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.
Earlier today, the Supreme Court struck down the two Acts that created an independent body for the appointment of judges to the higher judiciary. One of the Acts amended the Constitution to replace the method of appointment of judges by a collegium system with that of an independent commission, called the National Judicial Appointments Commission (NJAC). The composition of the NJAC would include: (i) the Chief Justice of India (Chairperson) (ii) two other senior most judges of the Supreme Court, (iii) the Union Law Minister, and (iv) two eminent persons to be nominated by the Prime Minister, the CJI and the Leader of Opposition of the Lok Sabha. The other Act laid down the processes in relation to such appointments. Both Acts were passed by Parliament in August 2014, and received Presidential assent in December 2014. Following this, a batch of petitions that had been filed in Supreme Court challenging the two Bills on grounds of unconstitutionality, was referred to a five judge bench. It was contended that the presence of executive members in the NJAC violated the independence of the judiciary. In its judgement today, the Court held that the executive involvement in appointment of judges impinges upon the independence of the judiciary. This violates the principle of separation of powers between the executive and judiciary, which is a basic feature of the Constitution. In this context, we examine the proposals around the appointment of judges to the higher judiciary. Appointment of judges before the introduction of the NJAC The method of appointment of the Chief Justice of India, SC and HC judges was laid down in the Constitution.[i] The Constitution stated that the President shall make these appointments after consulting with the Chief Justice of India and other SC and HC judges as he considers necessary. Between the years 1982-1999, the issue of method of appointment of judges was examined and reinterpreted by the Supreme Court. Since then, a collegium, consisting of the Chief Justice of India and 4 other senior most SC judges, made recommendations for persons to be appointed as SC and HC judges, to the President.[ii] Recommendations of various bodies for setting up an independent appointments commission Over the decades, several high level Commissions have examined this method of appointment of judges to the higher judiciary. They have suggested that an independent body be set up to make recommendations for such appointments. However, they differed in the representation of the judiciary, legislature and executive in making such appointments. These are summarised below. Table 1: Comparison of various recommendations on the composition of a proposed appointments body
| Recommendatory Body | Suggested composition |
| 2nd Administrative Reforms Commission (2007) | Judiciary : CJI; [For HC judges: Chief Justice of the relevant High Court of that state] Executive : Vice-President (Chairperson), PM, Law Minister, [For HC judges: Includes CM of the state] Legislature: Speaker of Lok Sabha, Leaders of Opposition from both Houses of Parliament. Other: No representative. |
| National Advisory Council (2005) | Judiciary: CJI; [For HC judges: Chief Justice of the relevant High Court of that state] Executive: Vice-President (Chairman), PM (or nominee), Law Minister, [For HC judges: Includes CM of the state] Legislature: Speaker of Lok Sabha, Leader of Opposition from both Houses of Parliament. Other: No representative. |
| NCRWC (2002) | Judiciary :CJI (Chairman), two senior most SC judges Executive: Union Law Minister Legislature: No representative Other: one eminent person |
| Law Commission (1987) | Judiciary : CJI (Chairman), three senior most SC judges, immediate predecessor of the CJI, three senior most CJs of HCs, [For HC judges: Chief Justice of the relevant High Court of that state] Executive: Law Minister, Attorney General of India, [For HC judges: Includes CM of the state] Legislature: No representative Other: One Law academic |
Sources: 121st Report of the Law Commission, 1987; Report of the National Commission to Review the Working of the Constitution (NCRWC), 2002; A Consultation Paper on Superior Judiciary, NCRWC, 2001; A National Judicial Commission-Report for discussion in the National Advisory Council, 2005; Fourth Report of the 2nd Administrative Reforms Commission (ARC), ‘Ethics in Governance’, 2007; PRS. It may be noted that the Law Commission, in its 2008 and 2009 reports, suggested that Government should seek a reconsideration of the judgments in the Three Judges cases. In the alternative, Parliament should pass a law restoring the primacy of the CJI, while ensuring that the executive played a role in making judicial appointments. Appointments process in different countries Internationally, there are varied methods for making appointments of judges to the higher judiciary. The method of appointment of judges to the highest court, in some jurisdictions, is outlined in Table 2. Table 2: Appointment of judges to the highest court in different jurisdictions
| Country | Method of Appointment to the highest court | Who is involved in making the appointments |
| UK | SC judges are appointed by a five-person selection commission. | It consists of the SC President, his deputy, and one member each appointed by the JACs of England, Scotland and Northern Ireland.[iii] (The JACs comprise lay persons, members of the judiciary and the Bar and make appointments of judges of lower courts.) |
| Canada | Appointments are made by the Governor in Council.[iv] | A selection panel comprising five MPs (from the government and the opposition) reviews list of nominees and submits 3 names to the Prime Minister.[v] |
| USA | Appointments are made by the President. | Supreme Court Justices are nominated by the President and confirmed by the United States Senate.[vi] |
| Germany | Appointments are made by election. | Half the members of the Federal Constitutional Court are elected by the executive and half by the legislature.[vii] |
| France | Appointments are made by the President. | President receives proposals for appointments from Conseil Superieur de la Magistrature.[viii] |
Sources: Constitutional Reform Act, 2005; Canada Supreme Court Act, 1985; Constitution of the United States of America; Basic Law for the Federal Republic of Germany; Constitution of France; PRS. In delivering its judgment that strikes down the setting up of an NJAC, the Court has stated that it would schedule hearings from November 3, 2015 regarding ways in which the collegium system can be strengthened.
[i] Article 124, Constitution of India (Prior to 2015 Amendments)
[ii] S.P. Gupta vs. Union of India, AIR 1982, SC 149; S.C. Advocates on Record Association vs. Union of India, AIR 1994 SC 268; In re: Special Reference, AIR 1999 SC 1.
[iii]. Schedule 8, Constitutional Reform Act, 2005.
[iv]. Section 4(2), Supreme Court Act (RSC, 1985).
[v]. Statement by the Prime Minister of Canada on the retirement of Justice Morris Fish, http://www.pm.gc.ca/eng/news/2013/04/23/statement-prime-minister-canada-retirement-justice-morris-fish.
[vi]. Article II, Section 2, The Constitution of the United States of America.
[vii]. Article 94 (1), Basic Law for the Federal Republic of Germany.
[viii] Article 65, Constitution of France, http://www.conseil-constitutionnel.fr/conseil-constitutionnel/root/bank_mm/anglais/constiution_anglais_oct2009.pdf.
