national carrier, Air India, to the Tatas after 69 years. This, the corporate behemoth has termed as a “Homecoming”. Nevertheless, this handover has some confusing and perplexing aspects to it, that have remained quite a mystery. Disinvestment secretary Tuhin Kanta Pandey told a television channel that “the new Air India board has already met; four existing directors will continue on the board.” This has baffled many, who have been left clueless as to why the directors were retained after the government had sold its entire stake in the carrier. Last October, when the Tatas won the bid to take over Air India beating a consortium led by SpiceJet chairman Ajay Singh, there was no inkling that the government was demanding board positions after handing over the airline. On the other hand, there was a clear suggestion that the Tatas would have a free hand to run the airline, notwithstanding the fact they have been subjected to some operational restrictions. Air India Chairman and Managing Director Vikram Dev Dutt, Director Finance Vinod Hejmadi and government nominee directors V.A. Patwardhan and S.K. Mishra are part of the current board. There is also a lack of clarity on the role that they would play and how long their tenures would be. An air of mist also lingers around the statement of Tata Group that specified that the officials of Tata Sons and Air India had met informally and that there had been no meeting of the airline’s board of directors.

The Tatas had won the bid for a 100% stake in Air India along with AI Express and a 50% stake in ground handling company AISATS with an offer of Rs. 18,000 crore including an upfront cash payment of Rs. 2,700 crore and shouldering the obligation of a whopping Rs. 15,300 crore Air India debt. The strategic disinvestment of Air India was successfully concluded with the transfer of 100 percent shares of Air India to Talace Private Limited, a subsidiary of Tata Sons, along with management control.

On a positive note, the Tatas can avail of bank loans to resurrect Air India. A consortium of banks including the State Bank of India, Bank of Baroda, Punjab National Bank, and the Union Bank of India are keen on providing loans to the Tata group. As per market circles, the banks are looking forward to such exposure to the strong Tata Group which will have positive ripples on their asset quality.

The following Air India Subsidiaries, along with non-core assets and other non-operational assets will go to AIAHL:-

1. Air India Air Transport Services
2. Airline Allied Services
3. Air India Engineering Services
4. Hotel Corporation of India

Certain immovable assets held by the airline like real estate, housing projects which have been transferred to AIAHL will be monetized to repay the airline’s outstanding debt.

The airline’s art collection, comprising over 4,000 works, has been excluded from both the disinvestment and the asset monetization processes. The Ministry of Civil Aviation and Culture are working out an agreement to transfer the collections to Delhi from Mumbai, New York, Washington, Perth, Rome, Tokyo, Paris, and London, and display them at a prominent museum.

One of the biggest challenges for the Tata group will be to integrate Air India’s fragmented operating network. Executing its global bilateral agreements will also be a challenge.

Air India, under Tata, will be a major international airline and compete with major global players. They will, however, have to augment networks and routes and close down loss-making ones. Tata group will also have to work on bringing down the high costs. 

As a part of the revival plan, the Tata Group has chalked out a 100-day plan to ameliorate the operational and service standards of Air India that includes, inter alia, on-time performance and speedy redressal of passenger complaints. As per the available reports, the airline under the command of the Tatas has drawn up certain definite and resolute plans to address passengers and guests. To enthuse the spirit among the boarders and re-enliven the glory of the Airlines, the Tatas have also decided to play recorded messages by Ratan Tata, chairman emeritus of Tata Sons and Tata Group. The cabin crew members have also been asked to check their body mass index (BMI) and look confident and smart. As per the latest directions by the Tata Group, the crew members have been issued the following Standard Operating Procedures:

1. The crew should wear ‘minimal’ jewelry to avoid delays at security checks and should also refrain from visiting duty-free shops after completing the immigration process.
2. Once on board, the staff will only wear PPE kits and complete mandatory checks before or well within the prescribed timings.
3. To avoid any delay in mandatory pre-flight check clearance, the flight supervisor should give clearance for boarding to the ground staff before or well within the prescribed timings.
4. Prior to/ during the boarding of passengers, the crew should avoid consuming beverages or eating food.
5. The onboard staff should make sure there is no delay in closing the door of the aircraft once the boarding process is over.
6. After completing their check-in formalities, the crew should move towards the cabin crew movement control office (MCO).
7. At MCOs, the crew should not wait for the flight commander to arrive and instead proceed towards the aircraft well within time.

The immediate focus is on two key areas – vastly improved meal service and airline interface with the crew and ground staff. While the Air India employees keenly wait to hear about their service conditions under the new regime and expect timely payments and simplification of schedules and other practices of Air India, the airline’s two unions, Air India Employees’ Union (AIEU) and the Air India Cabin Crew Association (AICCA) have already written to the management criticizing the BMI order. According to the unions, non-medical grooming associates carrying out BMI checks at airports violate not just DGCA standards but also established service conditions and court rulings.

Let’s revisit this entire handover and the related agreement provisions and what prospects does this hold for the Tatas in this new era in a nutshell:

What Tatas are taking on

• Air India employees: 12085(8084 permanent; 4001 contractual)
•     Debt: Rs. 15,300 crore

The Restrictions

•     All employees of Air India must be retained for one year from the close of the transaction; VRS can only be offered in the second year
•     Tatas cannot transfer the Air India brand logo for 5 years. Even after that, it can be transferred only to an Indian entity.
•     New owners must retain above 51% with a lock-in period of 1 year
•     There has to be business continuity for 3 years

Prospects for the Tatas

•     The Tatas are getting a fleet of 117 planes from Air India and Air India Express, of which 87 are owned by the airline while the rest are leased
•     Air India operates flights to 54 destinations within the country and has 3,739 landing slots in India
•     It also serves 39 international destinations and has 2,543 international slots
•     Air India Express operates to 29 domestic destinations and has 555 slots (domestic and international)
•     Access to a vast range of national and international routes and airports along with full-service carrier Vistara (a joint-venture with Singapore Airlines), and budget airline AirAsia India.

It is really a matter of great enthusiasm for the entire country as it witnesses the endeavors of India’s largest salt-to-software conglomerate to transform and modify a potential-filled but carelessly handled asset back to health. We earnestly look forward to the rehabilitation and make-over of the national carrier under the able hands of the Tata Group which is known for its high standards of ethics, integrity and excellence. The core ethos of the Tata group can be summed up in a famous quote by JRD Tata,

“No success or achievement in material terms is worthwhile unless it serves the needs or interests of the country and its people and is achieved by fair and honest means.”

We hope that Tata Sons Chairman N. Chandrasekaran’s vows to make Air India financially fit with an upgraded fleet are fulfilled, and Air India emerges as one of the most technologically advanced airlines globally. Hopefully, this phoenix will again rise from its ashes to charter new territories, wrapped in its wings of flame.