The Indian civil aviation ministry has announced a plan to save the ailing national carrier Air India, by injecting 5.7 billion dollars of tax payers' money through 2020. This will enusre that AI's commitments with boeing for 27 787s will be paid for. Also, the ministry is injecting 1.3 billion dollars now to pay for its working capital and also to pay the dues to its employees and to its suppliers. The ministry has also decided to postpone the decision on letting foregin carriers to invest on Indian airlines.
The decision is a huge blow for Kingfisher, one of the privately held airlines in India. Kingfisher is struggling to pay for its operation and is only operating less than one fourth of its normal schedule currently. It has also suspended almost all of its international operations. Kingfisher is banking on much needed foreign capital investment for survival and this news should be a huge blow for its survival. (Though it is hard to see who would invest on an airline which was losing money even during the boom years)
In a model where state owned airlines are operating alongside privately held airlines, there must be a level playing field to ensure fair competition. Air India is a less productive organisation than most of the private airlines in India. Injecting money into it without a proper roadmap to repair the structural inefficiencies is a huge mistake. Without proper structural changes, it will only be a matter of time before Air India needs another bail out.
On top of all this, the civil aviation ministry is unfair to private business by denying a bail out to Kingfisher and now bailing out Air India. The private airlines has to mandatorily serve a proportion of its flights to poorly connected patrs of the country. With the number of privately held airlines and the connectivity they provide and that too with better efficiency and productivity, Air India found it very difficult to survive. AI is an organisation that lived most of its life as a monopoly and hence letting inefficiency as a part of its business.
Air India is not too big to fail. If Air India fails, it is not going to create a major catostrophy in India. Privetely hald airlines have enough capacity and coverage to fill up the void. The civil aviation ministry should have tried to make Air India lean and efficient by cutting capacity on unprofitable routes and by cutting inefficient jobs and by outsourcing non core part of the business. Instead, the ministry is buying time by injecting more tax payers' money into a failing organisation without a proper road map. That is a mistake!
The decision is a huge blow for Kingfisher, one of the privately held airlines in India. Kingfisher is struggling to pay for its operation and is only operating less than one fourth of its normal schedule currently. It has also suspended almost all of its international operations. Kingfisher is banking on much needed foreign capital investment for survival and this news should be a huge blow for its survival. (Though it is hard to see who would invest on an airline which was losing money even during the boom years)
In a model where state owned airlines are operating alongside privately held airlines, there must be a level playing field to ensure fair competition. Air India is a less productive organisation than most of the private airlines in India. Injecting money into it without a proper roadmap to repair the structural inefficiencies is a huge mistake. Without proper structural changes, it will only be a matter of time before Air India needs another bail out.
On top of all this, the civil aviation ministry is unfair to private business by denying a bail out to Kingfisher and now bailing out Air India. The private airlines has to mandatorily serve a proportion of its flights to poorly connected patrs of the country. With the number of privately held airlines and the connectivity they provide and that too with better efficiency and productivity, Air India found it very difficult to survive. AI is an organisation that lived most of its life as a monopoly and hence letting inefficiency as a part of its business.
Air India is not too big to fail. If Air India fails, it is not going to create a major catostrophy in India. Privetely hald airlines have enough capacity and coverage to fill up the void. The civil aviation ministry should have tried to make Air India lean and efficient by cutting capacity on unprofitable routes and by cutting inefficient jobs and by outsourcing non core part of the business. Instead, the ministry is buying time by injecting more tax payers' money into a failing organisation without a proper road map. That is a mistake!
I like it.
ReplyDeleteClearly both Govt airlines and Pvt airlines are bleeding to death. As you said Kingfisher is struggling to survive.
Govt has decided to bailout AirIndia but not extending help to Kingfisher. Its still not clear why such discrimination between pvt and govt airlines?