Air India set to turn in a profit two years ahead of schedule

Loss-making Air India Ltd is advancing its targets to turn profitable as it hopes cheaper fuel, an expanded fleet and greater efficiencies will help turn around the airline, two officials familiar with the development said. The state-run national flag carrier plans to induct 100 leased planes in the next four years, they said.

Merchant banker SBI Capital Markets Ltd (SBI Cap), in consultations with ministry of civil aviation, has revised Air India’s turnaround plan (TAP) and financial restructuring plan (FRP).

Under the revised plans, Air India expects to making operating profit in 2015-16 (subject to government audit) against the original TAP deadline of 2017-18, said one of the persons quoted above.

He said the target to start turning in a cash profit has been advanced to 2017-18, against the original deadline of 2019-20. “Air India will turn profit after tax (PAT) positive in 2018-19 against the original deadline of 2021-22,” he said.

The original targets, part of a turnaround plan for the airline, were finalized in June 2011 and approved in April 2012.

The profit, however, will be small as the airline is still struggling to clear its debt.

Air India, which is surviving on a Rs.30,000 crore government bailout package, had a debt of Rs.51,000 crore as on 31 March 2016. Its losses stood at Rs.5,490.16 crore, Rs.6,279.6 crore and Rs.5,859.91 crore in 2012-13, 2013-14 and 2014-15 respectively. On Tuesday, civil aviation minister Ashok Gajapathi Raju informed Lok Sabha that the airline has turned in an operational profit of Rs.8 crore last fiscal by cutting operational expenses by almost 11%.

In June, the civil aviation ministry had asked SBI Cap to review the TAP for Air India against the backdrop of a changed operating environment and increased competition.

“SBI Cap has advanced the targets considering the lower jet fuel prices, along with better operating efficiency and the number of planes that Air India will induct,” said the second person quoted above the story.

An expert said that any improvement is largely due to lower oil prices.

“I feel that Air India’s improved performance is almost entirely due to the very low jet fuel prices. There does not seem to be much of a turnaround effort in place. What the airline needs is a reputed foreign turnaround specialist to place the airline again on a level keel,” aerospace journalist Hormuz P. Mama said.

If fuel prices start climbing again, the airline may slide back into losses, he said.

The first person quoted above, however, noted that the airline had improved its performance in terms of seat occupancy, yields and aircraft utilization.

It has also started the process of hiving off its subsidiaries. Other objectives such as improving on-time performance (OTP) and monetization of real estate remain unfulfilled, he acknowledged.

“The OTP targeted was 93% for 2015-16. However, Air India could only achieve 78.4%. Air India feels that the airline may not be able to achieve the said OTP as it is a network airline rather than a point-to-point carrier along with the inherent delays in international flight movements. Another reason for poor OTP was shortage of pilots and cabin crew. Now, Air India has kept a new target of OTP at 85% and it will be closely monitored,” said the first person quoted earlier.

The airline had also formulated a plan to monetize assets worth Rs.5,000 crore by March 2016 but hasn’t met the target. In January 2013, Air India had appointed real estate consultant DTZ International Property Advisors Pvt. Ltd to help with monetizing real estate.

“Air India could only dispose four properties including three in Mumbai and one in Coimbatore realizing Rs.100 crore due to construction restrictions imposed by the ministry of urban development. Air India is expected to fetch Rs.100 crore in 2016-17 and Rs.200 crore each year till 2018-22,” he said.

Among the indicators that have improved is seat occupancy.

The occupancy is now 79.8% for the domestic sector and 75.1% for the international sector as against the target of 75%, the first person said. He added that Air India has crossed the targets set for yields and aircraft utilization as well.

The second executive said Air India is in the process of adding at least 100 planes mostly via the leasing route to increase its market share in next four years.

“Air India will be leasing in 14 Airbus A320neo planes, 30 A320 planes, 18 Boeing 737 planes, 28 smaller ATR planes, seven widebodied Boeing B787s and three Boeing B777 planes. This will make Air India even bigger and stronger to compete against international and domestic rivals,” the second person added.

Mama is sceptical.

“Time is running out for Air India. Far from being jubilant about an approaching turnaround, the government needs to undertake a complete change of direction, and to do so fast,” he said.