The Descent of Air India

Should Government or Governments be running airlines? That has been a long-standing question that’s asked every time we talk about Air India. Today Air India has almost Rs 53,000 crore of debt, Rs 33,000 crore of losses and revenue of only Rs 16,000 crores. So, what are the reasons behind the descent of Air India, as it’s been termed by Jitender Bhargava, former director of Air India, in his new book “The Descent of Air India”.

Govindraj Ethiraj, Editor, IndiaSpend, spoke to Bhargava about the book and the story of Air India. Here are the edited excerpts:

Govind: Mr Bhargava, you have spent 20 years or so in Air India.You used to work for another Government organisation, Coal India, before you moved to Air India handling public relations and communications. So, where did the problems begin? What went wrong?

Bhargava: The journey from what it was and what it has become was something I have felt need to be narrated and put in public domain as a lesson on how not to decimate a company that had been doing extremely well. First, who is responsible for Air India’s descent? I would say virtually everyone...

Govind: Let me flip the question: who is responsible for Air India’s success?

Bhargava: JRD Tata, undoubtedly. It is not ownership that can destroy a commercial company but the way it is managed.

Govind: Okay, so you do believe that ownership itself does not lead to bad management.

Bhargava: Till 1978, it was a Government airline but being managed under the leadership of JRD Tata and doing exceedingly well. So, what does it indicate? As long as Government meddling does not take place on a day-to-day basis and professionals are running the company, a Government company can do well. In the 90s, I have seen people, they will put up their point of view to the minister, and if the minister was still adamant, they would give in.

Govind: So, at what point did that transfer of power take place? When did the minister or politicians actually begin to exert themselves?

Bhargava: I think 1978 onwards.It is not that pre-1978, there was no interference but then you had a towering personality like JRD Tata who could pick up the phone speak to Mrs. Indira Gandhi, the Prime Minister, and tell her this is what is being done by the Civil Aviation Minister. Like in the case when Raj Bahadur was Civil Aviation Minister. They were trying to reduce a member of Air India board. He could walk in to the Prime Minister’s office and write letters to her protesting against it. Look at the scenario today. You can’t even walk up to the minister’s office or secretary, civil aviation’s office. What the minister says is taken as command. That’s the unfortunate part.

Look at how people have compromised at every stage. For example, Air India used to be known for its in-flight service. You were picking the best people for providing in-flight service, and at the same time, you had ministers intervening, saying take this person, take that person. I have narrated a personal instance in the book where one minister gave me a list and says please take these people. I refused.

Govind: What happened after that?

Bhargava: They cancelled the whole selection process. They said, if these people are not taken in, nobody will be recruited. I could stand up because I came from a different background.

Govind: So, let me ask a counter-question there: why is political interference or a politician’s interference a bad thing?

Bhargava: No, there is nothing wrong in it if Air India can be a good airline and his priorities are aligned with the company. I can give you instances where Air India senior management failed but the minister’s intervention helped. When a minister is aligned with the company’s priorities and is very sincere about it, you will get good results. If his priorities are different and he wants you to take a certain path, for instance, purchase of aircraft or merger. All this made Air India spend a lot of money without getting commensurate returns, leading to financial crisis.

Govind: Would it also be true that the unions were brought under control because of Aviation Minister Gulam Nabi Azad.

Bhargava: No, I don’t think Gulam Nabi Azad had anything to do with the unions but yes...

Govind: He was Aviation Minister. He was tough on them.

Bhargav: There are two phases if we look at the unions. The first, I was taught in very clear words by my erstwhile chairman MS Gujral who was at one time heading the Railway Board and later Coal India. He said that unions are never strong, it’s only managements that are weak. The Air India management had been weak, and they were giving in to demands of the unions…

Govind: Air India had an unprecedented number of unions.

Bhargava: Oh yes. Engineershad a union, pilots had one. So each one had a union even if they were delaying the flights or ensuring that flights were cancelled. Once a week meant every day.

Govind: So, you are saying, 2003, which is 10 years ago, was really the last time the airline actually from, your point of view, worked in sync or the management and politician...

Bhargava: Not the last time but the first time in sync, I would say after quite a bit of years of trying that was the first time when the ministry, the minister and the Air India management worked in unison and it brought results.

Govind: But it also would appear that most of the time they were only fighting fires.

Bhargava: Up to 2003, I would say yes but once you established peace in 2003 by taking on the biggest and the most influential of the union guild, the pilot’s guild, there was no reason why Air India should have gone back on it. V Thulasidas, who came in as chairman in late 2003, ought to have continued the policies rather than be a weak chief executive. If he had only continued with the kind of policies planned in 2003, Air India would not have been in a position that it is in today. Let me give you an example: unions ganged up conspiring with the four general managers under me in the HR department. A chief executive, in my opinion, should have logically supported the guy who’s working for the company... on the contrary, he transferred me. When I wrote to Thulasidas and protested at my transfer, I made it very clear to him; look my transfer, because I have been through transfers earlier under union’s pressure, is a small tragedy. The bigger tragedy is that since the general managers of the HR department have conspired, colluded with the unions, they will no longer be able to negotiate from a position of strength. It so happened that though Air India gave a commitment to the Government that there will be an additional liability of Rs 101 crore, which was also to be recovered through enhanced productivity, the airline ended up paying Rs 400 crore. So, if we are now talking in terms of wage cutting kind of thing or reduction in wage bill, as the 2012 turnaround plan states, the question is why did you go there in the first place? Shouldn’t somebody be held accountable? My book deals with these aspects.

Govind: Let me ask you a more fundamental question. For some reason, and may be many people in the Government already know that the Government is not letting go of Air India. So whichever politician comes to the seat as Civil Aviation Minister, he or she inherits that ...and then holds on to it. The problems continue or are never addressed, why is that?

Bhargava: See, I don’t think the Government has a clear vision as far as Air India is concerned if you look at fleet acquisitions, merger and subsequent plans. They have not taken them to the logical end. For example, you could afford only a certain number of aircraft. You went overboard and ordered 50 long-haul aircraft at a value of Rs 33,000 crore. We all know the returns are under 2% in the aviation industry. Somebody needs to explain how Air India was to repay the acquisition cost

Govind: But that’s also the time airlines in the region were expanding, right? Singapore Airlines,Emirates...

Bhargava: Irrespective of it, you see, on a turnover of Rs 8,500 crore with bilateral rights doled out to foreign carriers, how was Air India to make use of the aircraft, number one? Number two, generate enough surplus to fund the thing. You see, I can always wish that I want to buy 100 aircraft - the question is can you afford it? Then, the merger. Accenture did well in making a plan and said that this is what needs to be done. But the Government accepts one recommendation and ignores 14 others. The Government’s desire to hold on to Air India has been there, there is no denying because that’s why if you look at it, Air India had its headquarters in Mumbai, they have shifted it to Delhi, so that they could manage it. In the last ten years, they have only appointed IAS bureaucrats as chief executives. Now that’s something that shouldn’t have been done to make the airline more professional. The parliamentary committee headed by Sitaram Yechuri said very clearly that what you need at this particular juncture is a technocrat, a professional to manage Air India, not a bureaucrat.

Govind: But we also had current ITC chairman Yogi Deveshwar running it in the mid 90s. He was a technocrat.. I mean, he came with all the right credentials, what happened then?

Bhargava: You see, he came in, he was there for two year-plus and he did a good job. He knew how to run an airline. He had the focus on customers. He knew what the market was wanting. He knew that there was something called the product that needs to be good to match the competition. What was done in the past few years? Have we looked at the product? The answer is no! You have got the best aircraft with the best seat pitch, and people praise Air India’s food but is your marketing right ? How many commercial department people go out in the market and say, “Come fly us because we are the best in the market?”

Media also loves to criticise Air India. A small incident relating to Air India gets magnified in the media.

Govind: But all airlines, I think, get hit, why only Air India?

Bhargava: Not to the extent of Air India.

Govind: Experiences are also the worst.

Bhargava : Let me give you one single example. When an incident involves Air India, ‘Air India’ is in the headline. When it involves another private airline, they will talk of the incident but not of the airline’s name in the headline. You can check on this.

Govind:Okay...

Bhargava: So, they have clearly been against Air India on these kinds of happenings and blowing up small instances to big ones.

Govind: If the product is good and if they manage to deliver customers on time to their destinations, people would not be complaining.

Bhargava: For example, the recent instances about Dreamliner aircraft. We all know Dreamliner is a good aircraft. Incidents have taken place and questions have been raised. I’ll go back to the fleet acquisition plan. Air India had a culture of inducting one to two, two and a half aircraft per year, on an average. How are you to induct thirty aircraft in a time span of thirty months?

Govind : You have made a point about the fact that overstretched ambition of acquiring aircraft, thirty in this case, seems to have really in some ways, affected, or destroyed the balance sheet almost terminally.

Bhargava: The balance sheet was totally destroyed, let me put it this way for you...

Govind: Even earlier?

Bhargava: Rs 33,000 crore and you don’t infuse equity which is the committed part of the Government. Who’s responsible for it?

Govind: But Air India is returning aircrafts now.

Bhargava: What does the sale of five aircraft (777, 200LR) to Etihad indicate? You did not need the kind of aircraft.

Govind: But many airlines do that. I mean they make mistakes about traffic projections, don’t keep up with them and they sell aircraft.

Bhargava: But they hold people accountable. Has anybody been held accountable in Air India?

Govind: No... You could say that there someone who was dreaming big.

Bhargava: The reality is somebody has paid a price for it.

Govind: Sure... sure

Bhargava: And he should be accountable.

Govind: The taxpayer?

Bhargava: No. Taxpayer is a later thing, please. Remember, pre-2009, there was no Government money in Air India. The Air India building and everything Air India generated was out of its own money. The equity was only Rs 153 crore. The question that we are talking is in terms of who has been taking decisions on behalf of Air India. Shouldn’t they be held accountable? Aircraft was just one, leasing of aircraft, right! The decisions, for example, on refurbishment of 747 100s at the cost of Rs 400 crore even while the last aircraft has been refurbished.

Govind: It appears to me that the capital decisions or the capital investment decisions are the ones where Air India has gone wrong the most from your point of view, right. Okay, so...

Bhargava: I would hate to say it is my point of view please. I would say anybody would look at it....

Govind: No, as in, as an opinion...

Bhargava: I would say...

Govind: In hindsight?

Bhargava: What is a board of directors expected to do? You need to have men who have the requisite foresight. For example, former ICICI chairman as independent director. You have on a piece of paper on your table, it says Rs 33,000 crore is the cost, revenues are this, this is the kind of fares that exists in the market, this is the kind of return that the most efficient airline in the world can get... sorry, not payable, not affordable, raise the red flag.

The board of directors and chairman of Air India as a custodian, even if he was guided by the political leadership to buy a certain number of aircraft and the aircraft of certain kind, ought to have done a realistic study. That’s why I have written in the book’s initial chapters about the psyche of Air India’s senior management people. They were not mentored to take on senior positions but the seniority rule took them there. So, when a chairman said I want take a fixed number of aircraft on lease or buy, they agreed.

Govind: Some have argued that you benefited as well...

Bhargava: No, hold it... hold it... hold it... hold it...

Govind: yeah

Bhargav: So, when you get on to these kinds of things, what would you get? Now you will be told very clearly about it that you are Chairman and this is not in company’s interest we can’t do it. If you are linking your career progression or post retirement job that you are eyeing you would do what the minister , what the chairman is saying so you providing legitimacy to it. Coming to your specific point. In 20 years, two promotions. I joined as Deputy GM, took on in-flight job, took on the HR jobs. I didn’t ask for them. I was given the position by people like Yogi Deveshwar, first instance. Sunil Arora as in for the HR position. I didn’t ask for it. The question is once in 20 years, two promotions, if more than necessary, I would have got four. Don’t forget one thing that on two occasions I was quitting the company, at salaries four times of what I was getting at Air India. I could have quit Air India but I had the passion that I want to see Air India and that’s what to accept these assignments though my colleagues which I mention in the book told me very clearly ,“you are going to be accepting the request to take on the in-flight service profession please remember it’s a thankless job”.

Why do you want to take on the unions to do it? Right, if only to be chief executive, who is running the show, wants to buy peace and therefore try agree to a transfer. So in retrospect when you look at 2004, I’ve called it that even before political meddling or the political decisions on air craft merger killed Air India, Air India’s own senior management and chief executive in not operationalising AIATSL ground handling, Air India engineering services getting a wage agreement that could determine Air India future by ensuring work practices were more productive, and efficient and benchmarked against the best of international companies.

Govind : Let’s come to the future. The biggest problem that I see we are staring at, at least on the financial side, is the debt and the loss. Fixing that is not going to be easy but Air India seems to be doing something by selling aircraft, by trimming ambition, it seems to be at least trying to resolve the problem. What’s in store?

Bhargav : Let’s put it this way, it is an insurmountable problem. Let me explain to you.

Govind : So, what needs to be done?

Bhargava : Boeing 777 200LRs have been sold not as a part of design. You cannot break-even by running a non-stop service to the United States. You are losing heavily on each flight, the reason is not that the aircraft is inefficient. If you don’t sell your first class, you don’t sell your business class, you cannot recover money on the basis of economy class fares. So, you need to set right a marketing philosophy. If you don’t have people within the airline, get the best talent from outside the industry.

Govind : Okay.

Bhargava: First is marketing, second is the timing of the flights. You got to ensure that your product schedule is good. There is schedule integrity; no cancellations, no delays.

Govind : Most people are happy with the New York non-stop, aren’t they? The JFK non stop?

Bhargava: Yes they are but what is the first class passenger load in that flight?

Govind : I think business class is better loaded... first class is empty.

Bhargava: Again, business class fare needs to be compared. Are you paying Air India the same business class fare you are paying to Jet Airways?

Govind : Or Continental...

Bhargava: If you are going to be underselling your product kind of a thing because you want to fill up or increase your market share, well, that’s not the way to go about it. If you remember the recent case of Japan Airlines, the chief executive, who was entrusted the responsibility said,“I am not going to chase market share by ruining my profitability.” You can certainly go and enhance your market share after your finances have consolidated.

Govind : Okay, right, so you said improve marketing, sell your seats better, particularly on non-stop if you get in to non-stop.

Bhargava: There is one simple solution, Govind: professionalise it. You need to have board members who know how to strategise and are committed to it. You need to have a chief executive who is a visionary, who’s not there because he is from the bureaucracy but because he knows how to steer the airline. Senior management people, if they are good, enough, keep them; if not, get people from outside - whether it’s finance manager, engineering head , commercial head, marketing head - get them from outside. Unless you set your marketing right, are you going to make money?

Take this 2009 case when somebody decided in Air India that we make Frankfurt the hub for Air India’s flights to the United States. A few months later, you disband it but Air India is poorer by no less than Rs 300 crore. The question is - who was Air India’s commercial director that time? He came from Indian Airlines, post merger. Indian Airlines, as we all know, did not fly long-haul flights. How was he to get requisite experience of studying the market or have enough knowledge?

Govind : So, was it the idea good, broadly? The merger... we didn’t talk about it..

Bhargava: The merger was a good idea. The merger was needed its implementation has been shoddy. As I said HR is the biggest issue in any merger. What happened in Air India’s case? Director HR got changed every 6-8 months. To Arvind Jadhav goes the dubious record of making Air India’s medical chief its head of HR. Tell me, how would a medical chief deliver? After her, the director who was head of materials management and purchases was made head of HR. You needed professionals in HR to deliver, but you were playing around with the airline’s future. That’s why I have summarised that the people who were entrusted with the future of Air India caused it maximum harm. That’s the irony.

Govind : Right , so, The Descent of Air India, I think, is a good read because it puts together 20 years of an insider’s view of what happened from being on the front lines on the ring side as it were. So, do you ever see yourself writing The Ascent of Air India?

Bhargava : I would love to do that. The journey downwards needed to be chronicled. I have described the book as a document of misdeeds , misdemeanours and factors that lead to Air India’s decline with the clear eye that somebody should be held accountable for what they have done to India’s once national pride Air India.

Govind : Right, Mr Bhargava, thanks very much for speaking with us. We have not gone in to a lot of the politics and politicians because I felt we need to highlight this as an example of what can go wrong when there is Government ownership and what needs to be done if there is Government ownership in order to make organisations successful.

Bhargava: One factor I have brought about in the book is that if you go back 30-40 years, a chief executive of a company was synonymous with the company. He would dream, you know sleep with the company’s future. Over the last 20 years, things have changed. A chairman has its own set of priorities. One has to make the distinction between working for a company and working for an individual who is, at best, a transit passenger.

Govind : That’s well put Mr Bhargava. Thank you so much for speaking with us.