National carrier Air India’s chairman and managing director Ashwani Lohani made an admission Sunday in a social media post stating that Air India’s massive debt “appears insurmountable” and that it was “the root of all the problems” for the airline. Air India and the Central government have given out signs of an uptick in the airline’s performance in the past two years. The statement, however, betrays the rosy picture of the turnaround and indicates that the road to financial redemption is more difficult than anticipated.
Lohani defended Air India’s employees from any criticism of being responsible for the airline’s fall. He claimed that the airline “went down due to the ill-fated decision of the merger of the two organisations (Air India and Indian Airlines) that were not destined to be coupled with many other wrong decisions of the earlier regime.”
On the other hand, he blamed the senior management for their failure to run the airline properly. “Of course gross mismanagement at the senior management levels of the company played its part in the rapid downward slide too, but isn’t appointing senior management functionaries the function of the government?” he said.
Lohani admitted that the sizeable debt of Air India following the merger seems too great to overcome. “The mountain of debt that we acquired appears insurmountable and is at the root of all the problems that manifest as symptoms to all and sundry.”
Here is the debt that Lohani spoke about:
The company has an accumulated debt of at least Rs 46,000 crore and is on a government-funded bailout package to see through its turnaround plan. Even though it was making losses, the carrier’s debt issues started in 2007 when Air India and Indian Airlines were merged.
The merger of Air India Limited and Indian Airlines Limited was approved in 2007. The merged company came to be known as National Civil Aviation Company of India Limited. The debt was primarily based on the acquisition of 111 aircraft for the airlines that was approved solely via bank loans. It was termed a “recipe for disaster” by a report of the Comptroller and Auditor General of India. The acquisition was pegged at Rs 50,000 crore. NCP leader Sharad Pawar and Praful Patel oversaw the merger of the two airlines. Civil Aviation Minister Ajit Singh had pitched for capital infusion and restructuring of loans and part-privatisation.
In 2007, Air India’s losses amounted to Rs 541 crore and Indian Airline’s losses stood at Rs 240 crore. The debt after the merger reached $1.1 billion by the end of 2008-09 fiscal. State Bank of India was tasked with charting a recovery plan for the ailing airline. By the end of 2010-11 fiscal, the accumulated debt of Air India stood at Rs 42,600 crore. Its operating loss was Rs 22,000 crore and it sought a fillip of Rs 42,900 crore from the Centre.
The government committed a bailout package of Rs 32,000 crore to the carrier in March 2012. In March 2013, the carrier posted EBITDA (Earnings before interest, tax, depreciation and amortization) in the green after six years. EBITDA is a measure of an airline’s operating performance. It posted a 20 per cent growth in operating revenue from the previous fiscal as well.
The net profit figures of the company since 2011 show the clear picture of its dismal financial condition. In 2011, the net profit stood at Rs – 6865 crore. In 2012, it was Rs -7,559. In 2013, 2014 and 2015, the net profits stood at Rs -5,490 crore, Rs -5,388 and Rs -5,547, respectively.
By the end of March 2015, the accumulated debt burden on Air India stood at Rs 51,367.07 crore. At the end of 2015-16 fiscal, the airline’s debt had been reduced to around Rs 46,000 crore. Out of this, Rs 28,000 were short-term loans. Till the end of 2015-16 fiscal, the equity infusion by the government stood at Rs 22,280 crore. The total equity infusion plan over 2011-12 to 2031-32 for the carrier is of Rs 42,182 crore.