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Is Air India an airline?

By Govindraj Ethiraj
July 21, 2009 15:47 IST
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Tata Steel made a virtue of 'also' making steel a few years ago. It was perhaps the first, last and only private sector company to draw comfort from its prowess in civic affairs.

For most PSUs in India though, this is an area not much deliberated upon, mostly because the businesses are monopolies. No one cares or asks.

Air India is a good example of a company that started out as a monopoly but has failed to do what Tata Steel did once the goody monopoly days were over - downsize and re-organise. Among other mis-steps of course. How else would you explain the fact that close to half its 31,500 employees are not even in the core business of flying an airline?

If that's news to you, you might be right in asking: What do they indeed do? Let's begin at the gate. Air India has roughly 2,000 employees guarding its assets. Obviously, you can't have that many people and not have an elaborate managerial hierarchy. Air India even has a head who is drawn from the Indian Police Service. Presently, he occupies the position of executive director.

Did you ask why? Well, I am told that's because Air India is the 'national carrier'. So possibly, there is also a vigilance department whose precise staff strength I could not determine (rest assured it's not a lean team). There is a chief vigilance officer who is part of top management and 'seconded' from the civil or revenue service.

I'm tempted to amplify this. The vigilance department's job is to "initiate steps to curb corruption and malpractices in Air India." This sounds fine if it was the local water or road works department. But an airline in a highly competitive industry? Why should it sound to people outside like most of the folks inside are perpetually up to some hanky-panky, unless monitored!

You also have 2,000 employees in security because there are more than just aircraft that need guarding. There are some 21 hangars which service Air India's aircraft. And all the equipment and spares that go with that. And, of course, there are some 5,600 employees in the engineering services arm which service the aircraft. Quite competently, by any standards, but competence in engineering is not quite the issue here.

Have you visited Air India's imposing headquarters at the tip of Mumbai's Marine Drive recently? Well, there you will find more security personnel, with security check levels so high you might be pardoned in thinking you are about to board an aircraft. And that is good. Except that Air India does not occupy all the floors. Until recently, TCS was also headquartered there.

Speaking of services, Air India has close to 10,000 employees working in ground handling services. These are services provided by Air India to foreign airlines - check-in, baggage handling and so on - that do not or cannot invest in full-fledged bases in the country. To be fair, this endeavour makes money (Rs 1,000 crore topline and Rs 200 crore bottomline, if reports are to be believed).

Hiving off the non-airline from the airline operations is one solution to separate the diseconomies of scale or the forced economies of scale. It's not that the Air India management has not woken up to this. Last month, a discussion on these very lines took place among aviation ministry officials.

It was decided that ground handling, maintenance repair and overhaul (MRO) will get hived off, the latter in joint ventures with Boeing and Airbus. This is the engineering services bit referred to earlier.

And then there are the logistically straining initiatives like the Haj pilgrim service. Since 1954, Air India has been ferrying Haj pilgrims to Mecca. Laudable but not an assignment Air India clamours for. The government makes the airline ferry some 100,000 pilgrims every year (along with Saudia Airlines) and pays the fare. Last year the figure was Rs 700 crore.

This is the broad story of Air India and the tribulations of being a government-owned company. It's the same story with some variations across most PSUs in the country. When you buy shares in a PSU, remember you buy not just the core manufacturing or services business but schools, hospitals, buses to ferry employees and school children.

This is not to knock the nobility of their existence or purpose but to argue that the same services could be rendered to the larger community by the same government and from the dividends that are paid back by the monopoly PSUs.

And finally on Air India, if all the hiving off hits the wall, then maybe the way to go is to redefine what Air India is. It's not an airline, it's a multi-faced aviation company. That way you will have fewer people stressed. Of course, fixing the hole in the balance sheet will take a little more than a renaming ceremony.

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Govindraj Ethiraj
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