As Air India sale nears, Tata worries over airline's operational mess

National carrier Air India, which has entered the "concluding stage" of being privatised after it received financial bids on September 15, is not simply hamstrung by poor financial condition and mismanagement. There are more to the troubles that a prospective buyer would have to undertake, notwithstanding Air India's brand value, esteem and high-value assets. 

The Tata group, which is one of the bidders for the national carrier, and is widely regarded as the frontrunner in the race to acquire the airline, has found as part of its due diligence in Air India's operations that there are a number of worrying elements, The Economic Times reported.  

All Air India aircraft, including the Airbus 320 and Boeing 787 Dreamliners need cabin upgrades, the salt-to-steel conglomerate has found. The three Boeing 777-200LR planes in the Air India fleet are not competitive as well. Readers may recall that it was a B777-200LR that a team of four women pilots led by Captain Zoya Agarwal had flown from San Francisco to Bengaluru in January this year, steering the plane over the north pole in a historic mission. 

The Tata group has also discovered that most of the engines of Air India's narrowbody planes (the Airbus fleet) need a major overhaul within the next nine years. 

On the financial front, the Tata group has found that Air India has been paying extremely high lease rentals for its B787 Dreamliners, and has very high costs and onerous contracts with engineering and ground-handling subsidiaries. Contracts with GE for the widebody planes (Boeing fleet) are very expensive and poorly structured. Also, there are nearly 4,500 to 5,000 excess employees in corporate and administrative functions. If a prospective buyer decides to do away with these employees, there would be another human resource crisis to deal with at a time when delayed payments and pay cuts, especially in the wake of the Covid-19 crisis has made the Air India employees furious. 

Worryingly, according to the Tata findings, a large number of free air tickets are being given away to the Air India employees, which is adding to the company's financial woes. The airline has not made profits since its controversial merger with Indian Airlines in 2007. Today, Air India has combined debts and losses amounting to about Rs 1 lakh crore. The government loses nearly Rs 20 crore every day to operate the airline, which has been kept aloft by a bailout since 2012, Reuters reported. 

Tata also found that lease obligations were excluded from the definition of enterprise value. 

Also read: Tata confirms Air India bid, airline may change hands by FY22 end

The damaging Aircraft Accident Investigation Bureau (AAIB) report on the Air India Express crash at the Calicut International Airport in August last year, is also a cause for concern, according to Tata. The crash report released earlier this month identified pilot error and failure to follow safety guidelines as the possible reasons for the Vande Bharat Mission (VBM) repatriation flight from Dubai skidding and overshooting the tabletop runway at the airport amid inclement weather and falling 35 feet into a gorge, breaking into half, resulting in the death of around 20 people, including the two pilots. The aircraft involved was a Boeing 737 narrowbody.        

"The probable cause of the accident was the non-adherence to standard operating procedures by the pilot flying," the AAIB report said, adding that the pilot "continued an unstabilised approach and landed beyond the touchdown zone, halfway down the runway", instead of doing a "go around". Go around, in this regard, means the abortion of a landing attempt and trying again. The aircraft had already made a failed landing attempt, before overshooting the 2.7 km runway. The pilot monitoring the landing had asked the pilot flying the aircraft to go around, but the latter had failed to do so, while the former could not take over the controls to execute the order, the AAIB said.

Also read: India's global aviation hub dream demands a powerful post-sale Air India

Air India essentially had emerged out of Tata Airlines. Tata Airlines started as Tata Air Services with an investment of Rs 2 lakh from Tata Sons and two second-hand de Havilland Puss Moth aircraft. It was in 1932 that JRD Tata piloted a de Havilland Puss Moth carrying airmail from Karachi to Bombay (present-day Mumbai). That was the first flight of Tata Airlines, and indeed of the country. 

Since then, the airline went on expanding. In 1946, Tata Airlines became a public limited company and was renamed Air India. After independence, the Government of India took up 49% of the airline. That happened in 1948. Then in 1953, the government bought a majority stake in Air India from Tata Airlines, though JRD Tata continued as its chairman till 1977. 

Ajay Singh, the Chairman and Managing Director (CMD) of low-cost carrier SpiceJet, is also reported to have submitted a financial bid for Air India in his personal capacity. 

(Cover image courtesy Wikimedia Commons/calflier001)