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Applying the concept of opportunity cost often used in business for decisions - to the management of nation I must say govt’s urge to take up the challenge to turnaround Air India can only result in causing massive social cost even if the turnaround indeed happens, whenever.

 

  19 July 2014

  Social cost of flying Air India

Published in: governancenow.com - on 14 July 2014         

This govt too wants to fly Air India! I am disappointed. The govt should know; the entire nation would feel dejected if only the simple money equation of the airline is advertised as effectively as did the party in power to promote itself in the recent elections. The truth; the decision on Air India is simpler than secondary school math.

As an informed citizen; of the airline’s perennial losses, its immature management and of its frustratingly mature mismanagement – through the boring stories of cooked-up hype and hopeless distress – in the media through the years, I expected this govt which assumed power with the aura of better governance – to suppress its urge to fly the distraught airline.

I am not trying to harp on the repeatedly suggested case for privatization. The govt is now way past being wise even for doing that. Air India is a case of a complex business reduced down to the obvious decision which merely calls for elementary vypar wisdom – to take the call. A company with debts of over twice its turnover which itself is bad by a fifth can only be awfully ignorant to think that it will survive in the market it has ceded to competitors so effortlessly - with help, with additional cash almost as much as twice its turnover. (Air India’s - indecisively reported - gross revenues for the year ’13-’14 is Rs19,300 cr). The Govt should know; Air India turned unfeasible many years ago.

The apprehension of the informed general public is no more about the dubious salvage value but of the folly in the govt’s decision to put more public money into this slipshod enterprise which is widely reported to have maintained several age old customary sinful drains. Despite serious aspersions, accusations, and even shameful cases of misdeeds and mismanagement the airline has managed to survive being sick almost all through and for so long. Interestingly, Air India and now merged with it ‘Indian Airlines’ have never got their money math right in spite of expensive advice from many MNC consulting firms so very often and often with many of them working together. Not just the MNC consulting firms even the marketing services firms in India have made good from the loose management at these govt run airlines. The classic one is that of changing the brand name of ‘Indian Airlines’ to ‘Indian’ and the communication blitz that ensued – when it was almost put on process to merge it with Air India. The top management at the airline explained it as competition strategy! 

Civil aviation ministry which has charges of scams and impropriety has always, by its deeds and talks, appeared like a small but very influential business house negotiating deals, more so, after the private players came in – far from being a ministry providing directions through constructive policies to its various constituent divisions, companies and the whole sector in the larger interest of the society. The kind of ruins we see in the sector today only asks; what was the ministry doing all these years? The truth is; the ministry by not doing its expected tasks and by doing what was not expected of it caused this loss heap called Air India and a set of hopeless private airlines. The ministry’s incompetence to frame policy measures, caveats and sound stipulations resulted in Jet buying Sahara and slog with that and Kingfisher buying sunk Deccan and sink with that. The ministry was spectator and facilitator to the senseless ego driven acquisitions by unfit companies. It was also mute to irresponsible market maneuvers by these companies that resulted in crazy fluctuation in prices and therefore in their finances as well. The most awkward truth is that; while the ministry which has no time and concern for the plight of hundreds of employees of Kingfisher whose salary for months have remained unpaid for about two years now had all the time and concern to help shift losses of Deccan and Sahara one of which is being shifted back to the government with a multiple factor of 20 in the form of bad debts in its own banks. Where is the sense of social welfare in this affair of the govt?

It is apparent; all govts irrespective of the party running it want the civil aviation ministry for selfish reasons that actually ruined the sector year after year at huge costs to the larger society. Every new minister headed straight into the cockpit belittling its precarious financials talking of nation’s pride and social responsibility with his ears shut to all the sane public counsel – only to end up doing the opposite.

The unsettling fact is that the new minister sounds no different in spite of the real hope of better governance instilled in us all by the prime minister. His views in a recent interview are killing that hope a bit too soon. He says the answers are not simple! He says the ministry would be transparent in its decision but wouldn’t disclose what he discussed with the PM!! He refers to structural defects hurting feasibility but talks of only taxes and without commitment. He says privatization is not the answer - talking of social responsibility and justifying that by saying airlines in the private sector have also collapsed. I hope the minister conducts an unbiased workshop to introspect with his team to know the real causes for the failures in the aviation sector and also to know why Air India doesn’t stand a chance to survive. And, of course he spoke of many nice things in the future tense that are not really relevant in the short to medium term. He did say govt will put in the money sought but - - hoped - the airline improves and added govt would hold hand only up to a point. Reassuringly he said aviation is not a sector that can be subsidized in any manner and hoped all airlines understand that. Soon, the govt would realize the fallacy in its decision to let one fit business group to launch two airlines with equally fit partners when almost all the airlines including its own are struggling with their finances. As the new airlines become active one or two of the stressed ones may have to stop flying and the minister in the best interest of the society would have to keep his word – of refusing cash to them from the govt’s banks or cash equivalent of any sort. Had the govt not allowed acquisition of Sahara and Deccan by operating airlines all airlines would have been flying smoothly today.

More puzzling of all the news about new thinking on the sector is that even PMO wants to fly Air India. It has asked the civil aviation ministry to think out ten customer centric ideas! The govt seems to be shifting from mismanagement of public businesses to mishandling them, for worse. The approach itself sounds amateurish. It sounds obvious that the govt has set out to prescribe solutions without knowing the problems and right insights. Applying the concept of opportunity cost often used in business for decisions - to the management of nation I must say govt’s urge to take up the challenge to turnaround Air India can only result in causing massive social cost even if the turnaround indeed happens, whenever. Air India’s reported debts and accumulated losses add up to about Rs.70,000 crores. Currently its monthly loss is over Rs.400 crores. It has asked for Rs.30,000 crores to revive itself – over nine years! It now feels that money may not be good enough! Entry into the star alliance does not improve its chances of survival but can surely help fetch better return on equity trade off.

Democracy is faulty by the degree of disregard – of the ignorant citizens by the rulers. Over 99.5% of the people of our country cannot know of the mess in Air India. Governance is all about validating government’s decisions in the interest of the larger society whose members have put their trust in a few who have proclaimed to be noble.

Adve Srinivasa Bhat

Management Consultant

 
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