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PRESENTATION ON THE PRESENT FINANCIAL CRISIS IN NACIL (AIR INDIA) By

PRESENTATION ON THE PRESENT FINANCIAL CRISIS IN NACIL (AIR INDIA) By CIVIL AVIATION JOINT ACTION FRONT ON 7 th JULY, 2009. 1 . GOVT. POLICIES A) BILATERAL BONANZA B) RECKLESS LICENSING C) AIRCRAFT ACQUISITION D) MERGER E) GROUND HANDLING POLICY F) JOINT VENTURES

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PRESENTATION ON THE PRESENT FINANCIAL CRISIS IN NACIL (AIR INDIA) By

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  1. PRESENTATION ON THE PRESENT FINANCIAL CRISIS IN NACIL (AIR INDIA) By CIVIL AVIATION JOINT ACTION FRONT ON 7th JULY, 2009

  2. 1. GOVT. POLICIES • A) BILATERAL BONANZA • B) RECKLESS LICENSING • C) AIRCRAFT ACQUISITION • D) MERGER • E) GROUND HANDLING POLICY • F) JOINT VENTURES • 2. STAFF STRENGTH • 3. WAGE DISPARITY • 4. IR POLICY • 5. COST CUTTING • 6. REVENUE GENERATION • 7. ENGINEERING • 8. OUR EXPECTATIONS

  3. A) BILATERAL BONANZA Air traffic rights are similar to nation’s natural resources – e.G. Iron ore, manganese etc. Once given cannot be recovered. Air traffic rights once granted become “grandfather” rights in the airline industry. In granting traffic rights home carriers interests protected , whether government owned or private. Critical factor is if home carriers can mount incremental capacity to utilize its share of additional traffic rights. Foreign airlines gained competitive advantage of early market entry resulting in higher entry costs for the home carrier deploying capacity at a later stage.

  4. BILATERAL BONANZA (contd) • Bilateral should have opened after delivery of new a/c. Example 1 :increased CX rights in to India from may 2008: a) 4 to 10 weekly flights Hong Kong/Mumbai B) 7 to 14 weekly flights Hong Kong/Delhi & c) new point of call granted at Chennai with four weekly flights d) new point of call granted to their subsidiary dragon air to Bangalore with 7 weekly flights. Now this high yield route is unprofitable for AI & Jet contd…..

  5. BILATERAL BONANZA (contd) Cathay Pacific’s reaction to this act of unprecedented generosity on our part was positively eulogistic! “India is the spotlight on the network front and we’re excited by the hugely increased flight frequencies” – Marco Polo FFP Magazine, 2008 • In sharp contrast the integrating AI / IA has been unable to mount any additional capacity. • Though jet airways has postponed its Delhi / HongKong operations. • Combined AI / IA /Jet airways operations are only a fraction of the Cathay Pacific / Dragonair capacity deployment marginalizing the Indian carriers operations

  6. BILATERAL BONANZA (contd) • Net Outcome Of Bilateral Policy - Indian Carriers Marginalized. • The Grant Of Highly Lucrative International Air Markets to / from India must come under the scanner and reviewed. • The succeeding statistical tables will bring out these points in a clear light: Increased weekly Seat Capacity into India for last four and half Year

  7. BILATERAL BONANZA (contd) • An increase of 10,36,330 seats in four years! • Sixth Freedom Rights to LH, MH, CX, SQ, AF. EK given 11 gateways. • Scenario 1: AI 7 flights a week, BA 7 flights a week. Now AI 7 flights a week, BA 21 flights a week • Scenario 2: LH 32 services into India with 7 entry pts., AI 4 services into Germany with single entry pt. • Scenario 3: LH picks up pax directly from TRV whereas AI from TRV to Bombay and then Frankfurt • Therefore better flexibility, better product and drop in our loads.

  8. BILATERAL BONANZA (contd) • In addition Air Arabia and Etihad given huge capacity from several entry points to the Gulf Region in the Last one year. One cannot think of any country being so generous in respect of Bilaterals. • When competitors increase capacity and home airlines do not, then without exception: • When capacity share declines, market share declines; • This results inevitably in a drop in revenue load factors; • Consequently airline incurs losses • To compensate for this drop, prices are always slashed; • Therefore better flexibility, better product and drop in our loads. • This why most Airlines have 45 % to 50 % home market, India 18 % in May 2008 against 38% in 2004. • This is precisely what happened to AI 2007/2008/2009

  9. B) RECKLESS LICENSING • The over liberal opening up of the domestic skies to new operators was in similar reckless fashion. It is a saga of over licensing, over capacity, price wars and financial failures. • Let us not forget the ghosts of Damania, Continental, East West, Modiluft, NEPC, Raj etc. • We have not learnt anything from the past. So we have to live with similar situation once again as all domestic airlines facing losses.

  10. C) AIRCRAFT ACQUISITION • Initial proposal - 24 a/c for AI and 43 for IA. However, the final Purchase Order was for 118 aircraft for NACIL. • During period of delivery schedule lakhs of seats granted to foreign airlines on high yield routes. • Aircraft fitted with AVEO seats at huge extra cost with no provision for maintenance. • Leasing of aircraft rendered unprofitable due to old aged aircraft, high fuel consumption and maintenance cost. • Aircraft acquisition and leasing must be probed

  11. D) MERGER • All Projections given by Ministry of Civil Aviation proved wrong. • MoCA appointed consultants M/s Accenture given extension despite failure. • Unions Employees kept out of entire Amalgamation process. • Synergies not tapped – route rationalization, IT integration, pooling of resources, manpower, equipment, bulk purchases and office spaces etc. • Two sets of Service Conditions – not integrated

  12. MERGER (contd…) • Thus, a hasty and unprofessional approach to merger has led to the following effects: • Clash of organizational structures and functional responsibilities hurting the company. • Generalization v/s specialization • Square pegs in round holes and top heavy • Marketing structures dismantle • New recruits in IA & AI • Despite full cooperation from NACIL employees, we are the victims today

  13. E) GROUND HANDLING POLICY • Profitable business of rs.1000 crores being gifted to foreign companies. • Self handling not permitted and AI handling will now be charged. • Labour displacement in thousands.

  14. F) JOINT VENTURES • Joint venture with SATS heavily loaded in favour of SATS and no value addition to our company • SATS employs retired Air Indians as managers • Drastic drop in AI handling revenue. • Ai handling will be charged – erosion in revenues • Audit Bangalore and Hyderabad performance • New GH policy has adverse economic implications besides labour and security14 fallout. • MRO with Boeing and EADS not to our advantage. • Can undertake engineering services independently – why share revenue ?

  15. 2) STAFF STRENGTH • AI A/c-Staff ratio 1:230, Industry average 1:100. • Not comparable as AI undertakes GH, Engineering, Catering, IT etc. in-house. • AI has many wide bodied aircraft. • AI undertakes GH for several customer airlines. • No recruitment for decade or more. • Several activities outsourced, contracted out. • Wage Bill has declined in past few years. • Re-Engineering of manpower possible

  16. 3) WAGE DISPARITY • Breakdown in inter relativity of wages – 20% staff get 80% of wage bill and vice-a-versa • Illegal and illogical payments to certain categories • PLI irrational and not transparent – scientific approach scuttled • PLI paid to some staff on posting • PLI being manipulated and tampered

  17. 4) IR POLICY • Political Unions being promoted • Craft Unions being encouraged against Govt. Policy. • Result – multiple unions and poor IR • Railway model must be followed for recognition of union for workmen

  18. 5) COST CUTTING • Harmonization & rationalization of wages • E-ticketing racket at Hyderabad & Bangalore • Outsourcing at higher cost • Wasteful expenses of Haj cell and ROP • Vehicles service contract to M/s Sai Service, no check • Refurbishment / maintenance of a/c & engines to outside party at huge cost • Ai office at Ahmedabad unutilized for 18 months

  19. COST CUTTING(contd…) • HAJ flights to be operated by private airlines also • Quantity, Quality Control of Flight Catering at foreign stations • Huge payouts on account of taxi fare for non delivery of baggage – 25 lakhs per month at Calicut • Online bidding for Cabin Crew to be implemented • Catering and Bonded items should be based on load factor • VVIP flights resulting in disruption of schedules • Advertisements and sponsorships should be purely for the revenue earnings of the airline and not for dispensing patronage, political or otherwise

  20. COST CUTTING (contd…) • Use technology to reduce expenditure, where ever possible as in telecom, video conferencing etc. • Review hotel contracts and other similar contracts and opt for less expensive hotels close to airports • Review and curtail all non essential expenditure of foreign offices; rentals, car expenses, entertainment, expenses on visiting airline officials and others need to be closely monitored. The airline should not act as an extension of Indian Embassies for providing hospitality to VIPs

  21. 6) REVENUE GENERATION • Route rationalization to be done on war footing • IT platforms integrated on priority • Star Alliance Membership if delayed, get into code share and SPAs with as many airlines to increase passenger load • Immediate combining of common offices of AI and IC in foreign countries and reduction of local staff strength and recall of excess India-based staff. • Settle AI building eviction cases and lease vacant premises on market rent

  22. REVENUE GENERATION (contd…) • All Engineering services to be done in-house • Outside party engine and airframe work to be undertaken without extra manpower • We can undertake Security Services for all airlines in India as we have the expertise and trained staff. • All separate offices of AI and IC in Indian stations to be combined forthwith and lease and other expenditure reduced • MIAL & DIAL must compensate AI at market rates for land & infrastructure sought to be taken by them

  23. 7) ENGINEERING • CAR-145 implementation – Approvals to Technicians will reduce Engineering costs considerably • Train and authorize Service Engineers to perform and sign out task • Introduce CAR-66 for Aircraft Maintenance Personnel • Units like Engineering, Quality, Training, Technical Services need not have licenced category

  24. ENGINEERING (contd..) • Fuel Efficiency and Gap Analysis (FEGA) Boeing document to be implemented • Boeing Analysis on Engineering Department ignored and Consultant appointed at huge cost • Spares on AOG basis only for emergency to save costs • Surplus inventory to be sold –Obsolete A/c Combi, 747-200 etc. • Spares Disposal Policy will bring savings

  25. 8) OUR EXPECTATIONS • Rs.4200 crores expenditure on account of merger must be written off • Capital infusion long overdue • Equity base to be enhanced • Soft Loans • Employment to one child in lieu of VRS • Restructuring within the company • Responsibility and accountability to be fixed • Marketing instruments to be reviewed • Harmonization & Rationalization of Wages • MIAL & DIAL must be prevented from taking away our precious land and infrastructure

  26. Thank You !

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