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Air India’s Problems Haven’t Ended With the Sale to Tata
The drawn-out saga of Air India’s privatization finally came to a close with the Indian government agreeing to hand over the airline to the Tata Group, a large Indian conglomerate. This is great news since it was the Tatas that founded what is known as Air India now back in the 1930s as Tata Airlines and developed it into a world-class airline, so there’s hope they can bring the airline back to its former glory days. The airline has rapidly declined after it was nationalized and J.R.D. Tata was forced out.
The good feelings won’t last long though. There is a reason Air India has performed so poorly the past few decades, privatization isn’t going to fix it all overnight. The Tata Group has a long and complex journey ahead of them to try to revive the airline. There are two main problems, the aircraft, and the employees.
While the Tata Group got much-coveted flying rights and landing slots across top international destinations, it will need to fly to them to actually make any money. This is easier said than done given Air India’s aging fleet and poor maintenance record. The situation had gotten so bad the airline was cannibalizing new Boeing 787 Dreamliners for parts to put into older aircraft.
There are estimates floating around that it would cost over $1 billion to refurbish Air India’s existing fleet which is filled with aircraft in various states of decay and decrepit interiors. In addition, there will most likely be additional costs to acquire new aircraft as the Tata Group will likely re-evaluate the current fleet to better meet market conditions. This will not be inexpensive.
Fleet issues seem to be more manageable when comparing it to the employee issue. Air India is not free from labor issues and they did not get resolved with the sale to the Tata Group.
The Tata Group is bound by an agreement with the airline to not fire employees in the first year of running the airline with exceptions for only special cases. If they were to fire employees in the second year they must be given retirement benefits. All employees will also get access to pensions and post-retirement medical benefits, which have the potential to be a continual drain on company coffers.
As with all airlines, there are many bad apples that have stuck on through the years and tarnished an airline’s reputation. Air India has many of those after decades of rampant nepotism and corruption.
It’s estimated that it will cost upwards of $300 million to retrain existing employees to new standards, though that doesn’t guarantee improved performance.
On top of that, there is brewing unrest at government housing facilities used to house many Air India employees.
The Indian government provides low-cost housing to Air India employees while they are employed by the airline. Many employees live in this kind of housing with their families until retirement. Since the government is privatizing the airline, it has asked the employees to vacate the government-subsidized housing. This isn’t sitting well with many employees since they are now being forced to find market-rate housing which for many is unaffordable.
Several union groups have banded together and stated their members will go on indefinite strike from Nov. 2 unless the demands to vacate government housing are retracted. The Indian government is aware of this and is trying to find a resolution. It’s possible that the government may provide higher housing allowances which will likely be obligations Tata will need to pick up in the future.
Pilots are also causing a bit of a ruckus too for another reason. Air India pilots took brutal pay cuts due to COVID-19 last year, some had their salaries cut up to 60 percent. They are arguing that since the Indian aviation industry is back on the upswing and recovering from COVID-19 they should have their full pay restored. The government says they’re working on restoring salaries but pilot unions are skeptical of the government actually taking action.
Happy pilots are essential to good operations for an airline and if these issues continue there could be a looming threat of a strike which could cripple operations.
On the bright side though, the Indian government has directed all ministries and departments to clear pending invoices for travel with Air India due to the privatization. Government officials regularly traveled on Air India and rarely paid the invoices for travel they were billed. Air India alleges that the government owes it nearly $40 million for travel that Air India facilitated for the government. It remains to be seen if the airline will actually get this money but moving forward the government can only purchase tickets on Air India in cash since the airline is going to be privatized. This will eliminate the issue of the government not paying for travel.
Air India is a diamond in the rough but there is a lot of polishing the Tata Group will need to do to get there. That polishing is going to cost a lot of money and take a lot of time to do. Hopefully, the Tata Group knows what it is doing and is ready for the challenge of making such a dramatic change to Air India.
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