The Raj speaks

It is amazing that India cannot let go if its meddling ways. With an employee ratio of over 200 per plane, Air India burns through cash at a frightening rate. Being state owned, it has too much of everything - except brains. The state creates jobs for pals and voters.

So the Indian government has thrown flag carrier Air India a lifeline by offering a financial aid package on condition it undertakes a “massive cost reduction” program. The offer by the prime minister follows his meeting with the airline’s new chairman and managing director. With the election behind it, job cuts can be made at minimal political risk.

Praful Patel, India’s aviation minister, said: “The government is fully committed to Air India to tide it over the present crisis”. However he added that as a condition Air India “must shape up, become leaner and trimmer, and also must put its best foot forward”. Patel said Air India, and the unions that represent its 31,000 workforce, must undertake radical cost-cutting and other financial improvements to qualify for the assistance.

The airline has already said it was looking to cut $103m in staffing costs, about 17% of its total wage bill as it faces its worst liquidity crisis in its 75-year history. Good luck on this project -the reaction will be horrible. Remember when Jet cut its staff? There were protests that brought the state into the fray and the airline backed down.

Debts are running at $4bn and last week Jadhav asked 150 top executives to voluntarily forgo salaries in July, and announced that June pay for staffers would be delayed by two weeks. In India this is a radical move - probably unprecedented.

“This is an hour of crisis for all of us,” Jadhav said in an e-mail circulated to staff. “It is a fight for survival – the survival of our airline. I am looking for every single employee of our airline to rise to the challenge.” He has been listening carefully to WW don't you think?

The government is reviewing the carrier’s order for more than 100 new aircraft, about half of which have yet to be delivered. So delivery delays can be expected. It also intends to shake up Air India’s board by appointing eight independent directors.

After years of monopoly, Air India’s domestic market is coming under increasing pressure from leaner private airlines, reflected in its share in passenger traffic falling from 38% in 2004 to 15% this year. On an international level, markets are being eroded by intensifying competition from Gulf carriers, which are expanding aggressively into India. In other words, Emirates is eating their lunch. The Indian airlines are all under pressure.

In other news --

• BA and labor settle
• IATA calls bottom
• Tanker split - again?
• Boeing's Black Day (more to come?)

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