Air India aims to accelerate the development of its strategic business units as part of a plan to restructure its operations.
The Indian flag carrier said in 2007 that it would create six separate business units: the main airline business, its low-cost carrier operation, cargo, engineering and maintenance, ground handling, and related businesses like IT and security. It envisaged these operating independently with their own cost centres and accountable for their own profitability.
The implementation of these plans was delayed, but the state-owned carrier wants to push on with them in an effort to reduce costs to the National Aviation Company of India, Air India's parent company, and increase the autonomy of these units.
"These are the core competencies that Air India has acquired over the years, making us a very big company with a lot of divisions," it says. "With separate business units, each division has greater autonomy to make the decisions that will result in lower costs, higher revenues and therefore better profitability overall. This plan is being given definitive shape and we can see something on it early next year."
Joint ventures with foreign partners for some of the units are also on the cards. "We will look at that very closely, we know that there are several international companies interested in partnering with us," Air India says.
Air India posted a net loss of 56 billion rupees ($1.2 billion) for the year to 31 March 2009 after being hit by the economic downturn and higher fuel prices. The loss-making carrier asked the government for a bail-out earlier this year and, in October, civil aviation minister Praful Patel said the state would provide up to 50 billion Indian rupees. This, though, is conditional on the carrier cutting costs by 30 billion rupees and raising revenues by 20 billion rupees over the next two years.
The Indian government will meet again with Air India's executives in January to discuss the carrier's plans to restructure its operations and return to profitability. The airline has appointed consultants Booz Allen Hamilton to help with this, and it has reportedly identified around 70 proposals that could be implemented over the next 18 months. This could cut costs and enhance revenues by at least 50 billion rupees in that time.
Under its recovery plan Air India aims to initially stabilise before looking to trim losses over the first 18 months. It aims to restore profitability within the next three years.
Read our interview with Air India's then CEO Raghu Menon from December 2008
Source: Airline Business
