Problems: 1. Was not prepared for competition it started getting after the liberilastion of the economy in 1990. 2.

Bloated workforce. Air india has 28000 permanent work staff , doubles jets head count. It operates 127 aircraft , compared with jets 115. 3. Highest employees per aircraft in the world. 200:1 whereas desirable is 130-170 :1 4. Bad management and faulty policies has brought air india to this crisis level. 5. A culture of complete sloth in administration. 6. Complete lack of ownership. 7. Lack of responsibility for results and failures. 8. Deeply ingrained corruption in all levels. 9. Instead of renting out unused iconic portions of Nariman point building , for the huge sum the debt ridden airline is paying Rs. 22 lakh each month for its upkeep , 15 of its 23 florrs are lying vacant. 10. Old gas guzzling aircrafts still running 11. Poor marketing and campaign management competitiors like spice jet and kingfisher do effective marketing. 12. Employees not paid salaries. 13. Employee strikes further taking it out of business and competitors taking advantage. 14. The airline has not posted a profit since merging with duopoly partner Indian Airlines in 2007 and relies on hand outs from new delhi to survive. Flight to survival: It needs to 1. Secure a massive debt and operational overhaul if it is to survive in a market growing at 20% a year. 2. $ 4 billion of working capital debt 3. Privatisation free from government interference 4. To lure customers and grab market share 5. To lease some of the 14 floors lying idle in the south Mumbai to raise about $1 billion over 5 years. 6. To clear $9 billion in debt as well as outstanding dues both to airport delevopers and state oil firms. 7. To tackle a bloated cost structure , a difficult task given a work force that is highly unionized. Recent strategic implementations: 1. From june 15 to July 25 , A1 launched an economy class package worth Rs.30000 and also a business class package worth Rs. 50000 which will allow passengers to enjoy unlimited number of flights along the length and breadth of the country. 2. Long pending salaries of the employees would be disbursed by the end of june 2011

3. Company in talks with 26 banks to restructure debt. 4. The latest plan would focus on a hub and spoke route model , cut costs by redeplying staff and unload non core real estate. 5. According to the restructuring plan part of the debt would be converted to long term loans at fixed rates of interest. Introduction:
Air India (Hindi: ) is the flag carrier airline of India. It is part of thegovernment of India owned Air India Limited (AIL). The airline operates a fleet of Airbus and Boeing aircraft serving Asia, Australia, Europe and North America. Its corporate office is located at the Air India Building at Nariman Point in South Mumbai. Air India has two major domestic hubs at Indira Gandhi International Airport and Chhatrapati Shivaji International Airport. An [1] international hub at Dubai International Airport is currently being planned. Air India has the fourth largest share in India's domestic air travel market, behind Jet Airways, Kingfisher and IndiGo.[2] Following its merger with Indian, Air India has faced multiple problems, including escalating financial losses[3]and discontent among employees.[4] Between September 2007 and May 2011, Air India's domestic market share declined from 19.2% to 14%, primarily due to stiff competition from private Indian carriers.[5][6] In August 2011, Air India's invitation to join Star Alliance was suspended due to its failure to meet the minimum standards for the membership.[7] In October 2011, talks between the airline and Star Alliance have resumed.[8]

he only Maharaja who did not lose his privy purse after 1971 was Air India's [ Images ] and Bobby Kooka reminded us of that on the hoarding in front Air

India's Nariman Point headquarters, by quipping "Not with my privy pursers, you don't!". The Maharaja has now lost it all - the sheen of his yellow red striped head gear and shine of the brass buttons on his red sherwani. He is no longer able to serve caviar garnished with crumbled, hard-boiled egg and chopped onion on lightly buttered toasts and vodka or Blue Label to his 'preferred guests', their families and office clerks who travel in his first-class home by paying only the 'full fare' economy class fare through a very highly secretive but effective process called 'upgradation'. The government has been busy of late (actually pretty late) to repair the Maharaja's clothes and, if possible, buy him some new ones. As expected the government's belated response has been three-fold - the first one is the traditional stereotyped response of the Government called 'find the scapegoats'. Like the queen in Alice in Wonderland, who held the croquet mallet and screamed 'off with his head', it has been determined now that 'some heads will have to roll'. The only difficulty with that approach in the case of Air India is that if not done selectively, there may not be many spare heads left to roll. The second response is that the management must come out with its own restructuring plan and the financing involved. But this again may prove to be difficult, because the management has been outsourcing this activity to the administrative ministry for decades. The third and the most sensible response has been to induct professional managers and business leaders to the board of Air India. This should be effective provided, of course, the board is allowed to function without interference (as was the case with Satyam [ Get Quote ] Computers) and no further committees are appointed to study the recommendations of the board. The implication of this measure could be far-reaching, as it will enable the transition of Air India from an 'administrative ministry-managed company' to a 'boardmanaged company'. It will require a Himalayan change in mindset on the part of the administrative ministry, to curb its natural proclivity to pick up the phone.

The main problem with Air India is not its poor financial health. The real cause is the singular failure of leadership and governance. Any attempt to resuscitate Air India through financial restructuring without a deeper organisational restructuring (going beyond a few knee-jerk punishment transfers) will result in Air India sliding down the slippery slope and good money chasing bad. A transformational change is necessary. Nothing short of it will work. Is the government ready for it? Lufthansa in the 1990s did just that. A combination of factors such as deregulation of air fares in US, increased competition from US airlines and tremendous price competition had lowered the yields of all European airlines. But Lufthansa had all along laboured under the belief that, being a national airline, it was programmed for success; so it could grow stronger merely by increasing assets, and employment would rise in any case as people would seek 'secure' jobs in a state-owned enterprise. "We are the German Airline Company, state-owned and a prestige organisation. They will never let us die" was the refrain, according to Jochen Hoffman, Lufthansa's senior vice-president at the time. As a state-owned enterprise, its immortality was assured. This delusion underpinned Lufthansa's strategy to pursue higher growth, by increasing the number of aircraft from 120 to 275 between 1987 and 1991, with its revenue growing only from 11 billion Deutsche Marks to 16 billion Deutsche Marks. The Gulf war brought in a steep fall in air traffic. The passenger load factor (the ratio of passenger kilometers flown as a percentage of seat kilometers available), which measures how much of an airline's carrying capacity is used and tests the efficiency of asset utilisation, declined rapidly. Lufthansa reported an after-tax loss of 444 million deutsche Marks, followed by worse results in the second half of 1991 and 1992. In 1992, Lufthansa had cash to meet only a fortnight's operational expenses and no cash to pay salaries. No bank in Germany [ Images ] was prepared to advance money. Lufthansa's response to the looming crisis was characteristic of a state-owned, monolithic and unprofitable enterprise. Sounds familiar? Between 1996-97 and 2005-06 (not to take into account the latest figures), Air India's operating ratio was close to 100 per cent or more, signifying that the airline was hardly earning any profit or was in the red. The PLF was around 65 per cent, far below the international average; it was losing on the revenue hours flown, the average revenue tonne kilometer per employee was erratic, the service standard was declining, and there was no staff rationalisation. But all this was not motivation enough to stir up either the board or the management of Air India or the administrative ministry. Lufthansa's turnaround from near bankruptcy in 1991 to sound financial health by the end of the 1990s was orchestrated by Jurgen Weber, who was appointed the chairman in May 1991. In June 1999, Lufthansa announced the best results in its 70-year history. Simultaneously, with the restructuring plan Jurgen Weber persuaded the government to step up its efforts to privatise Lufthansa. By 2000 Lufthansa was a privately-owned, profitable company - and a core element of the strongest worldwide alliance in the airline industry. Jurgen Weber's main strategy plank was the commitment of the people. It began with his weekend meeting in June 1992, with some 20 senior managers at the training centre at Seeheim. The title of the meeting was changed from 'Mental Change' to 'Crisis Management Meeting' shortly before it began. The Seeheim meetings produced a set of 131 projects or key actions, known as 'Programme 93'. These projects involved financial restructuring, cutting costs and redundancy, renegotiating landing slots, route restructuring, and cooperation with other airlines by creating 'Star Alliance'. But the reason why these projects worked was because there was enough

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space for reflection, open communication and feedback loop, involvement of people in strategic business processes, keenness on the part of top management to hear and learn, identification of the willing game changers within the organisation, emotional mobilisation and bonding of these change actors, creation of action learning networks which emphasised being leaders and not followers, maintaining some slack in Lufthansa's strategy to allow for innovations, service initiatives for customer satisfaction and frequent-flyer developments and building sustainable relationships with various internal and external stakeholder groups.

Air India is different from Lufthansa, and India is different from Germany. So what worked for Lufthansa may not work for India. But the short lesson that emerges is that the inflow of resources is a necessary but not sufficient condition for transformational change in an organisation. We have to drive for hard success through soft processes. Air India is a great national asset, too precious to be frittered away. At least this much is to be owed by Air India to a tall and lean Parsi gentleman who used to fly a De Havilland Puss Moth regularly and on time, to carry mail from Juhu [ Images ] in Mumbai [ Images ] to Karachi via Ahmedabad [ Images ] and gave the country its first national air

public with this fairy tale. Also, foreign ownership of AI does not seem likely, given the current regulation on FDI, etc. How do you foresee the future of AI? Craig Lawrence: In the short-term, AI will retain a privileged position as long as the national pride in seeing it as the nation's flag carrier remains. Over time, ascompetition on international and domestic routes increases, the basis forgovernment favoring one carrier over another will diminish. In the end, AI willsimply be an Indian airline, indistinguishable from the other airlines, in much thesame way as in the US market where there is no apparent `national carrier'. Hans Huber: We have arrived at a point where market mechanisms in aviation have become disabled, maybe in part through the negligence of MoCA. I justreturned from a conference in Hong Kong where the Commissioner of Transportwas very explicit when she said: "Competition brings improvement. But thegovernment has to provide a level playing field." There are some 100 scheduledairlines operating in China today. Rather than facilitating market entry for themuch-needed low-cost and regional operators, India has privileged marketconcentration among a few high cost carriers and stressed the development of afew Taj Mahal style, highly expensive, prestige airports through consortia. Even the more acute among the remaining oligopoly airlines concede that theirbusiness models (i.e., post-merger) have become inadequate, largely due to theircost-structures which remain too high. It is clear to any observer that transforminga full-service airline into a true low-cost carrier is extremely

difficult, probablyimpossible. AI is certainly the least well prepared to accomplish such a task, givenits history and productivity track record. New entry from innovative and agile firmsseems to stand a much better chance to face this challenge. Their pace of growthwould be organic and much more decentralized. But for this to happen, oldincumbents would need to give way and MoCA would need to revise its industrial policy. *Economic Consultant, Economic Advisory Services - Connell Wagner Pty Ltd., Manly Qld, Australia **Associate Professor, Shailesh J Mehta School of Management, Indian Institute of Technology (IIT), Mumbai, India A problem peculiar to AI In fact, airline business in the entire world is now bleeding profusely due to a variety ofreasons, starting from rising oil prices to a slowing world economy. But in India, the problemis more acute. Last year, in India, the aviation industry lost more than $2.5 bnalmost one-fourth of total global airline lossesdespite accounting for merely 2% of the global traffic.Kingfisher Airlines, India's largest airline in terms of market share, which reported a net loss ofRs 2.43 bn ($51 mn) in the quarter to June, owes more than $199 mn in unpaid fuel bills andis surviving on bank loans. Jet Airways recorded a net loss of $47 mn in the same period. Therising aviation fuel prices, burdensome taxes and overcapacity should be blamed for whyIndia's private airlines are suffering heavily. In order to raise the market share at any cost,the airlines priced tickets well below cost. Moreover, according to some estimates, theypurchased twice as many aeroplanes as the market could support. In addition, as competingairlines poached pilots and mechanics, staff costs escalated, adding to the industry's woes.

But the problems faced by government-sponsored AI are different from the problems faced bythe other players in the industry. Though, AI has been battered by ballooning fuel bills andfalling demand, its crisis is largely its own making and management-related. Now, thegovernment has decided that it would do whatever it could to turn AI around, and plans are onthe anvil to infuse equity and soft loan into the airline. But it may not be an easy task. In royal mess AI, which is the offshoot of Tata Airlines founded by legendary JRD Tata in 1932, has for longadorned the number one position among the Indian carriers. Even in the 1980s, AI was toutedas the biggest and the brightest aviation prospect in Asia. Nevertheless, things began todeteriorate for AI since the mid-2000s, and in 2006-07, it reached serious proportions. In2006-07, AI made a loss of Rs 541 cr and Indian Airline's loss was Rs 230 cr. In about twoyears, from March 31, 2007 to March 31, 2009, when AI and Indian Airlines merged, thelosses rocketed to a mind-boggling Rs 7,200 cr. Aviation experts opine that the staggeringeightfold increase in its losses in two years can be attributed to the manner in which aircraftswere leased, capacity was allocated to foreign carriers under bilateral agreements, ground-handling in important airports was given to a proposed joint venture, flights were withdrawnfrom profitable routes and pilots weren't

sent for proper training, and not the least how AI andIndian Airlines were merged.

The losses really began from 2006 onwards when a decision to aggressively lease aircraft wastaken to augment market share without conducting proper route study, marketing or pricingstrategy. The upshot in the last two years, from 2007 to 2009, AI kept five Boeing 777s andfive Boeing 737s on ground at a loss of Rs 840 cr. Luckily for AI, Boeing could not meet thedelivery schedules for its new B787 Dreamliners. If these aircraft had arrived on time, all ofthem would have been on the ground. Adding to the crisis, the merger between AI and IndianAirlines proved to be disastrous. Instead of resuscitating AI, the government has divertedfunds to the next-to-impossible task of resolving the staggering mismatch between the twoairlines in respect of the nature of operations, functions, roles, structures, cultures, pay scales,perks, and so on, with no synergy and economies of scale in sight. Sadly, even two years afterthe merger, the two parts of the merged airline do not have an integrated IT system. Besides these, the blame for the mess the airline finds itself in also rests squarely with thegovernment. Constant bureaucratic interference in its functioning, a huge and unacceptablelevel of workforce, gross indecision in allowing fleet acquisition, growing inefficiencies, andcompetition from domestic private and foreign airlines ate into AI's market share. Aviation is acapital-intensive and high fixed cost business, which makes it much more

vulnerable tobusiness cycles; and it has also been severely battered by the current slowdown. The problemis clearly beyond cosmetic surgery such as forcing government employees to fly AI. In search of clear sky The problems encountered by the national carrier are deep-rooted and hence a radical andsweeping approach is needed for its resuscitation. The steep spurt in losses is partly due todepreciation on the aircraft bought in recent years. Hence, the government should ensure thatthe airline should not take fresh approval for new purchases in case it cancels existing orders.Keeping long-term perspective in mind, the issue of bloated workforce needs to be sorted outat the earliest. The government should cooperate with the airline, politically and financially, toshed workers and alter the generous salary and incentive terms enjoyed by the workers. Thegovernment must also decide urgently on the bailout package sought by the airline. Lastly, theairline needs to be given the freedom to be run on commercial lines. An important element ofthat would be, bringing in professionals at the top instead of novices who may lack the domainknowledge to run a large airline. A stock exchange listing would also be of huge help to infuse more funds to the airline. In fact, the new board has already begun initiating bold steps to reinvigorate the ailing airline, though turning it actually around would prove to be a huge task