Here’s why Air India’s new owner will have its work cut out

Large headcount

The new owner will face problems at multiple levels. To begin with, the new owner will have to deal with Air India’s massive headcount — for instance, it has about 1,500 trained pilots and about 2,000 aircraft engineers to take care of the fleet. Moving from the work culture of a public sector undertaking under the government to meeting the expectations and work standards of a private sector owner will prove a challenge, an old Air India hand said.

The difficulty in this task was highlighted over a decade ago by Arvind Jadhav, then Chairman and Managing Director of Air India. He was quoted in a Parliamentary Committee on Public Sector Undertakings report tabled in 2010, in which he said that nowhere in the world had any merger been successfully completed. “If you take Delta-Northwest airlines, today if you go to the United States and ask the pilot or a cabin crew he will say, ‘I am a Deltan. I am a North-western.’”

Festering integration issues

What complicates matters for Air India and hence its new owner is that Air India has both the erstwhile Air India and Indian Airlines. These two airlines, though they are public sector undertakings, followed completely different internal procedures, processes, human relations processes, working conditions, timings and methods. Reconciling the two in the merged Air India has always been a contentious issue. This is something that the new owner will have to deal with now.

Dealing with unions

The new owners will also have to deal with the pilots’ unions, employees’ unions and Officers Association and draw up new agreements with them. In addition, AI’s new owner will also have to renegotiate terms and conditions that the Maharaja has with ground handlers and engineering departments so that they come up to the performance level expected in the private sector.

Fleet upgrade

Many of Air India’s aircraft are in need of upgrades. Between $2.5 million and $3 million will have to be pumped in per aircraft to upgrade the cabin and upholstery of narrowbody aircraft such as the Airbus A-320 and Boeing 737, which AI flies mainly between Kerala and the Gulf countries.

The new owner will also have to spend anything between $4.5 million and 5 million to upgrade one widebody aircraft such as the Boeing 777 and 787 in the airline’s fleet. These aircraft connect India to the United States, Canada, Europe, United Kingdom, Australia and other distant countries.

Air India had a fleet of 117 aircraft as on March 31 this year, including narrowbody aircraft from the Airbus A-320 family and widebody planes, including the Boeing 777 and 787.

The AI website shows that the airline owns all the 15 Boeing 777-300 Extended Range aircraft, three Boeing 777-200 Long Range aircraft and six Boeing 787 aircraft in its fleet, while 21 aircraft are leased.

When it comes to the narrowbody fleet, the airline owns all 19 Airbus 319 (mixed configuration) while all the three A-319s with single-configuration seating are leased. It also owns all 20 Airbus 321 aircraft and four classic Airbus A-320 aircraft in its fleet.

Huge outgo

The exact cost likely to be incurred is not easy to determine immediately as the new owner has the option of returning the leased aircraft. But the aircraft that are on sale and lease back (SLB) will need to be carefully looked at, a person involved with the sector for over three decades told Moneycontrol.

The SLB method is a common practice followed by many global airlines. Rather than taking on the huge debt of the cost of an aircraft on their balance sheets, airlines allow a leasing company to take possession of the aircraft. The leasing company, in turn, leases the aircraft to the airline, which pays a monthly lease rental fee ranging between $250,000 and $300,000 for a narrowbody rather than spending a few million dollars purchasing the aircraft.

But despite such drawbacks there are a lot of things that make the Maharaja attractive, including 4,486 domestic utilised slots a week as on November 1, 2019. It also has 2,738 utilised slots per week internationally — 358 in West Asia, including in Abu Dhabi, Dammam, Dubai, Jeddah, Tel Aviv and Doha. And 72 weekly slots in the US and Canada, including in New York, San Francisco, Washington and Toronto. In the UK it has 74 slots at Heathrow and Stansted in London and Birmingham.