Air-India is drawing up sale and leaseback deals and preparing to slash staff numbers, among a series of desperate measures which aim to alleviate the airline's burden of heavy losses and debt.
Air-India has proposed to its owner, the Civil Aviation Ministry, that it sell some of its Boeing 747-400s under sale and leaseback deals. The state-owned airline is also proposing that its older, underutilised 747-200s be sold and leased back with contract crew from abroad. Air-India sold two of its nine 747-200s last year. Further desperate measures being proposed by the airline include reducing overseas staff numbers.
The moves are intended to reverse what is predicted to be a grim future for the airline. Annual losses are estimated to go up from Rs3 billion (US$76 million) in 1997/8 to Rs4.4 billion by 2000. Short-term loans, meanwhile, are set to increase from Rs11.9 billion in 1997/8 to Rs17.2 billion by 1999 and will reachRs22.9 billion by 2000. The state-owned airline is said to need Rs25 billion in loans to move it back in to the black. Losses have already piled up to Rs6.8 billion over the last 30 months and the debt:equity ratio has climbed from 2:1 in 1995/6 to the current level of 5:1. Market share, meanwhile, lies low at 20 per cent.
Air-India's route network is already falling victim to the airline's ailing health. In Europe, the carrier has suspended flights to Zurich and Amsterdam and reduced frequencies to Frankfurt and Paris. And the Asian economic crisis is only adding to the carrier's woes. 'Our revenues from this southeast and east Asian region have been halved,' says Air-India managing director Michael Mascarenhas. In February the airline withdrew its flights from Seoul and reduced frequencies to Osaka and Tokyo.
Employees are not escaping unscathed from the airline's cost-cutting measures. For the first time in the airline's beleaguered history, employees have been asked to take a voluntary cut in their salaries because of mounting staff costs, which have increased from 15 per cent to 22 per cent of total expenditure between 1994/5 and the 1997/8 financial year, which ended on 31 March.
The aviation ministry is demanding an explanation from Air-India management for the increase in allowances and incentives to staff provided under the Productive Linked Incentive (PLI) payments scheme, initiated by the previous managing director Brijesh Kumar. Air-India made some Rs1.5 billion in PLI payments in 1997/8. Monthly PLI payments range from Rs18,000 for a scheduling manager to Rs90,000 for a pilot.
The aviation ministry has now asked the Kelkar Committee, which has prepared a revival package for Indian Airlines, to outline a turnaround package for Air-India.
Source: Airline Business
