Air India restructuring geared to profitability in 2018

Mumbai
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The coming financial year will be a crucial one for Air India as the airline's management plans to step up a gear on its restructuring programme with an aim of returning to profitability by 2018.

The state-owned flag carrier's management has eight targets for the year beginning 1 April, says finance director S Venkat.

These are improving the on-time performance, increasing yields, aircraft utilisation and passenger load factors, hiving off non-core units, improving the IT systems, reducing cash losses and improving cashflow, and the reintroduction of the Boeing 787 and ensuring the smooth induction of 787s as they arrive.

The long-delayed plan to spin off the engineering and ground-handling units, a move that will drastically reduce headcount and costs, will go ahead during the year, says Venkat. Opposition from unions had stymied the plan, but the Indian government gave its go-ahead in 2012.

"This is a commercial decision and the memorandums of understanding have been signed. The staff must understand why this is necessary," says Venkat.

The operating numbers are improving, he adds. In February, passenger revenue increased by 6.7% even though capacity went down by 6%. This was because of higher fares and better utilisation of aircraft. Passenger load factor also increased by 9.2 percentage points to 76%, while passenger numbers were up by 11% to 1.2 million. The yield was around Indian rupees (Rs) 4.46 ($0.08) across the network, with international yield at Rs3.66 and domestic yield at Rs6.23.

The airline also has ambitious growth plans in the domestic and international sectors. For example, it plans to use the 787s to expand its international network to add services to Australia, Italy, the USA and a second point in the UK. The 787s, says Venkat, worked extremely well for the airline and had a utilisation rate of 12.5h a day - the highest in Air India's fleet - until they were grounded in January.

Air India is selling off some of its assets, including its property, in order to increase its cashflow. It is also getting a capital infusion from the government in order to repay its debts to oil companies, airports and lessors.

The government's investment in the airline has drawn criticism from many sectors within India and outside it, with the airline's rivals saying that using tax dollars to keep the carrier going distorts competition in the market. Venkat, however, says that these arguments miss the point.

"The government owns 100% of Air India. Before the recent moves, there had been no cash infusion in either Air India or Indian [Airlines] by the government. If we look [at] the privately owned airlines, their promoters are pumping in money to keep them afloat. This is what investors do, and this is what our owner is doing," he adds.

"Our priority is to turn the airline around. We are focused on becoming cash positive by 2016 and posting a profit after tax in 2018."