Is Air India fudging financial figures?

It was surprising that even the very mediocre financial figures of Air India had been actually fudged for some years, as stated by the Comptroller and Auditor General of India. There had been an under-statement of annual loss figures, for three consecutive years, from 2012-13 to 2014-15. Air India had also claimed their first-ever operating profit since the ill-fated merger with Indian Airlines, of Rs 105 crore last year. The actual figure, we now learn, was an operating loss of Rs 321.4 crore. At the time aviation turbine fuel (ATF) prices had hit rock bottom, if the airline could not even make a small net profit, it could find itself fighting for survival as prices increase.

The management had even set for themselves a “target” of a Rs 1,000 crore operating profit for this fiscal, and had wanted to hire more staff – when they should have trimmed staff strength in view of the parlous state of their finances. The government should be particularly wary of Air India’s plans to lease 100 aircraft – to add to their 118 strong fleet – when the last four Boeing Dreamliners from their 2006 order have yet to be received.

Worse still, the global economic situation is getting more volatile. The price of crude is about twice what it was at its minimum. Other costs are also rising, fare yields and profits are falling, and the rupee is falling against the dollar. The over-capacity situation will get worse as the more than 800 aircraft on firm order by India’s airlines swamp the market. The entire industry – not just Air India – should be deeply worried.

Since Air India has little to show by way of a turnaround for the doles given so far, paying additional amounts is unlikely to achieve any turnaround in the future. With the loss figures being fudged, the accumulated losses will have to be recalculated – sharply upwards. Add to that the astronomical debt of Rs 46,570 crore. With that sort of money, one could start a new airline, with none of the problems that face Air India. The government will have to decide whether it should go on trying interminably to turn around Air India, despite the poor results to-date, or should let it sink. Air Indians are mistaken if they think no government will dare let a state undertaking sink.

A number of solutions have been talked about. One is to convert about Rs 10,000 crore of debt into equity. That amounts to debt write-off rather than restructuring. Air India’s shares are not worth the paper they are printed on. These will not give the bank one paisa in dividends. It would amount to robbing Peter to pay Paul. Some analysts have suggested  privatisation. However, which investor, in his/her right senses, would wish to invest in an airline in such an advanced state of terminal decline? Privatisation, stake disinvestment, and the like are not viable options any more.

Should Government still wish to try to turn around Air India, it will need a complete reversal of direction. The Air India management has little to show for its turnaround  efforts. Hardly any effective steps have been taken so far. There may be no turnaround  specialists in India. India will need to get an expatriate specialist in that field. There seems to be absolutely no other viable solution. The Centre must bear a part of the blame for having used Air India to serve social as well as political purposes, when the airline had to act against its own better commercial judgment. As an example, in the northeastern region, which has poor surface transportation, Air India serves about a dozen destinations, while every other airline serves barely half as many – and the least unprofitable ones.

Air India also provides greater global connectivity than any other Indian carrier. That helps socio-economic development. Also, when an Indian travels abroad on an Indian carrier, his fare money stays in India. while, on a foreign carrier, much of it is repatriated abroad. However, a large number of these international services also lose money for Air India. Unfortunately, Air India has been a bottomless pit for the country’s financial resources. Government cannot keep it afloat with the taxpayer’s money indefinitely. Things reached a point of diminishing returns long back.

(The author is a civil aviation industry analyst)