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.
This post is pursuant to the discussion on population stabilization being held in Parliament currently. India is the second most populous country in the world, sustaining 16.7% of the world's population on 2.4% of the world's surface area. The population of the country has increased from 238 million in 1901 to 1,029 million in 2001. Even now, India continues to add about 26 million people per year. This is because more than 50% of the population is in the reproductive age group. India launched a family planning programme in 1952. Though the birth rate started decreasing, it was accompanied by a sharp decrease in death rate, leading to an overall increase in population. In 1976, the first National Population Policy was formulated and tabled in Parliament. However, the statement was neither discussed nor adopted. The National Health Policy was then designed in 1983. It stressed the need for ‘securing the small family norm, through voluntary efforts and moving towards the goal of population stabilization’. While adopting the Health Policy, Parliament emphasized the need for a separate National Population Policy. This was followed by the National Population Policy in 2000. The immediate objective of the policy was to address the unmet needs for contraception, health care infrastructure and personnel, and to provide integrated service delivery for basic reproductive and child health care. The medium-term objective was to bring TFR (Total Fertility Rate - the average number of children a woman bears over her lifetime) to replacement levels by 2010. In the long term, it targeted a stable population by 2045, ‘at a level consistent with the requirements of sustainable economic growth, social development, and environmental protection.’ (See http://populationcommission.nic.in/npp.htm) Total Fertility Rate India’s TFR was around 6.1 in 1961. This meant that an average woman bore over 6 children during her lifetime. Over the years, there has been a noticeable decrease in this figure. The latest National Family Health Survey (NFHS III, 2005-06) puts it at 2.7. TFR is almost one child higher in rural areas (3.0) than in urban areas (2.1). TFR also varies widely across states. The states of Andhra Pradesh, Goa, Himachal Pradesh, Karnataka, Kerala, Maharashtra, Punjab, Sikkim and Tamil Nadu have reached a TFR of 2.1 or less. However, several other states like UP, Bihar, MP, Rajasthan, Orissa, Uttaranchal, Jharkhand and Chhattisgarh, where over 40% of the population lives, TFR is still high. (See http://www.jsk.gov.in/total_fertility_rate.asp) Factors that affect population growth The overarching factor that affects population growth is low socio-economic development. For example, Uttar Pradesh has a literacy rate of 56%; only 14% of the women receive complete antenatal care. Uttar Pradesh records an average of four children per couple. In contrast, in Kerala almost every person is literate and almost every woman receives antenatal care. Kerala records an average of two children per couple. Infant mortality In 1961, the Infant Mortality Rate (IMR), deaths of infants per 1000 live births, was 115. The current all India average is much lower at 57. However, in most developed countries this figure is less than 5. IMR is the lowest at 15 in Kerala and the highest at 73 in Uttar Pradesh. Empirical correlations suggest that high IMR leads to greater desire for children. Early marriage Nationwide almost 43% of married women aged 20-24 were married before the age of 18. This figure is as high as 68% in Bihar. Not only does early marriage increase the likelihood of more children, it also puts the woman's health at risk. Level of education Fertility usually declines with increase in education levels of women. Use of contraceptives According to NFHS III (2005-06), only 56% of currently married women use some method of family planning in India. A majority of them (37%) have adopted permanent methods like sterilization. Other socio-economic factors The desire for larger families particularly preference for a male child also leads to higher birth rates. It is estimated that preference for a male child and high infant mortality together account for 20% of the total births in the country. Government initiatives The National Population Policy 2000 gave a focused approach to the problem of population stabilization. Following the policy, the government also enacted the Constitution (84th Amendment) Act, 2002. This Amendment extended the freeze on the state-wise allocation of seats in the Lok Sabha and the Rajya Sabha to 2026. It was expected that this would serve ‘as a motivational measure, in order to enable state governments to fearlessly and effectively pursue the agenda for population stabilization contained in the National Population Policy, 2000’. The National Commission on Population was formed in the year 2000. The Commission, chaired by the Prime Minister, has the mandate to review, monitor and give directions for implementation of the National Population Policy. The Jansankhya Sthirata Kosh (National Population Stabilization Fund) was setup as an autonomous society of the Ministry of Health and Family Welfare in 2005. Its broad mandate is to undertake activities aimed at achieving population stabilization. Programmes like the National Rural Health Mission, Janani Suraksha Yojana, ICDS (Integrated Child Development Services) etc. have also been launched by the government to tackle the healthcare needs of people. This is also expected to contribute to population stabilization. Free contraceptives are also being provided. In addition, monetary incentives are given to couples undertaking permanent family planning methods like vasectomy and tubectomy. Nutritional and educational problems are being targeted through programs like the mid-day meal scheme and the recently enacted Right to Education. ---------------- For more details on the issue, see the website of the National Population Stabilization Fund (http://www.jsk.gov.in/) Sources: Registrar General, India National Population Stabilization Fund National Commission on Population National Family Health Survey III (2005-06)
