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ir IndBeleaguered national carrier Air India unveiled an ambitious turnaround plan on Sunday that envisages the airline reaching operational break-even and wiping out the Rs14, 000 crore of accumulated losses and Rs18, 000 crore of debt on its balance sheet by 2014-15. The plan includes raising its fleet strength to as many as 275 planes in five years from 148 now
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Submitted By: SHIKHER UPADHYAY BBA LLB (CORPORATE LAWS) BATCH II R 500054629
First & foremost, I would like to thank my Corporate Finance teacher Ms. Ruchi Mehrotra for giving me opportunity to work on this project named “ Air India Financial Crisis ”. Her guidance and support has been instrumental while making my project on this important issue. I would also like to thank all authors, writers, columnists and social thinkers whose ideas and works have been made use of in my Project. My heartfelt gratitude also goes to all staff and administration of School of Law, UPES for the infrastructure in the form of our library and IT lab that was a great source of help in the completion of this Project. I also thank my friends for their precious inputs which have been very useful in the completion of this Project. I would also like to thank my parents, my seniors, dear colleagues and friends in the University, who have helped me with ideas about this work. I hope you will appreciate my true work which is indeed a hard work and a result of my true research and work.
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The civil aviation industry in India has emerged as one of the fastest growing industries in the country during the last three years. India is currently considered the third largest domestic civil aviation market in the world. India has become the third largest domestic aviation market in the world and is expected to overtake UK to become the third largest air passenger^1 market by 2024.^2 MARKET SIZE: India’s passenger traffic stood at 199.60 million in FY20 (April-October 2019) where domestic passenger traffic reached 160.16 million and International passenger reached 39.43 million. In FY20 (April-October 2019), domestic freight traffic stood at 0.80 million tonnes, while international freight traffic was at 1.20 million tonnes. India’s domestic and international aircraft movements reached 1.24 million and 0.25 million in FY20 (April-October 2019), respectively. To cater to the rising air traffic, the Government of India has been working towards increasing the number of airports. As of March 2019, India has 103 operational airports. India has envisaged increasing the number of operational airports to 190-200 by FY40. Further, the rising demand in the sector has pushed the number of airplanes operating in the sector. As of July 2018, there were nearly 620 aircraft being operated by scheduled airline operators in India. The number of airplanes is expected to grow to 1,100 planes by 2027. INVESTMENT: According to data released by the Department of Industrial Policy and Promotion (DIPP), FDI inflows in India’s air transport sector (including air freight) reached US$ 1,904.37 million between April 2000 and June 2019. The government has 100 per cent FDI under automatic route in scheduled air transport service, regional air transport service and domestic scheduled passenger airline. However, FDI over 49 per cent would require government approval. (^1) International and Domestic. (^2) As per International Air Transport Association (IATA) forecasts.
Air India is the flag carrier airline of India, headquartered at New Delhi.^3 It is owned by Air India Limited, a government-owned enterprise, and operates a fleet of Airbus and Boeing aircraft serving 94 domestic and international destinations. The airline has its hub at Indira Gandhi International Airport, New Delhi, alongside several focus cities across India. Air India is the largest international carrier out of India with an 18.6% market share.^4 Over 60 international destinations are served by Air India across four continents. The airline became the 27th member of Star Alliance on 11 July
The airline was founded by J. R. D. Tata as Tata Airlines in 1932; Tata himself flew its first single- engine de Havilland Puss Moth, carrying air mail from Karachi to Bombay's Juhu aerodrome and later continuing to Madras (currently Chennai). After World War II, it became a public limited company and was renamed as Air India. On 21 February 1960, it took delivery of its first Boeing 707 named Gauri Shankar and became the first Asian airline to induct a jet aircraft in its fleet.^5 In 2000 – 01, attempts were made to privatise Air India and from 2006 onwards, it suffered losses after its merger with Indian Airlines. Air India also operates flights to domestic and Asian destinations through its subsidiaries Alliance Air and Air India Express. Air India's mascot is the Maharajah (Emperor) and the logo consists of a flying swan with the wheel of Konark inside it. HISTORY Early Years (1932 – 1945) As Tata Air Services: Air India had its origin as Tata Air Services later renamed to Tata Airlines^6 founded by J. R. D. Tata of Tata Sons, an Indian aviator and business tycoon. In April 1932, Tata won a contract to (^3) "Flying low; India's flag carrier is in big trouble". The Economist. 21 July 2012. Archived from the original on 23 June 2016. Retrieved 15 October 201 6. (^4) "Air traffic soars 15% in April; Indigo stays on top; Air India marketshare flat at 12.9%". The Financial Express. 19 May 2017. Archived from the original on 6 August 2017. Retrieved 24 October 2017. (^5) "Air India : The History of The Aircraft Fleet". airwhiners.net. Archived from the original on 24 July 2016. Retrieved 15 July 2016. (^6) Tata Airlines to Air India: Is the Maharajah set for a home flight?” The Indian Express. 22 June 2017. Archived from the original on 28 July 2017. Retrieved 24 October 2017.
carry mail for Imperial Airways and the aviation department of Tata Sons was formed with two single-engine de Havilland Puss Moths. On 15 October 1932, Tata flew a Puss Moth carrying air mail from Karachi to Bombay (currently Mumbai) and the aircraft continued to Madras (currently Chennai) piloted by Nevill Vintcent, a former Royal Air Force pilot and friend of Tata.^7 The airline fleet consisted of a Puss Moth aircraft and a de Havilland Leopard Moth.^8 Initial service included weekly airmail service between Karachi and Madras via Ahmedabad and Bombay. In its first year of operation, the airline flew 160,000 miles (260,000 km), carrying 155 passengers and 9.72 tonnes (10.71 tons) of mail and made a profit of ₹60,000 (US$840).^9 As Tata Airlines: The airline launched its first domestic flight from Bombay to Trivandrum with a six-seater Miles Merlin. In 1938, it was re-christened as Tata Air Services and later as Tata Airlines. Colombo in Ceylon (now Sri Lanka) and Delhi were added to the destinations in 1938.^10 During the Second World War, the airline helped the Royal Air Force with troop movements, shipping of supplies, rescue of refugees and maintenance of aircraft.^11 Post-Independence (1947 – 2000) As Air India: After World War II, regular commercial service was restored in India and Tata Airlines became a public limited company on 29 July 1946 under the name Air India. After Indian independence in 1947, 49% of the airline was acquired by the Government of India in 1948. On 8 June 1948, a Lockheed Constellation L-749A named Malabar Princess (registered VT-CQP) took off from Bombay bound for London Heathrow marking the airline's first international flight. (^7) "How Maharaja got his wings". Tata Sons. Archived from the original on 4 June 2016. Retrieved 7 March 2016 (^8) Seth, Pran Nath; Bhat, Sushma Seth (2005). An introduction to travel and tourism. Sterling Publishers. ISBN 978- 81 - 207 - 2482 - 2. (^9) "Switzerland Schweiz Suisse Svizzera". Air India. Archived from the original on 11 August 2012. Retrieved 13 September 2012. (^10) "How Maharaja got his wings". Tata Sons. Archived from the original on 4 June 2016. Retrieved 7 March 2016 (^11) "How Maharaja got his wings". Tata Sons. Archived from the original on 4 June 2016. Retrieved 7 March 2016
with the Middle East and Southeast Asia. Until 2007, Air India mainly operated on international long-haul routes while Indian Airlines operated on domestic and international short-haul routes. Indian Airlines Merger: In 2007, Air India and Indian Airlines were merged under Air India Limited and the airline took delivery of its first Boeing 777 aircraft. The airline was invited to be a part of the Star Alliance in
The combined losses for Air India and Indian Airlines in 2006–07 were ₹7.7 billion (US$ million) and after the merger, it went up to ₹72 billion (US$1.0 billion) by March 2009.^17 In July 2009, State Bank of India was appointed to prepare a road map for the recovery of the airline. The carrier sold three Airbus A300 and one Boeing 747-300M in March 2009 for $18.75 million to finance the debt. By March 2011, Air India had accumulated a debt of ₹426 billion (US$6.0 billion) and an operating loss of ₹220 billion (US$3.1 billion), and was seeking ₹429 billion (US$6. billion) from the government.^18 A report by the Comptroller and Auditor General blamed the decision to buy 111 new aircraft and the ill-timed merger with Indian Airlines for the poor financial situation. In August 2011, the invitation to join Star Alliance was suspended as a result of its failure to meet the minimum standards for the membership. The government pumped ₹32 billion (US$ million) into Air India in March 2012.^19 On 1 March 2009, Air India made Frankfurt Airport its international hub for onward connections to the United States from India. However, the airline shut down the Frankfurt hub on 30 October 2010 because of high operating costs. In 2010, financially less lucrative routes were terminated and the airline planned to open a new hub for its international flights at Dubai. In 2012, a study commissioned by the Corporate Affairs Ministry recommended that Air India should be partly privatised. In May 2012, the carrier invited offers from banks to raise up $800 million via external commercial borrowing and bridge financing.^20 In May 2012, the US Transportation Department (^17) "What sent Air India crashing?” The Economic Times. 16 July 2009. Archived from the original on 19 July 2009. Retrieved 30 August 2010. (^18) "Air India's recurring default 'credit negative' for its banks". Mint-Wall Street Journal. 9 August 2011. (^19) Sundaram, Karthikeyan; Narayan, Adi (14 March 2012). "Air India Aid Dwarfing Hospital Budget Adds to Kingfisher Pain". Bloomberg. Archived from the original on 2 February 2014 (^20) Reuters (8 May 2012). "Air India seeks proposals to raise up to $800 million in debt". The Economic Times. Archived from the original on 4 March 2016. Retrieved 6 March 20 16
for failing to post customer service and tarmac delay contingency plans on its website and adequately inform passengers about its optional fees fined the airline. In 2013, the then-Civil Aviation Minister Ajit Singh stated privatization was the key to the airline's survival. However, the opposition led by the BJP and the CPI (M) slammed the government. In 2013, the Indian government planned to delay equity infusion of ₹300 billion (US$4.2 billion) that was slated to be infused into the airline slowly over a period of eight years.^21 In January 2013, Air India cleared a part of its pending dues through funds raised by selling and leasing back the newly acquired Boeing 787 Dreamliner’s. In March 2013, the airline posted its first positive EBITDA after almost six years and 20% growth in its operating revenue since the previous financial year.^22 Air India Limited split its engineering and cargo businesses into two separate subsidiaries, Air India Engineering Services Limited (AIESL) and Air India Transport Services Limited (AITSL) in 2013.^23 In December 2013, the airline appointed veteran pilot SPS Puri as its head of operations. The Air India pilots union criticized the appointment as Puri allegedly has multiple violations to his name.^24 Star Alliance Membership: Air India became the 27th member of Star Alliance on 11 July 2014. In August 2015, it signed an agreement with Citibank and State Bank of India to raise $300 million in external commercial borrowing to meet working capital requirements. For FY 2014–15, its revenue, operating loss and net loss were ₹198 billion (US$2.8 billion), ₹2.171 billion (US$30 million) and ₹5.41 billion (US$76 million) compared FY 2011–12, which were ₹147 billion (US$2.1 billion), ₹5.138 billion (US$72 million) and ₹7.55 billion (US$110 million).^25 As of May 2017, Air India is the third largest carrier in India (after IndiGo and Jet Airways), with a market share of 13%.^26 (^21) "Debt laden Air India unlikely to get government bailout of Rs 30,000 crore by 2020–21". The Economic Times. 11 February 2013. Archived from the original on 23 August 2017. Retrieved 11 February 2013 (^22) "Air India likely to end fiscal with Rs 65 crore positive EBITDA". The Economic Times. 10 March 2013. Retrieved 6 March 2016. (^23) "Air India engineers threaten to drag management to court". Deccan Chronicle. Archived from the original on 30 January 2016. Retrieved 6 December 2015. (^24) Singh, Bipin Kumar (20 December 2013). "Air India appoints 'biggest violator' as its operational head, pilots furious". The Times of India. Archived from the original on 20 December 2013. Retrieved 21 April 2014. (^25) "Air India likely to suffer 2636 crore net loss in 2015–16". 28 April 2016. Archived from the original on 18 October
Beleaguered national carrier Air India unveiled an ambitious turnaround plan on Sunday that envisages the airline reaching operational break-even and wiping out the Rs14, 000 crore of accumulated losses and Rs18, 000 crore of debt on its balance sheet by 2014-15. The plan includes raising its fleet strength to as many as 275 planes in five years from 148 now. The maharaja’s woes are now further compounded. Already fighting to save itself from bankruptcy, it now has to deal with a pilot’s strike that has entered its fourth day. The airlines cancelled over 20 flights, including 15 from the national capital, and suspended bookings for the next 15 days. The national carrier has lost market share, even as it has piled up accumulated losses of Rs7, 000 crore and debt exceeding Rs15, 000 crore.^31 A majority of Nacil employees rejected a proposal to cut 50% of their productivity-linked incentives (PLI), making it harder for the embattled carrier to argue its case for an equity infusion and soft loans from the government.^32 The debt-ridden, state-owned carrier announced a 50% cut in PLIs, that accounts for 30-50% of the salary of Air India employees, hoping to save around Rs700 crore. These incentives cost Air India Rs1, 400 crore in 2008-09, a year in which the airline suffered losses of at least Rs5, 000 crore.^33 The airline management has announced timely payment of salaries to its staff. It said determined efforts would be made to overcome the liquidity crunch and cut down costs, particularly in areas like rentals for leased aircraft, jet fuel, navigation charges and interest payments on fleet renewal.^34 (^31) https://www.business-standard.com/article/companies/six-reasons-why-air-india-is-going-downhill- 117031001155_1.html (^32) https://www.livemint.com/Companies/hxfRQJRaFfbJ4a0W59QRsO/Air-India-A-timeline-of-the-crisis.html (^33) https://www.dnaindia.com/india/report-what-does-future-hold-for-india-s-flag-carrier-air-india-crisis-explained- 2807805 (^34) https://www.slideshare.net/RenuAdhikari1/air-india- 59063001
The future of India's flag carrier airline, Air India, is at risk. The state-owned enterprise is currently fighting for its survival, bogged down by crippling debts, loss-making operations, decreasing passenger revenue and mismanagement. According to official sources, Air India currently has a staggering debt of about Rs 58,000 crore, which has been shovelling the airline towards making losses for a substantial period. Even on an estimate, Air India is presumed to be suffering losses amounting to Rs 20- 25 crore per day. That puts Air India's total monthly loss to about Rs 750 crore and variably, the amount of loss incurred in some months reaches thousands of crores. Although efforts have been going on for the same for the last several years, Centre could not really find any buyers for the airline yet. To provide a history of how long attempts have been ongoing to sell Air India, history shows that the Centre has been looking for buyers for the flag carrier as far back as during the Atal Bihari Vajpayee-led NDA government, right through the Manmohan Singh-led UPA 1 and 2 regimes, and now during the Narendra Modi-led NDA terms. Efforts were made to sell Air India to reduce the losses of the government, but it could not be possible. A number of decisions were taken during the UPA government, which worsened the health of Air India. In fact, the merger of Air India and Indian Airlines is considered one of the most primary reasons for the significant losses. Air India and Indian Airlines merged in 2006. In the meantime, many new aircrafts were purchased; some expensive aircrafts were even taken on lease, thereby gradually deteriorating Air India's condition. In addition to this, several political leaders, officials and ministers considered the flag carrier airline to be their privilege, taking it for granted on several counts. In fact, for the past several years, ministers and officials have been travelling on their personal capacity with borrowed tickets from Air India. To put things in perspective, Air India has incurred a shocking amount of debt totalling Rs 268 crore just from government departments and ministries. As per a senior Air India official who put the scenario in simple terms, it is to be understood that government officials and ministers have travelled on loan; taking tickets from Air India free, for several years and most of them have not even repaid the loan yet! This amount has reached crores of rupees, giving shape to this present crisis.
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