Anjuli Bhargava: Set the house in order first

OUT OF THE BLUE

Ending weeks of suspense, the government finally announced a new chairman and managing director to steer the newly merged Air India and Indian. Raghu Menon, additional secretary in the aviation ministry, had pulled out of the race but later, in the absence of any credible options, found himself accepting what anyone will agree is not an enviable position.

He's taking charge of a carrier which is in the midst of dealing with a new reality. The ink on the merger is not yet dry and the internal politics has led to groupism within the senior management. Predictably, management attention has been diverted to handling personnel issues rather than on the core function of running the airline.

Unfortunately, the merger also coincided with the induction of new fleet for both carriers. Both Air India and Indian got new aircraft after a gap of almost 10 years. But even before they could get used to the idea of managing their new fleet (the process of inducting the new 111 aircraft will only be over in 2012), the merger was on their heads.

To make matters worse, all of this was accompanied with rapid changes in their environment. On the international front, the government liberalised to meet the growing demand of citizens for international travel. Air India didn't have the wherewithal to manage the new demand. Even in a year when international traffic to and from India grew 15 per cent, Air India couldn't hold onto its traffic. Its losses mounted and, if government officials are to be believed, will touch record highs this year. As Air India lost ground in the international skies, Indian lost ground in the domestic market. With the coming of low-fare airlines and head-on competition from Jet "" which offered a far better product "" Indian lost many of the loyal customers it had managed to gather over the years.

In the months after the merger of the two fast weakening entities, the merged entity's name has been dragged through the mud for its poor record. To cite just a few instances, on August 26 last year, Air India's Mumbai-Delhi-London-New York flight was delayed by over 15 hours. A few days later, on August 28, the Delhi-London-New York flight was delayed by eight hours. On November 17, its flight to Abu Dhabi was delayed and the one to New York was cancelled. The very next day, passengers went on a kind of rampage after their flight to Mumbai was delayed by about seven hours. The airline is beset with engineering problems, so it's not hard to see why passengers imagine fuel leaks from the aircraft and refuse to fly, resulting in flight delays of 19 hours (this February). By the time the passengers agreed to fly, the crew refused to do so, saying they had exceeded their maximum flying time.

That's why I was quite surprised when news reports started appearing over the next order of planes the carrier was contemplating. Senior airline sources and news clips say that Air India is exploring an order of 10 A380s, around 100 narrow bodies aircraft (A320 or B737) and another 30-40 medium capacity long range aircraft (B787 or A350 series). In other words, the airline is looking at a mammoth order of close to another 150 aircraft for deliveries post-2012.

However, with 148 aircraft currently in operation (31 of the new order of 111 have come in already) and at least 80-odd yet to come in over the next few years, as I see it, Air India has its hands more than full. Surely the need of the hour is to manage its existing fleet better? Very few private airlines with losses of the kind Air India is witnessing and the problems it finds itself saddled with would be spending so much time focusing on future fleet expansion. Till the red ink on the balance sheet turns black, most carriers would be very conservative with new aircraft orders.

Yet sources within the airline, several of whom have spent the better part of their careers with the airline, say that management attention has been inordinately focused on the need to order more planes rather than managing the existing ones. Apparently the management is worried that if they don't order planes now, when they need them, the aircraft won't be available or will be available at a higher price. For sometime now the order books of Airbus and Boeing have been full and the airline wants to order to secure positions at today's prices.

One can argue that it's short-sighted to not think of the future but when the future is as dynamic as it appears today, it may be better to wait. Already, IATA numbers show a softening in global air travel demand and a fall in load factors. A recent Centre for Asia Pacific Aviation (CAPA) report says that "manufacturers are currently in an enviable position but with concern growing over the state of the global economy, the delivery position may well change over the next couple of years at possibly more favourable terms." On Air India, the same report says quite categorically, "Air India may be better advised not to rush into placing an order just yet and instead focus on the major issue: the short term." I can't help but agree.