Air India, an institution which once evoked enormous pride in Indians because of its superlative performance globally, has indubitably fallen on bad days. Its ability to survive has become a subject matter of animated discussions which in a way also reflects the significance of this corporate entity. Companies can exist; companies can perish. With Air India, however, people in the country have had an emotional bond and therefore few would like to see it go into oblivion.

What has led Air India to its current state? An apparent answer: failure of Air India to transform itself to face competition arising out of the opening of Indian skies in the nineties. The argument, though right to an extent, does not, however, fully justify the factual position. A dispassionate study of companies worldwide, across all industrial sectors, which commenced operations in the first half of the last century, would reveal that not many have flourished in the intensely competitive environment. The current state of Air India is therefore certainly not an isolated case. Numerous companies of Air India’s vintage have either perished or are struggling to survive—a far cry from the days when these companies commanded leadership in their respective industrial sectors. This declining trend in their fortunes can best be attributed to what I would like to call an ‘early-mover disadvantage’. Companies that have emerged in the last two decades have been found to be advantageously placed with regard to productive work practices, focus on customer, sound financial management, aggressive marketing strategies, etc. vis-a-vis companies of the earlier era because they have had their baptism by fire in the market place unlike the companies of yesteryear, which were born in a monopoly era, and therefore had policies and practices to suit the environment that then existed.

Early-mover disadvantage

The study will further show that in most cases the later a company has been established the better has been its performance and ability to adapt to changing requirements of customers. This can be illustrated by taking the example of the auto sector. Hindustan Motors and Premier Automobiles have been in the business of manufacturing cars since the fifties and the sixties. How do these companies rank today in the automobile sector with respect to their peers? How good are their cars as compared to those produced by companies that set up their assembly lines in the nineties and in the current decade? The response is so obvious that it need not even be stated. The two companies referred to have been in the private sector where organisations enjoy relatively greater flexibility to adapt to emerging changes than a government controlled organisation, like Air India. These two companies are incidentally not the only ones to have been afflicted by the ‘early-mover disadvantage’ syndrome. In fact, look up any sector and the companies that emerged at the time of India’s independence or soon thereafter and you will have several instances of companies meeting the fate akin to that of Air India.

I thought it prudent to give this illustrative example so as to demonstrate that there is nothing fundamentally wrong with Air India today except that it is paying the price of being a company cast in the mould of yesteryear. Remember brands like PANAM, TWA, Chrysler and General Motors, which once generated awe, but have either perished or are no longer regarded as leaders. This, however, is not to suggest that no company of yesteryear has survived or can flourish. Mercedes is still a much sought-after global brand. Closer home, Tata Steel continues to lead the steel sector in spite of being over a century old. The credit for such institutions goes to the vision their respective managements have had; the re-engineering of work processes on an ongoing basis that they undertook, their keenness to always stay ahead of the competition and, more importantly, ensuring a product that can be counted as amongst the best at all times.

Has Air India succeeded in re-engineering itself over the years for ensuring its survival in a competitive market? ‘No’ would be the obvious and emphatic answer. Besides being a victim of the ‘early-mover disadvantage’ phenomenon it also has all the drawbacks of being a government owned company. As a public sector undertaking, Air India has to work within the framework prescribed by the owners that is simply not conducive for efficient functioning.

For better understanding and an impartial conclusion on Air India, one can look at any other sector, where both government-owned and private companies are operating: Reliance and ONGC in the field of oil exploration, Airtel and BSNL in the telecom sector, Airports Authority of India and GMR/GVK for running airports. Few, if any at all, government sector companies can claim to be performing better than their private sector counterparts on any of the key performance parameters.

Government ownership a drag

If viewed in the context of the above, it will be grossly unfair to expect Air India to emerge as a market leader by having a product that can match that of competing airlines. When a discerning customer looks for value for money while buying a ticket, Air India can naturally not be his first or second choice. And if a company cannot feature as a top of the mind product it will undoubtedly lose out on premium passengers and revenue. In this reality, which should be obvious to most, lies the cause of Air India’s decline in recent years.

If the obvious causes of decline are overlooked for equally obvious reasons by those at the helm at the Rajiv Gandhi Bhawan, Air India would continue to bleed and be seen gasping for breath. Nomination of corporate bigwigs from the private sector and appointment of an expat chief operating officer can best be described as cosmetic actions with no significant results likely to emerge from them. If the government, in its capacity as the owner, is serious in its desire to see Air India prosper, it will have to free the airline from its shackles as a first step. Don’t get me wrong, we are not talking privatisation here, but operational freedom.

Litmus test

What are the factors that distinguish successful companies from others? Successful companies are professionally run; they have a well-deliberated business plan, etc. In other words, they:

• Operate as a commercial entity.
• Have work practices that are productive, efficient and customer friendly.
• Have the flexibility to change work practices with changing times.
• Have a renowned and experienced set of individuals on the board to guide the destiny of the company with a missionary zeal.
• Have a management team at the top that can be described as the best.
• Have a team of motivated, disciplined and committed work force.
• All decisions taken by the board and senior management are governed solely by what is good and in the interest of the company.

Air India, in today’s context, will possibly falter on all counts. So, if the ingredients for a dish given to the master chef are not of good quality, can he, howsoever good, turn out a class product? This is the moot question that needs to be answered if Air India has to be salvaged.

Salvaging Air India

As if these drawbacks were not sufficient to ground Air India, civil aviation minister Praful Patel has in recent times been guilty of creating confusion on the role of Air India by stating ad nauseam that all airlines need to be treated equally and that Air India need not enjoy a special place. The foremost action that needs to be taken by the government, in its capacity as the owner, is therefore to redefine Air India’s role after being convinced that it wants the national carrier to survive. Should Air India function as a commercial airline like other private carriers or differently (carry the burden of social objectives)? If Air India is not to be allowed to operate on commercial lines, comparison with private airlines on various performance parameters must stop. Such unwarranted comparisons take a heavy toll of the company’s image and morale of employees.

More importantly, the government has to reaffirm in no uncertain terms that Air India is the country’s national carrier; and shall remain so. While Patel can have his business interests in private airlines, as is the general speculation, it is Air India which serves the nation on the social platform. When Air India places an order for aircraft on Boeing or Airbus it extracts an offset business running into millions of dollars for Indian companies. However, when Jet Airways and Kingfisher place orders no such benefit comes to India. Numerous examples of this nature can be cited to demonstrate the latent gains that Air India brings to the country. For all the new flights that Air India operates at the government’s behest because it helps serve bigger national interests, it must financially compensate Air India for it.

There are numerous government policies that render Air India at a disadvantage in comparison to private airlines, viz., being accountable to over a dozen parliamentary committees—on which several hundred hours of top management time are spent annually; adherence to government policies and procedures, which besides being time consuming also come in the way of selecting the best, etc. Today the government has unfortunately created a scenario as if Air India’s Maharaja is standing outside the precincts of the finance ministry with a begging bowl for survival.

Managing it professionally

One of the biggest myths perpetuated over the years is that our PSUs, including Air India, enjoy full autonomy in their day to day functioning. If Air India’s survival has to be ensured it should be the management of Air India, operating out of Air India building at Nariman Point, Mumbai, taking decisions and not Rajiv Gandhi Bhawan in Delhi, which currently takes decisions on all major issues without a shred of accountability. All key decisions—merger, aircraft acquisition, frequent change of CEO, etc—responsible for Air India’s current travails were taken at Rajiv Gandhi Bhawan. If anyone thinks otherwise, he is only deceiving himself. In fact, the two parliamentary committees—the Standing Committee on Transport, headed by Sitaram Yechury, and the Committee on Public Undertakings, headed by V Kishore Chandra Deo—have lambasted the civil aviation ministry on aircraft acquisition and merger, describing them as the two main issues responsible for Air India’s huge financial losses.

Moving forward

Air India and erstwhile Indian Airlines have in the past six decades developed core competencies in all aviation related fields—airport terminal services, cargo, MROs (maintenance, repair, overhaul) besides of course the main business of running airlines. Though separate Strategic Business units were created at the time of merger in 2007 no significant headway has been made in the past two years. All three fields have enormous scope for generating additional revenues, if operated as independent business units. If Capt Gopinath can set up Cargo 360 and make it a success what prevents Air India from doing the same? Likewise, in the fields of MROs and airport terminal services. Instead of being the natural leader in aviation business in India and the adjoining countries, Air India is being unfortunately projected as one which may not live to see another day.

Air India, for most, isn’t a lost cause as yet. There are many Air India loyalists who swear by it. But, for how long? There is still hope provided that Air India is freed from the shackles of the government; is allowed to operate as a Board-driven company with no external interference; exploits its core competencies in various fields and carry all its employees as a team without treating them as liabilities. Sooner it is done, greater the hope; later it is done, faster the sounding of the death knell.

This first appeared in the May 1-15 issue of the Governance Now magazine (Vol. 01, Issue 07).