devmapper wrote:edealinfo wrote:avier wrote:
AI is structured in a way where they never make any money even in the best of times. At most a breakeven operating margin, probably once in the last decade, but nothing more than that.
When professionally run airlines are struggling to have decent margins, what can one expect from one of the most inefficient and loss making company amongst the public sector units and also of the country.
Hasn’t Air India Express made money for several years? What differentiates it from its parent? Couldn’t the Government sell off AIX Spears from its parent? At least that one may find buyers
IX leases about 20-25 737's and utilizes multiple point-to-point flights to keep average utilization of its frames above 12 hours a day. Plus, being a relatively new entity, it does not have any significant pension obligations. It also helps that maintenance is outsourced to operators in the Gulf. AI on the other hand, foolishly bought 50 widebody jets (15 77W, 8 77L and 27 788) which it had to pay upfront for, especially considering AI has never been a large enough airline to be able to justify such a large fleet. Essentially, AI spent all its money and borrowed heavily to buy the frames, which left nothing to pay for the maintenance contracts and spares. That triggered another round of borrowing to meet its operational expenses. All this, in the 2000's when air travel was generally slow due to the terrorism and financial crises, means that AI today has such a large debt burden, it probably pays more to service the debt than to actually run itself. We'll know if this is true once the books are published end of June. Add to this the debt and the problems it inherited from absorbing IC along with its aging fleet, and its inability to borrow money from the international market with lower financing costs, alongside the GOI's insistence that it pay the interest to the banks first, inevitably leads to a situation where AI cannot meet its obligations from internal accruals. Consider this, why has AI, with all its problems, never been in the news for not paying back its loans, while IT and 9W went under?
The last GOI thought they could sell off AI as is, but they were proven wrong. The new GOI is trying to do split the airline into a "good" airline and a "bad" airline and sell it in parts. I hope they succeed, because anyone buying AI has a lot of working paring down the fleet (there aren't enough current and potential destinations to ever need 27 788s) and planning for the future (the 15 77Ws that could form the backbone for a very profitable North American market are nearly 10 years old on average, they'll need replacement in 2 years and resale values will not be good for these frames). They need to strategically cut their losses in the domestic market, and look to optimize arrival and departure banks to better facilitate connecting via DEL.
Thank you for deep and thoughtful analysis. Very insightful and nicely summarized. Much appreciated!