This is probably the most discussed topics in social and economic forums in India including the Indian Parliament. Recently the Government of India has announced a bailout package worth 30,000 crores of rupees over the next 9 years which begins with an immediate bailout package of Rs. 6,750 crores. This article is going to be my take on “Should the Government of India bailout Air India” from its current financial mess…
About Air India
Air India is India’s National Carrier and this is something you know already. If you read my previous article on “What is wrong with Air India” you would also know that Air India is in dire financial situation. Poor Management Decisions, with careless staff performance and inferior customer service, India’s National Carrier is on the verge of a painful collapse. We also covered in great detail about some of the reasons which I feel have contributed to Air India’s current state of affairs.
What is a Bailout?
Do you know what a Bailout is? The first article in my blog was about this. A bailout in economic parlance is a financial aid that helps someone or some organization prevent declaring bankruptcy.
Government of India’s Bailout package for Air India in 2012
Last month, the Government of India has announced a bailout package worth 30,000 crores over the next 9 years. There will be an immediate cash influx of 6,750 crores which Air India is going to utilize for its day to day working capital cash requirements.
30,000 CRORES – A lottt of money – Isn’t it??
Is this the first Bailout Package received by Air India?
Do you want to make a blind guess and say “I don’t think so”???
If you did, you were 100% correct my friend. This is not the first and most probably not the last bailout package the ailing Indian National Carrier from the Government of India.
Actually speaking – this is the 4th bailout package that Air India is receiving from the Indian Government. The details are:
1. In 2009 the Government Injected Rs. 5500 Crores to keep the airline flying. This was the first bailout
2. In February 2010, the Government funded around 2000 crores
3. In August 2011 the Government gave another 1200 crores to help Air India meet its cash requirements
4. Now in 2012, it has approved an additional 30,000 crores of which 6750 crores will be given immediately
What is the Justification for this Bailout?
The Proposed Justifications on the part of both Air India & the Indian Government for this massive bailout package are:
1. To Meet its working capital requirementsThey claim that, with all this capital infusion and radical management strategies, Air India will become a profit making entity by the year 2018.
2. To Improve Safety Features & Requirements in all its fleet aircrafts
3. To Increase the airlines on-time performance to 90% (It is 71% now which is one of the lowest in the world)
4. To purchase new aircrafts (Boeing Dreamliner’s)
Where does this Bailout Money come from?
Where else – From our Taxes. The Tax Money paid by the citizens of India is being spent to bailout Air India.
Do I think this Bailout is going to work?
From my Heart I want this Bailout to work. Air India performing in such a poor manner hurts the image of India across the globe.
From my Brain – I don’t think that this Bailout will work.
Reasons:
1. The Management is not going to mend its erroneous ways
2. The Staff is not going to mend its careless ways
3. The Government is going to continue to bailout Air India no matter how poorly they perform
Do I need to say more???
Should the Government Bailout Air India?
NOOOOOOOOOOOOOOOOOOOOOOOOOOOO!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!
Definitely NOT. Why must the government spend the tax payer’s money on a lost cause? Does this bailout package include any performance based clauses? Will the government pull the plug if Air India is going to continue to make losses? Of course not. So, as long as they are going to get paid their salaries & get bailouts every one or two years to cover for their losses, I don’t think the Air India Management will even take half-hearted steps to revive the airline.What can the Government Do to Fix the Situation?
Well, this one is easy. The government can do either or all of the below:
1. Sell the Airline to a Private Player – This means a private company is going to own the airline and unless the management & staff of Air India are going to mend their erroneous ways, the new owner is going to kick their rear ends to get them to work. If I were to invest thousands of Crores to buy this airline, will I allow the staff to be as lethargic and careless towards customers as they are now?
2. Tighten the Noose around the Top Management of Air India – The Government must set performance targets and guidelines which must be like – Increase Operating Profit for 10% in the next 12 months, Increase Customer Satisfaction index to at least 6 out of 10 in the next 12 months and so on… If you cannot meet all these targets in the next 18 months (with a buffer of 6 months) we will sell the airline to a private player or shutdown the services. None of you will have your jobs if you fail to perform.
This sounds pretty harsh but unfortunately spending thousands of crores of public money on the airline which is continuing to perform poorly is a waste of time and this money could rather be spent on useful causes to help the common man who is paying this tax money
Hope things take a turn for the better in Air India!!!
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