'Air-India can start making profits in a year'

Michael P Mascrenhas, Managing Director, Air-India, is quite reticent when it comes to the media. He would rather keep away from the limelight even when the high-profile public sector carrier Air-India is going through one of the most talked-about privatisation processes. There has been much soul-searching, argument and political jugglery in the field of civil aviation. But Mascrenhas has kept his cool -- and silence -- despite all the brouhaha.

However, Neena Haridas finds out that when Mascrenhas chooses to speak, he does not mince words.

Civil aviation has been one of the most controversial sectors in terms of privatisation. Are you happy with the government's decision?

It is not about me being happy. Finally, it is making the company happy and healthy which matters. Liberalisation had to happen in the current world market. There is so much competition that had the government not taken this decision it would have hurt the company and the industry.

If the government is not able to run the organisation, it has to be given out to people who can bring in the required funds. For one, aviation is a very capital intensive industry. Hence, I guess it was time that the government decided.

What kind of price are you expecting?

A global advisor has been appointed to estimate the price. I am not in a position to quote a figure. Obviously, the flagship airline has to be worth a lot. Unfortunately, vested interests are misleading the industry and the media. I guess, there is an attempt to undervalue the company. Our Nariman Point office itself is worth Rs 15 billion. Valuation should be based on assets as well. According to our estimate, our assets are worth about Rs 120 billion. Since a global advisor has been put in place, an honest assessment should happen.

But isn't there lot of apprehension about the losses that the company is making?

That is exactly what I am saying. It is absolutely wrong to say that we are a drain on the national exchequer. It is not true. The government has invested only Rs 1.54 billion in the company -- which makes it one of the most under-capitalised airlines in the world. Definitely, Air-India is worth a hundred times what is being quoted in the media. We have paid back over Rs 2.20 billion as interest and dividend, not to mention the Rs 7.50 billion or so worth of assets in the Hotel Corporation of India. Then we own 10 per cent equity in Air Mauritius and Rs 160 million in the Kochi International Airport.

Then there is our investment in Indian Airlines, when it was having problems -- that amounts to about Rs 600 million. All this is about Rs 1 billion -- now would these doomsayers call this airline a drain on exchequer?

Despite these investments, the image of Air-India is that of a badly-managed, poor airline. This could act as a deterrent while the valuation is being done. How are you going to circumvent this?

Because of the losses we have lost some image. But frankly we have come out of the problems -- we are neither badly run nor are we a failing airline. Also, with KLM and Lufthansa entering the skies, and Indian Airlines flying Gulf sectors, our revenue suffered. We meet our schedules, our market is improving and we have put in place systems to control corrupt agents and bulk booking. In time, we should be back on our feet.

What about improving the fleet? Would a buyer pay you a good price considering your depleting fleet size?

Enlarging the fleet is a process that involves big money. And we are not yet allowed to take a decision on investment of more than Rs 500 million. What can you buy with that money -- an engine part? We will be celebrating the seventh year of discussion on the MCLR aircraft this year. The government has to really do some serious thinking on this front.

So how do you expect to increase fleet size?

First of all, we are not asking the government to give us any money. Just let us do our own thing. We can borrow from the market. But for that, the government has to clear various bureaucratic hurdles. There are complaints that we have poor aircraft utilisation.

The government has to give the airline some managerial powers if it wants the company to be run on global standards. Like in the UK, British Airways is an example. The British government changed the labour laws to help British Airways turn around and tackle labour problems. It was the government that changed laws, downsized staff from 45,000 to 25,000, wrote off a million pounds of debt and brought in the Concordes to give the airline that cutting edge. Has any of that happened here?

So given the right opportunity by the government, the airline can be turned around?

Of course. We can spin it around like a top.

When will Air-India become profitable?

We should be making profits next year. In fact, the day we write off our working capital loans we should bounce back into black.

What about excess staff?

We are grossly overstaffed. But a voluntary retirement scheme should be able to sort out this problem.

What are the immediate steps that a new management will have to do to get the airline back on track?

Most of the things have been put in place already. We want to be healthy when a prospective buyer comes looking. Hence, the new management will have to think of initiatives for growth. That is what is lacking in the airline: growth. We need to improve the fleet, streamline operations…. But first, let's get the divestment complete.

And when will it be completed?

Well, I can't put a date to it. But since the process has begun, it should be a matter of eight to nine months.

Which are the airlines that have evinced interest?

Let us not speculate. The bidders will be known soon. While that happens we are giving out the right information about our position -- in terms of our position financially and in the market -- so that we are not undervalued and given a bad deal.

Do you think the 26 per cent cap will be a dampener?

I shouldn't think so. Even that gives the partner enough powers. So there should not be much problem on that count.

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