Can Ashwani Lohani turn Air India around?

Falling jet fuel prices and a revival in domestic traffic growth offer the new CMD a once in a lifetime opportunity to turn around the state-owned carrier

On August 21, the government announced that Ashwani Lohani, from the Indian Railway Services of Mechanical Engineers' 1980 batch, would take over as the new chairman & managing director of Air India. The next day, some pilots reported late for duty, which delayed several flights. Ten days later, Lohani took charge of the loss-making airline. On the same day, the pilots' union asked its members not to extend their duty hours in case of a flight delay.

A week later, an Air India flight (Khajuraho-Delhi) made an emergency landing at the Delhi airport. Around 145 passengers were evacuated after smoke was spotted in the aircraft's wheel and five passengers were hurt.

These incidents highlight the challenges Lohani faces: an aging fleet, agitated pilots and huge losses. There's more: Air India's market share has slumped from over 30 per cent a decade back to around 15 per cent at present. Its average load factor of 78.8 per cent is lower than competition and on-time performance amongst the worst in the industry.

"Its legacy cost structure is high, competition in the domestic and international routes is increasing by the day, staff morale is low, good people are routinely poached by competitors, many old aircraft are still flying and engineering troubles with new aircraft continue," says Amber Dubey, partner and India head of aerospace and defence, KPMG.

According to Dubey, Air India needs to be privatised as quickly as possible. "The new owners may do well to recruit a bright young professional in his 40s from one of the leading global airlines to lead the airline and give him a free hand for at least ten years. Revival of Air India in the current state is well-nigh impossible."

Strategic sale of Air India is not on the cards. Till then, it is for Lohani to attempt to revive its fortunes. The good news is, jet fuel prices are low and there has been a strong growth in domestic traffic, which offer Air India a once in a lifetime opportunity to turn around, provided it does not get into a tariff war to fill vacant seats.

Signs of change?

To be sure, Air India hopes to report a small operational profit at the end of the current financial year, as against operational loss of Rs 2,171 crore in 2014-15, but it still has a long way to go before it can come fully out of the red.

Despite substantial savings in the fuel bill, the airline is expected to see a consolidated loss of Rs 5,547 crore - the same as in the previous year. The gains have been offset by lower than expected revenues and an increase in engineering and maintenance costs and lease rents.

Despite financial restructuring, the annual interest costs have remained unchanged at around Rs 4,000 crore, thanks to the bridge loans for the acquisition of Boeing 787s, interest payment to oil companies and borrowings to meet shortfall in the government's equity infusion. (The government, in April 2012, had committed itself to invest Rs 30,000 crore into the carrier by 2020-21.)

If people close to Lohani are to be believed, his target is to turn around Air India in two years. According to them, he wants to ensure that a "sentiment change" should be visible to all in the next six months.

As a first step, he has set up a five-member committee to rationalise Air India's routes. Of its 370 daily flights, only nine are profitable, according to a statement by Mahesh Sharma, the minister of state for civil aviation, in Parliament in November. Of these, six are on domestic routes, while three are on overseas sectors.

This committee is expected to submit its report within a week, after which Air India will decide if the unprofitable routes should be shut down and new services should be mounted. Another committee has been formed to study the expenditure minutely and suggest measures to improve savings and efficiencies.

That may be fine but Lohani urgently needs to do something about Air India's aging fleet of Airbus A320s. Old aircraft mean higher expenditure on maintenance and spares and a fuddy-duddy image for the airline, which is a handicap when rivals from the private sector have a much younger fleet.

Of the 20 A320s in Air India's total fleet of 103 aircraft, six are in service since 26 years and seven since 21 years. The airline has sought the Directorate General of Civil Aviation's permission to use three of its A320s for longer than their operational life of 48,000 flight cycles and 60,000 flight hours.

It is learnt that Lohani has expressed faith in the airline's safety measures. He is believed to have told the civil aviation ministry that there are 280 A320 aircraft of various international airlines in service which are older than 20 years, so Air India is not an outlier. He is believed to have said that Air India follows a strict regime of following the approved maintenance programme for A320 aircraft.

Lohani, being an engineer himself, has conducted regular inspections of the maintenance, repair and operations facilities of the airline since taking charge. When the smoke incident took place at the Delhi airport, he immediately drove to the site to examine the situation.

No easy solution

Another tricky issue is the 650 commanders and 550 co-pilots on Air India's rolls. The government wants to put commanders out of the 'workmen' category of the Industrial Disputes Act. With this, the commanders will no longer be able to form trade unions, their service conditions can be changed and they will not be able to raise a dispute against their employers. This may pose a serious challenge for Lohani as the Indian Commercial Pilots Association held a secret ballot earlier this month in which most of the pilots voted in favour of a strike to protest the move.

Pilots are restless also because the airline has proposed pay cuts to harmonise their salaries with pilots of narrow-bodied aircraft of the former Indian Airlines fleet. The merger of Air India and Indian Airlines is still a sore point. According to the first internal survey on employee satisfaction after the merger, about 60 per cent of respondents were unhappy with the union.

Further, the airline management has asked the labour ministry to exempt its employees from Section 9A of the Industrial Disputes Act. If it gets this approval, the organisation can change their wages, hours of work or leave policy without intimating them in advance.

In a letter to the employees, Lohani made it clear there will be "zero tolerance to indiscipline" and urged them to give their best to the organisation instead of seeking and serving "petty personal interests."

The letter talked about maintaining high safety standards, enhancing passenger experience, and improving on-time performance and engineering set-up to revive Air India's "lost glory."

Lohani is known to have turned around Madhya Pradesh Tourism in his previous assignment as well as India Tourism Development Corporation in 2001-02 when he headed the public sector unit for a brief while. In terms of sheer size, Air India could be Lohani's biggest challenge. His aides say he doesn't want to fail in the final lap of his career.