Air India (AI) isn’t a five-star rated airline. Skytrax, the London-based research and quality advisors to the global airport transport industry, gives it just three stars. Those who have flown AI aren’t likely to argue with the evaluation either. However, its service during the Covid-19 pandemic has ensured that India’s flag carrier’s worth can be measured beyond ratings.
Consider how, over the last 90 days, AI has operated flights to evacuate Indians stranded in Japan, Milan, Rome, and China—it made two flights to Wuhan, the global epicentre of the pandemic. Also, March 31 onwards, it mobilised its resources and scheduled 18 charter flights to fly back German, French, Irish, and Canadian nationals stranded in India. Besides, a charter cargo flight was operated from Delhi to Shanghai on April 4 to fly in vital medical cargo from China to India. AI continued to operate more such flights to Shanghai till April 9, ferrying in critical medical equipment into the country. Within India, from March 26 to April 4, AI and its regional subsidiary Alliance Air operated 86 charter flights to transport medical equipment and other essential items to areas in the Northeast and other far-flung places.
This is not a first, however. In times of crisis, AI has always risen to the occasion, says Jitender Bhargava, former executive director of Air India. “The airline has done it on a number of occasions for the last 30-odd years and it has always earned rich accolades from everyone,” he points out. This time around, though, the personal risks for the crew members were significantly higher. “Carrying every passenger was a risk, travelling was a high risk,” says Kapil Kaul, CEO and director of CAPA South Asia, an aviation consultancy firm, given the highly communicable nature of the Covid-19 virus.
But the current halo will dim soon enough, history has shown. As Bhargava says, the accolades tend to be short-lived for the airline. “Those [passengers] who have taken advantage of AI’s evacuation flights—which are free of cost—in the past do not necessarily patronise it subsequently,” he says. Which is why, an act of national service will not benefit the airline commercially, and it will continue to be up for privatisation. Simply put, no matter its value at critical junctures, the government can’t afford to keep AI flying. Those opposed to the airline’s disinvestment might cite AI’s contribution in the ongoing situation as reason for the government to retain control of it. But, says Bhargava, “when you look at the quantum of money needed to infuse [into AI] then one can’t say that this will be a critical factor”.
At present, AI has a debt of ₹62,000 crore, two-thirds of which the government will write off in a bid to attract potential suitors. But that still works out to ₹23,286 crore for a new investor to inherit, and further infuse fresh capital.
To compound its woes, a day after the nationwide lockdown came into effect on March 25, AI’s financial situation was revealed to have worsened. News agency PTI had reported that the airline had averted a default and secured short-term funds through government guarantees to service ₹700 crore worth of non-convertible debentures that were due for redemption. “As an [airline] entity, it must go into private hands because it is bleeding, there is excess staff, and the management isn’t professional,” says Sudhakar Reddy, the national president of Air Passengers Association of India. Often, he says, AI is governed by the diktats of the government or the parliamentarians “who think the airline belongs to them. That must be changed.” Reddy believes the airline needs a professional “who knows his job” at the helm.
“Each time, they’ve made an IAS officer, who knows very little, or nothing, about the airline, its chairman and MD,” he says. Of course, there is that argument that AI was able to be at the forefront of the Covid-19 relief efforts because it is government-owned. What happens when it moves into private hands? Which entity will be able to step in and perform that role? AI has a fleet of wide-bodied aircraft—its Boeing 747 and 787 aircraft were used for Covid-19 evacuation flights—best suited for flying long-haul international routes. Currently, other Indian domestic airlines don’t have such assets.
That said, IndiGo and SpiceJet, with their fleet of narrow-bodied aircraft, have been providing relief flights within India. Both the airlines operated a flight from Delhi to Jodhpur, on March 29, ferrying 136 and 139 Indian nationals, respectively. They had been evacuated from Iran and were being sent to an army isolation centre in Jodhpur. In fact, SpiceJet’s chairman and MD Ajay Singh had even offered to fl y stranded migrant labourers in Mumbai and New Delhi back to their home state of Bihar.
“I can’t visualise a situation where when Indians are in distress and the government asks private airlines to operate flights and they say no, ‘let’s first set the commercial terms to operate a flight’,” says Bhargava. Reddy concurs: “I’m sure AI, as a new entity and with new owners, will be willing to do it. Not only AI, but all airlines.”
However, the current situation is so grim that aviation analysts predict that domestic airlines that don’t have deep-pocketed investors or a cash war-chest could go bust. The Covid-19 pandemic has literally battered the Indian aviation sector and CAPA India—responsible for CAPA South Asia’s consulting and research—estimates that the sector would pile up losses of over $3 billion by the end of June. Based on their internal assessments, CAPA India reports that domestic passenger traffic is expected to decline from an estimated 140 million in FY20 to around 80 million-90 million in FY21; international traffic is likely to fall from approximately 70 million to 35 million-40 million in the same time frame.
“The combination of Covid19-related travel restrictions and an economic downturn is likely to result in 1QFY2021 being a virtual washout for the Indian [aviation] industry,” says CAPA’s Kaul. Forward bookings for domestic travel in May, June, and July are already down 80% year-on-year. “A gradual path towards normalcy could be expected during Q3 and Q4 [of FY21].”
The delay in an uptick is because of a variety of reasons: Economic dislocation; slow or even negative GDP growth; broken supply chains; low consumer confidence; and concerns about lingering outbreaks of Covid-19. Even if some of the vulnerable airlines were to survive, CAPA India says that there could be 200-250 surplus aircraft among Indian carriers over the next six to 12 months—a clear indicator of tepid demand for air travel.
In this context, Kaul is certain that the privatisation of AI is unlikely to proceed in FY21, and the airline will require financial assistance of $1.5 billion from the government to keep flying. “And that’s for the next 12 to 15 months and it’s a very conservative figure,” he says. It is an investment that the government will have to write off whenever the sale process resumes, he adds. Clearly, a soaring reputation hasn’t reduced financial turbulence for the airline.