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.[1],[2] 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.[3] 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.[4] 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.[5] 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.[6] 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.[7]
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.[8] 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.[9] 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.[10] 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.[11]
As per the Ministry, Air India has achieved most of the targets set out in TAP.[12] Despite running into losses, it achieved an operating profit of Rs 105 crore in FY 2015-16.[13] Air India’s performance in some of the segments are provided in the table below.
Table 1: Air India’s performance
| 2011-12 | 2014-15 | |
| 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.[14]
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.[15] 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.
[1] “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.
[2] “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/.
[3] Lok Sabha Questions, Unstarred question no 382, Ministry of Civil Aviation, February 25, 2016, http://164.100.47.194/Loksabha/Questions/QResult15.aspx?qref=28931&lsno=16.
[4] Lok Sabha Questions, Unstarred question no 353, Ministry of Civil Aviation, November 17, 2016, http://164.100.47.194/Loksabha/Questions/QResult15.aspx?qref=40733&lsno=16.
[5] “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.
[6] “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.
[7] Lok Sabha Questions, Unstarred question no 472, Ministry of Civil Aviation, April 6, 2017, http://164.100.47.194/Loksabha/Questions/QResult15.aspx?qref=51752&lsno=16.
[8] Notes on Demands for Grants 2017-18, Demand no 9, Ministry of Civil Aviation, http://indiabudget.nic.in/ub2017-18/eb/sbe9.pdf.
[9] Lok Sabha Questions, Unstarred question no 4809, Ministry of Civil Aviation, March 30, 2017, http://164.100.47.194/Loksabha/Questions/QResult15.aspx?qref=51108&lsno=16.
[10] “244th report: Demand for Grants (2017-18) of Ministry of Civil Aviation”, Standing Committee on Transport, Tourism and Culture, March 17, 2017, http://164.100.47.5/newcommittee/reports/EnglishCommittees/Committee%20on%20Transport,%20Tourism%20and%20Culture/244.pdf.
[11] “218th report: Demand for Grants (2015-16) of Ministry of Civil Aviation”, Standing Committee on Transport, Tourism and Culture, April 28, 2015.
[12] Lok Sabha Questions, Unstarred question no 307, Ministry of Civil Aviation, February 25, 2016, http://164.100.47.190/loksabhaquestions/annex/7/AU307.pdf.
[13] Lok Sabha Questions, Unstarred question no 1566, Ministry of Civil Aviation, March 9, 2017, http://www.loksabha.nic.in/Members/QResult16.aspx?qref=47532.
[14] Lok Sabha Questions, Unstarred question no 312, Ministry of Civil Aviation, March 23, 2017, http://164.100.47.194/Loksabha/Questions/QResult15.aspx?qref=49742&lsno=16.
[15] 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.
Safety has been one of the biggest concerns in the Indian Railways system. While the number of accidents have gone down over the last few years, the number still remains over 100 accidents a year. In light of the recent train accidents in Uttar Pradesh (UP), we present some details around accidents and safety in the Indian Railways.
Causes of rail accidents
The number of rail accidents has declined from 325 in 2003-04 to 106 in 2015-16.[1] The number of rail accidents as per the cause are shown in the graph below. In 2015-16, majority of the accidents were caused due to derailments (60%), followed by accidents at level crossings (33%).1 In the last decade, accidents caused due to both these causes have reduced by about half. According to news reports, the recent railway accidents in UP were caused due to derailment of coaches.
Derailments
Between 2003-04 and 2015-16, derailments were the second highest reason for casualties.2 The Standing Committee on Railways, when examining the safety in railways, had noted that one of the reasons for derailments is defect in the track or coaches. Of the total track length of 1,14,907 kms in the country, 4,500 kms should be renewed annually.2 However, in 2015-16, of the 5,000 km of track length due for renewal, only 2,700 km was targeted to be renewed.2 The Committee had recommended that Indian Railways should switch completely to the Linke Hoffman Busch (LHB) coaches as they do not pile upon each other during derailments and hence cause lesser casualties.2
Un-manned level crossings
Un-manned level crossings (UMLCs) continue to be the biggest cause of casualties in rail accidents. Currently there are 14,440 UMLCs in the railway network. In 2014-15, about 40% of the accidents occurred at UMLCs, and in 2015-16, about 28%.2 Between 2010 and 2013, the Ministry fell short of meeting their annual targets to eliminate UMLCs. Further, the target of eliminating 1,352 UMLCs was reduced by about 50% to 730 in 2014-15, and 820 in 2015-16.2 Implementation of audio-visual warnings at level crossings has been recommended to warn road users about approaching trains.2 These may include Approaching Train Warning Systems, and Train Actuated Warning Systems.2 The Union Budget 2017-18 proposes to eliminate all unmanned level crossings on broad gauge lines by 2020.
Casualties and compensation
In the last few years, Railways has paid an average compensation of Rs 3.03 crore every year for accidents (see figure below).[2]
Note: Compensation paid during a year relates to the cases settled and not to accidents/casualties during that year.
Consequential train accidents
Accidents in railways may or may not have a significant impact on the overall system. Consequential train accidents are those which have serious repercussions in terms of loss of human life or injury, damage to railway property or interruption to rail traffic. These include collisions, derailments, fire in trains, and similar accidents that have serious repercussions in terms of casualties and damage to property. These exclude cases of trespassing at unmanned railway crossings.
As seen in the figure below, the share of failure of railways staff is the biggest cause of consequential rail accidents. The number of rail accidents due to failure of reasons other than the railway staff (sabotage) has increased in the last few years.
Accidents due to failure of railway staff
It has been noted that more than half of the accidents are due to lapses on the part of railway staff.2 Such lapses include carelessness in working, poor maintenance, adoption of short-cuts, and non-observance of laid down safety rules and procedures. To address these issues, conducting a regular refresher course for each category of railway staff has been recommended.2
Accidents due to loco-pilots2,[3]
Accidents also occur due to signalling errors for which loco-pilots (train-operators) are responsible. With rail traffic increasing, loco-pilots encounter a signal every few kilometres and have to constantly be on high alert. Further, currently no technological support is available to the loco-pilots and they have to keep a vigilant watch on the signal and control the train accordingly.2 These Loco-pilots are over-worked as they have to be on duty beyond their stipulated working hours. This work stress and fatigue puts the life of thousands of commuters at risk and affects the safety of train operations.2 It has been recommended that loco-pilots and other related running staff should be provided with sound working conditions, better medical facilities and other amenities to improve their performance.2
Actions taken by Railways with regard to the recent train accident
According to news reports, the recent accident of Utkal Express in UP resulted in 22 casualties and over 150 injuries.[4] It has also been reported that following this incident, the Railways Ministry initiated action against certain officials (including a senior divisional engineer), and three senior officers (including a General Manager and a Railway Board Member).
The Committee on Restructuring of Railways had noted that currently each Railway zone (headed by a General Manager) is responsible for operation, management, and development of the railway system under its jurisdiction.[5] However, the power to make financial decisions does not rest with the zones and hence they do not possess enough autonomy to generate their own revenue, or take independent decisions.5
While the zones prepare their annual budget, the Railway Board provides the annual financial budget outlay for each of them. As a result of such budgetary control, the GM’s powers have been reduced leaving them with little independence in planning their operations.5
The Committee recommended that the General Managers must be fully empowered to take all necessary decisions independent of the Railway Board.5 Zonal Railways should also have full power for expenditure and re-appropriations and sanctions. This will make each Zonal Railway accountable for its transport output, profitability and safety under its jurisdiction.
Under-investment in railways leading to accidents
In 2012, a Committee headed by Mr. Anil Kakodkar had estimated that the total financial cost of implementing safety measures over the five-year period (2012-17) was likely be around Rs one lakh crore. In the Union Budget 2017-18, the creation of a Rashtriya Rail Sanraksha Kosh was proposed for passenger safety. It will have a corpus of Rs one lakh crore, which will be built over a five-year period (Rs 20,000 crore per year).
The Standing Committee on Railways had noted that slow expansion of rail network has put undue burden on the existing infrastructure leading to severe congestion and safety compromises.2 Since independence, while the rail network has increased by 23%, passenger and freight traffic over this network has increased by 1,344% and 1,642% respectively.2 This suggests that railway lines are severely congested. Further, under-investment in the sector has resulted in congested routes, inability to add new trains, reduction of train speeds, and more rail accidents.2 Therefore, avoiding such accidents in the future would also require significant investments towards capital and maintenance of rail infrastructure.2
Tags: railways, safety, accidents, finances, derailment, casualty, passengers, train
[1] Railways Year Book 2015-16, Ministry of Railways, http://www.indianrailways.gov.in/railwayboard/uploads/directorate/stat_econ/IRSP_2015-16/Year_Book_Eng/8.pdf.
[2] “12th Report: Safety and security in Railways”, Standing Committee on Railways, December 14, 2016, http://164.100.47.193/lsscommittee/Railways/16_Railways_12.pdf.
[3] Report of High Level Safety Review Committee, Ministry of Railways, February 17, 2012.
[4] “Utkal Express derailment: Four railway officials suspended as death toll rises to 22”, The Indian Express, August 20, 2017, http://indianexpress.com/article/india/utkal-express-train-derailment-four-railway-officers-suspended-suresh-prabhu-muzaffarnagar-22-dead-4805532/.
[5] Report of the Committee for Mobilization of Resources for Major Railway Projects and Restructuring of Railway Ministry and Railway Board, Ministry of Railways, June 2015, http://www.indianrailways.gov.in/railwayboard/uploads/directorate/HLSRC/FINAL_FILE_Final.pdf.
