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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.
Source: www.pib.nic.in
Yesterday the Prime Minister reshuffled his Cabinet and inducted four cabinet ministers and four ministers of state. Since the beginning of the UPA II government, there have been three major Cabinet reshuffles and a number of minor readjustments in the portfolios of ministers. Analysing changes in the portfolios of ministers gives an insight into the churn in the political leadership of the different ministries of the government of India. Until recently there was no central online resource where information could be collated about cabinet reshuffles. The information was scattered between the websites of the President, the Prime Minister and the Press Information Bureau. Since 2012, the Cabinet Secretariat has started putting details about changes in the portfolio of the council of ministers in the public domain. However analysing this information becomes difficult as the information is split into different files and details about the Cabinet reshuffle do not go back till 2009. We have tried to collate data about changes in Cabinet portfolios since May 2009, so that it becomes easily accessible and can be analysed by interested individuals. The raw data file can be accessed here. This data could be analysed to see which Ministers have shifted across ministries or the average length of tenure of Ministers in different ministries. If you spot interesting trends in the raw data above, please share them with us on twitter@prslegislative We have done a preliminary analysis of the data to see which ministries have had the most changes in Cabinet Ministers since May 2009: - Railway Ministry portfolio has been held by six different Cabinet Ministers [Mamata Banerjee, Dinesh Trivedi, Mukul Roy, C P Joshi (twice), Pawan Kumar Bansal and now Mallikarjun Kharge] - Ministry of Law and Justice, Corporate Affairs and Science and Technology: Four Cabinet Ministers. - Ministry of Petroleum and Natural Gas, Civil Aviation, Rural Development, Tourism and Youth and Sports: Three Cabinet Ministers. - Ministries like Finance, Home, External Affairs, Communications and Information Technology, Human Resource Development: Two Cabinet Ministers. - Ministries like Agriculture and Non Conventional Energy Sources have the same Ministers from May 2009. This data also helped us put together a brief chronology of Cabinet reshuffles since the beginning of the term of the UPA II government:
23 & 28- May-09 | Cabinet sworn in. |
31-May-09 | Meria Kumar resigns as Minister of Water Resources to become Speaker of Lok Sabha. |
19-Apr-10 | Shashi Tharoor resigns as Minister of State from the Ministry of External Affairs. |
15-Nov-10 | A Raja resigns as Minister of Communications and Information Technology. Kapil Sibal gets additional charge of the ministry. |
19-Jan-11 | First major cabinet reshuffle. Most ministries affected. |
12-Jul-11 | Second major Cabinet reshuffle. Dinesh Trivedi assumes charge of Railway Ministry after Mamata Banerjee, Salman Khursheed becomes Law Minister, Jairam Ramesh moves to Rural Development. New Ministers like Rajeev Shukla (Parliamentary Affairs) and Jayanthi Natarajan (Environment and Forest) get inducted. |
18-Dec-11 | RLD joins UPA. Ajit Singh inducted as Minister of Civil Aviation. |
20-Mar-12 | Dinesh Trivedi resigns and Mukul Roy becomes Railway Minister. |
27-Jun-12 | Pranab Mukherjee resigns as Finance Minister to fight the presidential election. |
31-Jul-12 | P Chidambaram moves from Home to Finance Ministry and Sushil Kumar Shinde moves from Power to Home Ministry. |
22-Sep-12 | Trinamool withdraws support to UPA. All TMC ministers resign. C P Joshi assumes additional charge of Railway Ministry. |
28-Oct-12 | Third major reshuffle. S M Krishna resigns from Ministry of External Affairs and Salman Khursheed takes over. Ashwani Kumar comes in place of Salman Khursheed in Law and Justice. Ambika Soni resigns and Manish Tiwari takes charge of Ministry of Information and Broadcasting. Ajay Maken moves from Ministry of Youth Affairs and Sports to Housing and Urban Poverty Alliviation. |
21-Mar-13 | DMK withdraws support. All DMK Ministers resign. |
11-May-13 | Ashwani Kumar and Pawan Kumar Bansal resign. Kapil Sibal takes charge of Ministry of Law and Justice and C P Joshi takes charge of Railways. |
16-Jun-13 | Ajay Maken and C P Joshi resign. |