Recently there have been news reports about the NITI Aayog submitting its recommendations on improving the financial health of Air India to the Ministry of Finance., The Civil Aviation Ministers have also mentioned that the Ministry will soon propose a roadmap for the rejuvenation of the national airline. While the NITI Aayog report is not out in the public domain yet, we present a few details on the financial health of the airline.
Finances of Air India
In 2015-16, Air India earned a revenue of Rs 20,526 crore and registered losses of Rs 3,837 crore. As of March 31, 2015, the total debt of Air India was at Rs 51,367 crore. This includes Rs 22,574 crore outstanding on account of aircraft loans. The figure below shows the losses incurred by Air India in the last few years (2007-16).
According to the Ministry of Civil Aviation, reasons for Air India’s losses include: (i) the adverse impact of exchange rate variation due to the weakening of Indian Rupee, (ii) high interest burden, (iii) increase in competition, especially from low cost carriers, and (iv) high fuel prices. The National Transport Development Policy Committee (NTDPC), in its report in 2013, had observed that with the increase in the number of airlines in the market, Air India has been struggling to make a transition from a monopoly market to a competitive one. These struggles have been primarily regarding improving its efficiency, and competing with the private airlines.
Turnaround Plan and Financial Restructuring
In order to bail out the company, the government had approved the Turnaround Plan (TAP) and Financial Restructuring Plan (FRP) of Air India in April 2012. Under the plans, the government would infuse equity into Air India subject to meeting certain milestones such as Pay Load Factor (measures capacity utilisation), on time performance, fleet utilisation, yield factor (average fare paid per mile, per passenger), and rationalisation of the emolument structure of employees.7 The equity infusion included financial support towards the repayment of the principal, as well as the interest payments on the government loans for aircraft acquisition. Under the TAP/FRP, the central government was to infuse Rs 30,231 crore till 2020-21. As of 2016-17, the Ministry has infused an equity amount of Rs 24,745 crore.
In 2017-18, the Ministry has allocated Rs 1,800 crore towards Air India which is 67% of the Ministry’s total budget for the year. However, this amount is 30% lower than the TAP commitment of Rs 2,587 crore.3 In 2016-17, while Air India had sought and equity infusion of Rs 3,901 crore, the government approved Rs 2,465 crore as the equity infusion. The Standing Committee on Transport, Tourism, and Culture examining the 2017-18 budget estimates noted that reducing the equity infusion in Air India might adversely affect the financial situation of the company. It recommended that the government must allocate the amount committed under TAP. The Ministry had also observed that due to reduction of equity infusion, Air India has to arrange funds through borrowing which costs additional amount of interest to be paid by the government.
As per the Ministry, Air India has achieved most of the targets set out in TAP. Despite running into losses, it achieved an operating profit of Rs 105 crore in FY 2015-16. Air India’s performance in some of the segments are provided in the table below.
Table 1: Air India’s performance
|Overall Network On Time Performance (measures adherence to time schedule)||68.2%||72.7%|
|Passenger Load Factor (measures capacity utilisation of the airline)||67.9%||73.7%|
|Network Yield achieved (in Rs/ RPKM)*||3.74||4.35|
|Number of Revenue Passengers (in million)||13.4||16.9|
|Operating Loss (in Rs crore)||5,139||2,171|
* Note: RPKM or Revenue Passenger Kilometre performed refers to number of seats for which the carrier has earned revenue.
Sources: Lok Sabha Questions; PRS.
The NTDPC had observed that with its excessive and unproductive manpower, failure to invest in the technology required to keep it competitive, and poor operations, Air India’s future looks risky. It had also questioned the rationale for a national airline. It had suggested that the government must frame a decisive policy with regard to Air India, and clarify its future accordingly.5 It had recommended that Air India’s liabilities should be written off and be dealt with separately, and the airline should be run on complete operational and financial autonomy.5
Need for competitive framework in the sector
With the entrance of several private players in the market, the domestic aviation market has grown significantly in the last decade. The market share of an airline is directly related to its capacity share in the market. While private carriers have added capacity in the domestic market, the capacity induction (adding more aircrafts) of Air India has not kept up with the private carriers. This has resulted in decrease in market share of Air India from 17% in 2008-09 to 14% in 2016-17.
The Committee looking at the competitive framework of the civil aviation sector had observed that the national carrier gets preferential treatment through access to government funding, and flying rights. It had recommended that competitive neutrality should be ensured between private carriers and the national carrier, which could be achieved by removing the regulations that provide such preferential treatment to Air India. The NTDPC had also noted that the presence of a state-owned enterprise should not distort the market for other private players.6 It had recommended that the Ministry should consider developing regulations that improve the overall financial health of the airline sector.
While Air India’s performance has improved following the TAP, along with the equity infusion from government, its debt still remains high and has been gradually increasing. In light of this, it remains to be seen what the government will propose with regard to the rejuvenation of the national airline, and ensure a competitive and fair market for all the players in the airline market.
 “Govt to prepare Air India revival plan within 3 months, amid calls for privatization”, Livemint, May 31, 2017, http://www.livemint.com/Politics/0koi5Hyidj1gVD3wOWTruM/Govt-says-all-options-open-for-Air-India-revival.html.
 “Air India selloff: Fixing airline’s future is more important than past”, Financial Express, May 31, 2017, http://www.financialexpress.com/opinion/why-fixing-air-indias-future-more-important-than-past/693777/.
 Lok Sabha Questions, Unstarred question no 382, Ministry of Civil Aviation, February 25, 2016, http://188.8.131.52/Loksabha/Questions/QResult15.aspx?qref=28931&lsno=16.
 Lok Sabha Questions, Unstarred question no 353, Ministry of Civil Aviation, November 17, 2016, http://184.108.40.206/Loksabha/Questions/QResult15.aspx?qref=40733&lsno=16.
 “Volume 3, Chapter 3: Civil Aviation”, India Transport Report: Moving India to 2032, National Transport Development Policy Committee, June 17, 2014, http://planningcommission.nic.in/sectors/NTDPC/volume3_p1/civil_v3_p1.pdf.
 “Government Approves Financial Restructuring and Turn Around Plan of Air India”, Press Information Bureau, Cabinet Committee on Economic Affairs (CCEA), April 12, 2012, http://pib.nic.in/newsite/PrintRelease.aspx?relid=82231.
 Lok Sabha Questions, Unstarred question no 472, Ministry of Civil Aviation, April 6, 2017, http://220.127.116.11/Loksabha/Questions/QResult15.aspx?qref=51752&lsno=16.
 Lok Sabha Questions, Unstarred question no 4809, Ministry of Civil Aviation, March 30, 2017, http://18.104.22.168/Loksabha/Questions/QResult15.aspx?qref=51108&lsno=16.
 “244th report: Demand for Grants (2017-18) of Ministry of Civil Aviation”, Standing Committee on Transport, Tourism and Culture, March 17, 2017, http://22.214.171.124/newcommittee/reports/EnglishCommittees/Committee%20on%20Transport,%20Tourism%20and%20Culture/244.pdf.
 “218th report: Demand for Grants (2015-16) of Ministry of Civil Aviation”, Standing Committee on Transport, Tourism and Culture, April 28, 2015.
 Lok Sabha Questions, Unstarred question no 307, Ministry of Civil Aviation, February 25, 2016, http://126.96.36.199/loksabhaquestions/annex/7/AU307.pdf.
 Lok Sabha Questions, Unstarred question no 1566, Ministry of Civil Aviation, March 9, 2017, http://www.loksabha.nic.in/Members/QResult16.aspx?qref=47532.
 Lok Sabha Questions, Unstarred question no 312, Ministry of Civil Aviation, March 23, 2017, http://188.8.131.52/Loksabha/Questions/QResult15.aspx?qref=49742&lsno=16.
 Report of the Committee Constituted for examination of the recommendations made in the Study Report on Competitive Framework of Civil Aviation Sector in India, Ministry of Civil Aviation, June 2012, http://civilaviation.gov.in/sites/default/files/moca_001870_0.pdf.
Discussion on the first no-confidence motion of the 17th Lok Sabha began today. No-confidence motions and confidence motions are trust votes, used to test or demonstrate the support of Lok Sabha for the government in power. Article 75(3) of the Constitution states that the government is collectively responsible to Lok Sabha. This means that the government must always enjoy the support of a majority of the members of Lok Sabha. Trust votes are used to examine this support. The government resigns if a majority of members support a no-confidence motion, or reject a confidence motion.
So far, 28 no-confidence motions (including the one being discussed today) and 11 confidence motions have been discussed. Over the years, the number of such motions has reduced. The mid-1960s and mid-1970s saw more no-confidence motions, whereas the 1990s saw more confidence motions.
Figure 1: Trust votes in Parliament
Note: *Term shorter than 5 years; **6-year term.
Source: Statistical Handbook 2021, Ministry of Parliamentary Affairs; PRS.
The no-confidence motion being discussed today was moved on July 26, 2023. A motion of no-confidence is moved with the support of at least 50 members. The Speaker has the discretion to allot time for discussion of the motion. The Rules of Procedure state that the motion must be discussed within 10 days of being introduced. This year, the no-confidence motion was discussed 13 calendar days after introduction. Since the introduction of the no-confidence motion on July 26, 12 Bills have been introduced and 18 Bills have been passed by Lok Sabha. In the past, on four occasions, the discussion on no-confidence motions began seven days after their introduction. On these occasions, Bills and other important issues were debated before the discussion on the no-confidence motion began.
Figure 2: Members rise in support of the motion of no-confidence in Lok Sabha