The Ratan Tata factor in Air India

Ratan Tata 01.JPG

Ratan Tata (above) could once again be involved with Air India, this time as the head of an international advisory board that will help the airline to revamp its operations.

Which is very interesting, given that someone told me after an earlier blog post about the issue that the Tata Group could be allowed to run the loss-making and debt-ridden carrier. I wonder if he had any inside information!

The Tatas, India’s largest business house, formed Air India in the 1930s but sold the airline to the government later on. Almost 10 years ago, the firm wanted to form an airline in India together with Singapore Airlines but was foiled by the country’s investment board.

Given the recent troubles faced by the country’s carriers, Ratan Tata – an aviation enthusiast, a certified pilot, and former non-executive chairman of Air India – must be thanking his lucky stars that the plan fell through.

His latest involvement appears to be in a purely advisory role – who better than India’s best businessman to give advice on how the airline can restructure itself? Still, this is an interesting turn in the ongoing soap opera that is India’s financial troubles. I have a feeling that there will be more twists and turns along the way. Watch this space.

22 Responses to The Ratan Tata factor in Air India

  1. Kinbin 9 July, 2009 at 9:49 am #

    The financial and operating mayhem at Air India, exacerbated by the global economic meltdown, bring out characteristics so common in many national flag carriers.

    More often than not, civil national service, unions, and political interest groups contribute towards millstones tied around the neck of the national airlines, all of whom are swimming in the ‘business ocean’. Hacking the ‘titanium’ wires and ties with ‘rusty machetes’ that will free Air India from these millstones will be a lifelong exercise.

    As long as Dr. Tata is not given a ‘chain-saw’, for executing a ‘bloody, corporate-wide, systemic massacre’, any changes instituted are probably temporal band-aid like, as the airline will eventually gravitate back to its old operating business equilibrium.

  2. Siva Govindasamy 9 July, 2009 at 10:30 am #

    So if we work under the assumption that things will revert to norm, what is the solution then? Total privatisation of Air India?

    And there are flag carriers which have done well – look at Singapore Airlines and Cathay Pacific. SIA still has some degree of government control but it operates like a business – and a very successful one at that.

  3. Kinbin 9 July, 2009 at 11:39 am #

    Solution for Air India? Nah, solution for aviation in India is probably more appropriate.

    1. Liberalize the industry, encourage free competition.
    2. Regulate the technical safety strongly, and airport operations tightly.
    3. Downsize Air India so that it operates on a severely limited overseas and domestic routes, on a two aircraft types (one long range, one short range), with 2 corresponding engine type. Sell everything else, including the parts, and rights.
    4. Equip and prep some of the folk through the downsize. Remploy them to effectively control Para. 2.
    5. When the downsized airline shows profitability for a span of 3-5 years, go for a listing or sell the airline.

    Now that you have brought up 2 airline operators, it is appropriate to observe the following:-

    1. SQ is puppetry. Corporate and union are ‘cousins’. Singapore Inc. has ownership to them all, including their lives and livelihoods. SQ is able to leverage on implicit governmental muscle. This, along with an endless drive to attract high yield business customer, through the operating ethos of Singapore Inc.

    2. CX is another interesting entity. Is it a national airline? One thing is certain though. It is being morphed into one gradually through assimilation. The mandarin ‘Borg’ shall rule. Until then, it remains one of the flagships of an astute taipan group focused solely on high yield business customer.

    If one looks at the 2 operators, one must wonder why they offer economy in the first place? Well, they are betting that some of us lowly executives (nah, me but not necessarily you) and college students who take economy may one day hitch a heli-ride on the corporate ladder and end up being on high yield business travellers list.

    I doubt if they really do care about the average joe and jane in economy with little or none in the way of becoming a business class customer one day. As such, there is nothing in the way of them being nationalistic in their business endeavors.

  4. Siva Govindasamy 9 July, 2009 at 11:46 am #

    Haha, mate, I travel in economy along with everyone else! Unlike some of my friends whose companies say that you travel on business class for flights longer than two hours and first class for those that exceed eight hours! That’s the life, eh?

    Interesting points you make, although I think severely restricting the way AI operates will ultimately prevent it from being profitable as well! The solution could be privatisation. But you are right – there are many deep-seated problems in the Indian airline industry. Fundamentally, they aimed for market share without thinking about long-term profitability, and that has come back to haunt them.

    SQ and CX are focused on the yields, but there is nothing wrong with that is there? It would be interesting to see how they turn out in the coming years. I wonder if it might even make sense for them to buy some of the other regional airlines and in effect bring about a consolidation in the full-service market.

  5. Kinbin 9 July, 2009 at 12:24 pm #

    As you have stated, it makes good business sense to focus on high yields, and in profit making routes through route optimization. As such, the 2 operators are not your nationalistic, service-for-society airline.

    As to AI, break-even economics through route optimization is key. The profit -spinning long-haul routes is to balance out the short-haul profit-bleeding routes.

    AI ought to learn not to ingest too large a basket of route bites that it chokes on the bites before it could be chewed on. Now that the food (routes) remains choked up in the financial ‘esophagus’ of AI, and restricting airflow, rapid, invasive and bloody intervention is required to save the entity.

    Asian governments remain highly protective of entites known as airlines. That said, I wonder about the likelihood of another operator assimilating AI, MH, TG, or GA with management control.

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