a case study on air india
TRANSCRIPT
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CASE STUDY ON AIR INDIA
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INTRODUCTION
Air India limited is the national flag carrier airlineof India.
Air India is state owned and administered as a
part of National Aviation Company of Indialimited (NACIL).
The main bases of operation of the airline areMumbai`s Chhatrapti Shivaji international airport
and Delhi`s Indira Gandhi international airport. Air India is the 16th largest airline in Asia, serving
25 destinations worlwide.
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ORIGIN OF AIR INDIA
Air India was founded by J. R. D. Tata in July 1932as Tata Airlines, a division of Tata Sons Ltd. (now TataGroup).
Tata Airlines became a public limited company on 29July 1946 under the name Air India.
In 1948, after the independence of India, 49% of theairline was acquired by the Government of India, withan option to purchase an additional 2%.
In return, the airline was granted status to operateinternational services from India as the designated flagcarrier under the nameAir India International.
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EXPANSION
Air India International entered the jet age in 1960
when its first Boeing 707-420, named Gauri
Shankar(registered VT-DJJ), was delivered.
In 1971, the airline took delivery of its first Boeing747-200B named Emperor Ashoka (registered VT-
EBD). This coincided with the introduction of the
'Palace In The Sky' livery and branding. In May 2004, Air India launched a wholly
owned low cost airline called Air-India Express.
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LIBERALISATION OF AVIATION
INDUSTRY
In the year 1990, open-sky policy wasadopted by the government and it allowedair taxi- operators to decide their own flight
schedules, cargo and passenger fares. The monopoly of IA and AI in the air
transport services were ended by IndianGovernment, as a part of its open sky
policies in the year 1994. Now Private operators were permitted to
provide air transport services.
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By this time, Indian Airlines began to losemarket share to Jet Airways and Sahara.
Today, Indian aviation industry is
dominated by private airlines such as
Kingfisher airlines, Jet Airways, Deccan
Airlines, GoAir, SpiceJet etc; these
include low cost carriers who have made
air travel affordable.
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DISINVESTMENT PLAN
AIR INDIA was put for disinvestment in2001.
Air India should in theory be an attractivebuy.
As a national carrier, it has the rights toabout 90 routes, but with only 27aircraft, it doesn't take full advantage ofthem.
However it carries six years of losses anda debt burden of $70m.
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India's ambitious plans to raise more money
through privatisation collapsed as Singapore
Airlines' decided to pull out of a joint bid with
Tata group to take over Air India. INDIANgovernment was hoping to raise $2.5bn in this
process.
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REASONS FOR DEBT ACCUMULATION
Was not prepared for competition it startedgetting after the liberalization of Indianeconomy in 1990.
Bloated workforce. Air India has 28,000permanent staff, double Jet's headcount. Itoperates 127 aircraft, compared with Jet's115.
Highest Employees per Aircraft in the world200:1 where as desirable is 130-170:1.
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Bad management and faulty policies has
brought Air India to this crisis level.
Complete lack of Ownership.
Lack of responsibility for results and failures.
Deeply ingrained corruption in all levels.
Poor marketing campaign management,
competitors like spicejet, jet, and kingfisher do
effective marketing.
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The discontinuation of 32 profitable routes. This
has enabled private Indian and foreigncompetitors to eat into Air India's market share.
Giving the best timing slots to private airlines.
While Kingfisher airlines owned by the Mallyashas been bailed out with loans infused by SBI andother PSU Banks, no such move by thegovernment regarding Air India.
Under utilization of its large fleet strength, and itshuge and skilled labour force, under variousexcuses.
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MERGER OF AI AND IA
In 2007, the Government of India announced
that Air India would be merged with Indian
Airlines. As part of the merger process, a new
company called the National AviationCompany of India Limited (NACIL) was
established, into which both Air India (along
with Air India Express) and Indian Airlines(along with Alliance Air) were merged.
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POST MERGER IMPLICATIONS
The airline has not posted a profit since merging withformer duopoly partner Indian Airlines in 2007 andrelies on handouts from New Delhi to survive.
Senseless merger of the two wings of the airline tookloss figures to Rs7,200 crores ( 72 billion) by March2009.
The merger itself was hastily carried out. The pilots ofthe erstwhile Indian Airlines were promised parity with
Air India pilots. For three years, nothing was doneabout it. Discontent built up and pilots went on strike.
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EYE RAISING FACTS May 2011 : Already reeling under financial crunch
because of the ten day pilot strike Air India went in atight spot as State-run oil companies the Indian OilCorporation, the Bharat Petroleum Corporation Ltd.and the Hindustan Petroleum Corporation refuse to
supply the fuel to the bleeding carrier. Out of the total daily average collections in India of
Rs 22 crore, a sum of Rs 16.7 crore is being paid to oilcompanies, which have put Air India on cash andcarry basis with effect from December 7, 2010,
leaving only Rs 5.3 crore to meet repayment ofaircraft loans and part of interest payment ofworking capital,
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SWOT ANALYSIS
STRENGTHS
Huge fleet strength
National carrier status
Highly recognized brandname
Huge Airport Infrastructure
Modern Airways
Infrastructure
Skilled Resources
WEAKNESSES
Enormous wasteful
expenditure
Involment of politics Discontinuation of
profitable routes
Giving away of best timing
slots Non professionalism
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SWOT ANALYSIS
OPPORTUNITIES
Huge market size and
rapidly growing market
Growing tourism Rising income levels
Liberal Environment
Economic Growth
THREATS
Rising fuel prices
Competition from the other
operators Terrorism
Political instability
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UNEXPLORED OPTIONS
The Airlines industry in India has been anextremely fast growing sector of the economyin the past 15 years.
Air India has by far the largest fleet strength,compared to the private competitors, and ithas enormous fixed assets, including highlypriced land and properties, in India as well asin major cities of the world.
Just the fixed assets of Air India will more thancover all the accumulated losses. Air India has
a brand name which is recognized worldwide.
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FAILURE OF TURN AROUND PLANS
The various turnaround plans prepared by
outside agencies and experts are virtual non-
starters as their implementation requires a
modicum of normal corporate behaviour thatis apparently not possible in a politically
vitiated and demoralised environment. The
Maharaja is not just sick; it seems to haveentered a stage of terminal decline.
RECENT STRATEGIC
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RECENT STRATEGIC
IMPLEMENTATIONS
From June 15 to July 25. AI launched an economyclass package.
Long Pending salaries of its employees weredisbursed by the end of June 2011.
According to the restructuring plan, part of the debtwould be converted to long-term loans at fixed ratesof interest with the remainder converted intopreference shares to be redeemed after 15 years,
giving the lenders equity in the airline. Rohit Nandan became the new CMD of Air India.
Capital infusion of Rs.1200 crore by GOI.
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If not full privatisation, at least a partial one canbe carried out through disinvestment. This willbring in funds to run the airline instead of the
government constantly raiding taxpayers' moneyto feed it.
The management of Air India should also beprofessionalised.
The airline should not be allowed to become atraining ground for officers of the IndianAdministrative Service who have no knowledge ofthe aviation sector.
There should be less interference from theministry.
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I believe Air India is an important asset to
Indian skies, and it has helped keep airfares in
check. The moment the pilots went on strike
airfares rose significantly. I hope this issuewould be resolved and the government will
take some good decisions on the airline.