Saturday, October 9, 2021

Support from the government is not enough, and staff management and high cost from Air India to test Tata

 


The Tata Group, which successfully manages businesses that range from software and retail to automobiles and steel, the expansion of its experience in the field of Air India as well may be more than a mere an investment in the financial side of the airline. The Tata Group's acquisition of 100% percent of Air India from the government suggest the need for an equity injection of more than $1 billion for the in the coming months, the acquisitions also highlight the need to change the culture of the airline.

This past Friday, government officials declared it was the Tata Group was the most competitive price-seller for the process of disinvesting the airline, with a bid of 18,000 crore. Of which 2700 crore of it will be transferred directly to the Centre in cash. The rest will be taken as an obligation from the airlines.

Although the airline is blessed with an array of high-value assets, including prime slots landing rights, and a massive fleet, it brings with it a number of issues which the Tata Group may look to solve. They include more expensive than rental rates for standard aircraft leases and a hefty maintenance contract as well as a higher than industry standards for crew wages.

"Historically or at least since when the two airlines merged Air India and Indian Airlines There was a mindset of the carrier that it is a government-owned company that will continue to pay for its losses. Thus, there was not any focus on managing an efficient company. Compare this to other carriers that are funded by the state, such as Emirates and Qatar Airways, where optimal utilization of resources has produced airlines that rank among the top around the globe. The situation has changed over the past four to five years however, there's much to be done," a retired Air India official spoke to The Sunday Express.

One of the biggest problems to be addressed in the past few time is the size of Air India's workforce in relation with its own fleet.

In 2012 the airline recorded an employee ratio per aircraft of 221 and 27,000 employees across 122 aircraft within its fleet. This is not counting Air India Express, the low-cost arm of the airline. Air India Express.

As per data furnished by the government on Friday, Air India and Air India Express had 13,500 employees and a fleet of 141 aircraft, and the resultant employee-per-aircraft ratio has fallen by more than half to 95.

"What Air India really suffers from is the frequent changes to the CEOs, especially when contrasted with private airlines. If you're not able to have a top-level executive with a clear vision and feeling of dedication that you are inevitably losing out which can lead to your morale as a business being affected. In the field of service morale is a major factor," former Air India executive director Jitender Bhargava said, adding that the rationalization of human resources is likely to happen soon after the takeover.

The government has ordered Tata Group be required to Tata Group retain the airline's employees for one year following the conclusion of the transaction. Any reductions thereafter be carried out via an unpaid retirement plan (VRS). This is among the extra burdens on Tata Group. Tata Group, particularly given the unionized nature of Air India's employees.

Alongside the issue of manpower experts have also emphasized the need for qualitative improvements within the airline, something which was put off in the Central government after it had made the decision that it wanted to purchase the airline.

This includes improvements to Air India's fleet of aircraft to achieve greater fuel savings, and improvements to the interiors of aircrafts and interiors, especially on Air India's wide-bodied aircrafts.

"Tata is a globally recognized brand, and I'm sure they will be a global brand and that Air India brand will get renewed. The battle is half won by the financial restructuring and this could result in savings on interest payments of approximately 4500 crores in a year. Tatas could be able to create operational efficiency synergies by combining the back-end activities of their current airlines, and also by purchasing and leasing of aircraft. They can also leverage the strength of the group in automation, engineering, and technology to enhance Air India, the misuse and leakages will be lessened," said Rashesh Shah Chairman and CEO of Edelweiss Group.

A CEO from a major mutual fund said although Tata's attempt to acquire Air India is a big emotional choice, the fact that they made the move into aviation via Vistara, Air India provides the best opportunity to grow and it's an excellent chance that is a win-win for Air India and the Tata Group.

Authored by Pranav Mukul , Sandeep Singh | New Delhi |
Updated 10th October, 2021 7:21:20 am
Even though the airline comes with a number of important assets, including prime slots landing rights, and a massive fleet, it brings with it a number of risks to which Tata Group may look to deal with.

for the Tata Group, which successfully operates businesses ranging from software and retail to automobiles and steel, expanding its success towards Air India as well may require more than just an investment in the financial side of the airline. The Tata Group's acquisition of 100% percent of Air India from the government suggest the need for an equity investment of more than $1 billion for Air India over in the coming months, the acquisitions also highlight the need to alter the culture of the airline.

The government on Friday declared that Tata Group was the top offerder during the process of disinvesting the airline, offering $18,000, of which 2700 crore of it will be transferred directly to the Centre in cash, and the remainder will be used to pay off credit from the company.

Also Read explained What Air India deal means for Govt, Tatas

Although the airline is blessed with a wealth of assets, including prime slots landing rights and a large fleet, it brings with it a number of issues to which Tata Group may look to solve. This includes higher than rental rates for standard aircraft leases as well as a burdensome maintenance contract as well as a higher rate than the industry standards for crew wages.

"Historically in the past, or at least from that merger between Air India and Indian Airlines There has been a mindset in the company that it is a government-owned company that will continue to finance its losses. Thus, there was not any focus on managing an efficient company. Take a look at other carriers that are funded by the state, such as Emirates as well as Qatar Airways, where optimal utilization of resources has led to airlines that rank among the top around the globe. The situation has changed over the past four to five years but there's much to be done," a retired Air India official said to The Sunday Express.

Don't miss "Landmarks on economic policies' The reason Air India deal could signal the beginning of a new launch

One of the major issues to be solved in the past few time is the size of Air India's workforce when compared with its fleet.

In 2012 the airline had an employee ratio per aircraft of 221 and 27,000 employees across 122 aircraft within its fleet. This is not counting Air India Express, the low-cost arm of the airline. Air India Express.

As per data furnished by the government on Friday, Air India and Air India Express had 13,500 employees and a fleet of 141 aircraft, and the resultant employee-per-aircraft ratio has fallen by more than half to 95.

"What Air India really suffers from is frequent changes to the chief executives, as compared to private airlines. If you do not have a leader with a clear vision and feeling of dedication and commitment, you will eventually lose and it causes your morale as a business getting worse. In the service sector morale is crucial," former Air India executive director Jitender Bhargava said, adding that the rationalisation of staff will be imminent following the acquisition.

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The government has ordered to it is required that the Tata Group retain the airline's employees for one year after the closing of the transaction, and that any reductions after that must be made via the voluntary retirement scheme (VRS). This is one of the additional burdens for Tata Group. Tata Group, particularly given the fact that Air India's employees.

Alongside the issue of manpower experts have also pointed out the need for changes in quality within the airline -- a matter which was put off in the Central government after it had made the decision to buy the company.

This includes improvements to Air India's fleet of aircraft to achieve greater fuel savings, and improvements to aircraft interiors especially on Air India's wide-bodied aircrafts.

"Tata is a globally recognized brand, and I am sure that it is likely that the Air India brand will get renewed. The first half of the battle was taken care of with the financial restructuring and this could result in savings on interest costs of about 4500 crores in a year. Tatas could create synergies in operational efficiency by combining the back-end activities of their current airlines, and in the purchase and leasing of aircrafts. They can also leverage the strength of the group in automation, engineering and technology to improve Air India, the misuse and leakages could also be reduced," said Rashesh Shah the chairman and CEO of Edelweiss Group.

An executive from a prominent mutual fund added that although Tata's attempt to acquire Air India is a big emotional decision, considering that they made the move into aviation via Vistara, Air India provides them with the best opportunity to expand and so it's a huge chance to both Air India and the Tata Group.

"While there are some issues with the deal, and a lot of money must be injected into the deal, it is only Tata Group could revive it and that's why it's good to Air India," said the chief executive officer of the mutual fund.

The minister also stated that the selling Air India is a big burden off the government's spending list. "A prompt selling of Air India (when it had more market share and less in debt) would have allowed the the government with a higher return on investment and could have saved the government money over time that could have been put to use to better use. The government has infused the sum of Rs 1.1 lakh crore into Air India over the last 10-11 years, the company also has a massive chance cost. If the sale had ended 10 years ago and this money had been put to use in education or health infrastructure."
Payroll size is one of the major factors

One of the major problems to be addressed throughout the years is Air India's pay scale as compared with its fleet. In 2012, the airline was operating with an employee ratio per aircraft of 221 and had 27,000 employees and the 122 aircrafts within its fleet. This figure includes Air India Express, its low-cost arm. Air India Express.




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