A Chocks-on Nugget 13 OCT., 2013
Air India off its deathbed,
but privatisation may be the only way forward
Commentators have long been predicting Air India's imminent
demise and not without reason. If far mightier airlines have keeled over, why
wouldn't the national carrier, bled by excesses, mismanagement and corruption?
A book by a former Air India executive released on Friday predicts as much,
stopping short of writing its epitaph. Yet, Air India continues to totter
along, wrapped in a Rs 30,000-crore government cocoon.
These commentators have often served up privatisation as an
antidote to Air India's agony. On October 5, aviation minister Ajit Singh
joined the chorus. "Privatisation of Air India could be considered if
there is political consensus. State funding cannot be endless," he told
The Times of India.
Singh was gingerly treading on a cause celebre, but the statement
still created a flutter. Some would see a minister pushing for privatisation
akin to a patriarch selling family jewels. Predictably, the consensus that
Singh sought came in the form of universal resistance by opposition lawmakers.
Touchy Topic : That
wasn't only why Singh's statement raised eyebrows. The government has only
about six months to complete its term and a prickly subject like putting Air
India on the block was unlikely to make it to its to-do list. And recent months
have delivered a stream of good news, especially in ontime performance and
steady gains in market share, bolstering the notion that the airline is making
a vigorous recovery (the privatisation debate comes in the midst of a
commercial that has a bunch of corporate executives heaping praise on the
airline). The performances are actually mixed (see Air India's Performance
vis-a-vis...).
Air India racked up gains in market share not only because
of the void caused by the grounding of Kingfisher AirlinesBSE 4.86 %, but also
at the expense of budget carrier SpiceJetBSE 6.12 %. Its on-time performance
(OTP) and passenger load factor (a measure of occupancy) numbers too are
commendable, beating comfortably the turnaround plan (TAP) targets set by a
group of officers last year. But the rate of cancellations leaves a lot to be
desired.
Overall, these performances amplify hopes that the airline
has got off its deathbed. But what about earnings? In an industry where margins
are thinner than a boarding pass, the financial health of an airline is what
really matters.
Patchy Record Here
too, the performance is erratic, according to the latest earnings of the
airline reviewed by ET Magazine. Reversing a decade of painful decline, cash
losses and Ebitda (Earnings Before Interest, Taxes, Depreciation, and
Amortization) — a measure of operating income — losses have fallen sharply
between April and July 2013 from a year ago.
But cash losses for the first quarter of this financial year
have fallen short of targets by 116% (see This is a significant improvement,
but...). That means Air India is certain to miss the Ebitda profit of Rs 1,041
crore it has budgeted for the 2013-14 financial year.
Still, these figures conform to the airline's performance
and earnings in the previous financial year. By recording a load factor of
72.7% and a yield (a measure of average fare) of Rs 4.25, Air India glided past
TAP milestones of 69.5% and Rs 3.53.
Yet its OTP of 77.7% fell short of TAP target of 85%. On the
earnings side, total revenue in 2012-13 increased by 9.6% to Rs 16,130 crore
from Rs 14,714 crore in 2011-12. More importantly, Ebitda improved to Rs 19.45
crore compared with an operating loss of Rs 2,236.95. Net loss fell to Rs
5,198.55 crore from Rs 7,559.74 crore. Accounting for these statistics as well
as its latest earnings, Singh said Air India has managed to stem the rot, but
would still end up with a net loss of Rs 4,000 crore this financial year. Stack
up these figures against a debt of around Rs 40,000 crore, the next government
will have no choice but explore privatisation, according to him.
Our Credo….” Quality News - not Quantity “
SOURCE : THE ECONOMIC TIMES
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