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Air-India Limited

Address:Air-India Building

 Nariman PointMumbai 400 021India

Telephone: (91) 22 202 3732Fax: (91) 22 204 8521

Statistics:State-Owned Company Incorporated: 1946Employees: 18,700Sales: Rs 3.81 billion (US $1.01 billion) (1997)SICs: 4516 Air Transportation, Scheduled

Company Perspectives:

Air-India is India's finest flying Ambassador. The urge to excel and the enthusiasm whichcharacterised Air-India's first flight way back on October 15, 1932 is quintessential eventoday--thanks to eighteen thousand Air Indians who have kept alive the tradition of flyinghigh!

Company History:

Air-India Limited operates passenger and cargo flights from Bombay to destinations in theUnited States, Europe, the Middle East, Africa, the United Kingdom, Russia, China, Japan,and other countries. It holds the distinction of being the world's first all-jet airline. Founded

as a small, private, domestic carrier in 1932, Air-India is now government owned. Onceregarded as a "little jewel" of an airline, its reputation became somewhat tarnished as service

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and profits slipped. Significant changes, however, have rejuvenated the airline, put it back inthe black, and restored its ranking among the better airlines of the world. Three million

 passengers a year fly Air-India.

Origins 

Air-India began operating in 1932 as Tata Airlines, named after J. R. D. Tata, its founder.The line carried mail and passengers between the Indian cities of Ahmadabad, Bombay,Bellary, and Madras, and Karachi, Pakistan. Within a few years Tata Airlines' routes includedthe Indian cities of Trivandrum, Delhi, Colombo (in Sri Lanka), Lahore, and other locationsin between.

In 1946, at the conclusion of World War II, the airline became a public company and wasrenamed Air-India Limited. In just two years, with the government having a 49 percent sharein the company, the airline was flying further outside of India, with regular flights to Cairo,Geneva, and London. The line's name changed again to reflect its new scope of operations,

 becoming Air-India International Limited.

India enjoyed more success in the airline industry than most other developing countries for a

number of reasons. Whereas others had to rely on foreign pilots to fly their planes, Air-Indiaused mostly native-born pilots. Similarly, skilled Indians were plentiful enough to maintainIndia's fleet as well as to train and supervise its personnel; many other countries had to gooutside for this kind of expertise. Air-India benefited from these advantages along with itssister carriers.

Air-India first encountered competition for its routes in the early 1950s. Many new airlineswere forming, propelled into business by the availability of inexpensive, war-surplus DC-3s.

 No fewer than 21 airlines had been established, with 11 of them licensed to fly the skies of India. A 1985 article in the Economist cited Tata's foresight of what this plethora of airlinescould lead to: "The scene was well and truly set for the ultimate debacle."

To prevent that debacle from occurring, the Indian government in 1953 took control of all of the airlines within its borders. Along with the nationalization the government created twocorporations. Indian Airlines Corporation, which merged Air-India Limited with six smaller lines, served the country's domestic travel needs. Air-India International Corporation flewroutes overseas. By 1960 the international airline had routes to Singapore, Sydney, Moscow,and New York. By 1962, when the name was shortened to Air-India, it had become theworld's first all-jet airline.

The Jet Age 

Beginning in the 1970s, however, Air-India saw difficult times. It suffered a net loss in threeof the years between 1976 and 1985. The downturn in the world economy had a significanteffect on air travel throughout the world, and India was no exception. In addition, the

government kept a number of unprofitable routes open simply for prestige purposes--a strictlycommercial airline may have closed those routes. Its flights to New York, for example,resulted in losses for a number of years, even though many of those flights were full. At one

 point an airline official estimated that only about ten percent of Air-India's passengers to NewYork were business travelers who would buy the more expensive seats. Flights to Canadawere even less profitable, flying at around 55 percent of capacity. Another factor in theairline's financial problems was that, to compete for American and European travelers withAmerican and European airlines, Air-India had to discount many of its fares. In addition, theairline depended heavily on local citizens--"ethnic traffic"--which generally meant lower fares.

The routes that had proven to be most profitable for Air-India had been those to the oil- producing nations. Flights to the Persian Gulf accounted for 35 to 40 percent of Air-India'straffic in the mid-1980s. Working with Gulf Air, Air-India operated 60 flights each week 

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 between the Gulf and India. But even these routes saw profits fall, as revenue in the gulf states declined. Another problem was the shortage of tourists traveling to India. Communalviolence and the assassination of Indian Prime Minister Indira Gandhi in 1984 kept tourismdown. In addition, to combat the terrorism that was becoming a major problem at many of theworld's airports, the government imposed heavy restrictions at airports, giving tourists

another reason to stay away.The darkest note in Air-India's history was the tragedy that took place in June 1985 when oneof its 747s, on a flight from Toronto to Bombay, crashed to the sea with 329 passengersaboard. A Canadian Safety Board Report, addressing an inquiry by Indian High Court JudgeBhupinder Nath Kirpal, concluded that an explosive device was the probable cause of thecrash. The board reported that an X-ray machine at Pearson International Airport in Toronto

 broke down before all the luggage had been checked. Nonetheless, the effect on thereputation of Air-India was severe.

Despite these problems, Air-India's productivity was high. By acquiring large-body airliners,its productivity almost doubled from the year 1974-75 to the year 1983-84. In terms of rupees, this productivity figure translated to a per-employee production of Rs 125,000 (US$16,000) in operating revenue in the 1974-75 year and Rs 439,000 in the 1983-84 year. In1985 Air-India flew 8.1 billion passenger-kilometers (number of passengers times distance),a figure that prompted the International Air Transport Association to rank Air-India 15th outof 136 member airlines in passenger-kilometers on scheduled services.

 Nevertheless, Air-India lost US $23 million in the 1987-88 fiscal year. To stem such losses,Prime Minister Rajiv Gandhi named Rajan Jetley chairman of Air-India. Jetley took command of an airline that was overstaffed, mired in sticky negotiations with unions, andstruggling under difficult working conditions. In addition, some bureaucratic meddling andhigh gasoline taxes interfered with procedures and made operating the airline expensive.

A number of these factors came together to have a significantly negative impact on the

airline. Specifically, Air-India was flying many flights with intermediate stops, whilecompeting airlines were flying the more attractive nonstop flights. One reason for theseintermediate stops was the pilots' refusal to fly more than nine hours. A second reason wasthat, to minimize the effect of the high cost of fuel, Air-India did much of its refuelingoutside of India's borders. Jetley dealt with these problems by convincing the government toreduce its gasoline tax and by convincing the pilots to fly longer flights.

According to Jetley, as quoted in a 1990 New York Times article, the carrier was "packing the back of the bus" on many of its routes. In addition to selling coach fares, Jetley hoped toentice affluent fliers to purchase the more profitable business-class seats. Toward that end he

 bought new planes and changed the look of the airline, ordering a new logo and a redesign of the planes' decor and employees' uniforms and improving in-flight service and meals. He

increased the number of flights to Europe, making Frankfurt, Germany, a hub and enabling passengers to connect to other European cities. In addition, he adjusted the timing of flights,making it more convenient for passengers to connect with other flights. Under Jetley'sdirection, Air-India turned the loss of the previous year into a profit of US $23 million. Theairline rose to number 22 on the International Air Transport Association's list of the world'smost profitable airlines. The revitalized Air-India saw record profits of US $41 million in theyear 1989-90, then topped that the following year with profits of US $42.7 million. Theseaccomplishments were all the more startling because they came at a time when many of Air-India's flights to the Persian Gulf had to be suspended because of the conflict between Iraqand Kuwait and the ensuing Persian Gulf War. The airline, though, did experience activityduring the conflict, launching a massive airlift to help 110,000 Indians flee war-torn areas.

Ravi Mani, deputy general director of cargo for Air-India, was quoted by the Journal of Commerce as saying that compared with this airlift, "the Berlin airlift was chicken feed."

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Air-India was intent on continuing its success of the early 1990s. Although it controlled 28 percent of air passenger traffic out of India, that was a drop from 32 percent just a few years before. Subbash Gupte, acting chairman after Jetley left his post, explained, as quoted by the New York Times: "The reason for the drop is simple. Other airlines have expanded, boughtnew aircraft; we haven't." Between 1982 and 1986 the airline had kept its capacity at a

standstill. While Jetley was still in command, however, plans were implemented to increasecapacity by six to eight percent each year from 1990 to 1995, reducing the average age of itsfleet--13 and one half years in 1990&mdashø about four and one half years by the turn of thecentury.

Succeeding Jetley was Chairman and Managing Director Yogesh Deveshwar, who outlinedthe airline's direction for the 1990s. As reported in Travel Weekly in 1992, Deveshwar said:"We want to make Air-India a boutique carrier, as opposed to a department store." Parts of those plans called for expanding the carrier's United States routes to include Chicago, LosAngeles, and Newark. Flights to Los Angeles, it was hoped, would attract many ethnicIndians, who were using other carriers to other points in the Far East and then transferring toAir-India. New aircraft, including long-haul 747-400s, would help to bring those plans to

fruition.In addition to passengers, cargo has always been a large portion of Air-India's business. Itsmajor cargo markets are the Persian Gulf countries, Europe, the United States, the UnitedKingdom, and Japan. In 1989 (the last year for which figures were available) Air-Indiaranked 19th among all International Air Transport Association carriers in scheduledinternational freight tons. The carrier handled 66,000 metric tons of cargo that year.

One of the major goals of Air-India for the 1990s was to increase its cargo operations stillfurther. At the beginning of the decade Air-India had about 30 percent of the country's air cargo market, while more than three dozen airlines from other countries carried the balanceof the country's cargo. The airline planned to lease additional jet freighters to increase its

capacity to carry exports. The International Airports Authority of India improved theinfrastructure and ground handling at the gateways it operates, making them more attractiveto carriers and freight forwarders. With these changes under way, cargo revenue for fiscal1990 amounted to US $195 million, 21 percent of Air-India's revenue.

The Challenging 1990s 

Air-India lost $171 million in the three years beginning with 1994-95. The airline gained areputation for poor service and poor on-time performance. The company initiated a generousincentive program to motivate employees, which proved successful. In addition, acomputerized flight system and updated lounges and cabin interiors were added to update thecompany's image among customers. Management cut fares drastically and provided two-for-one discounts.

In the summer of 1997 the carrier negotiated code-sharing deals with Air France andSingapore Airlines. Streamlining the carrier's route network became an ongoing process. Infact, Air-India was notorious for constantly adding and dropping routes. Its network droppedCanada, Australia, and South Africa in an attempt to cut losses.

Air-India sought to offer its $150 million annual North American income streams as debtsecurities, pending the approval of a hesitant Indian government. The company also plannedto raise cash (it already had reserves of more than $110 million) by selling its HotelCorporation of India subsidiary, worth at least $220 million, as well as some older Boeing747-200s, valued at $60 million.

Still, the company owed $900 million on new aircraft purchases. In spite of this impressive

sum, Air-India found itself chronically short of medium-sized long haul aircraft, reported Air 

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Transport World. Most of its planes were too large to be profitable on their particular routes,a liability previously covered by an especially profitable Persian Gulf market.

A recovery seemed to be in place upon the announcement of a quarterly profit of $10 millionin the fall of 1997. More positive results were projected. Operating revenue was expected toreach Rs 4,189 million in 1997-98.

It was later announced that these results had been overly optimistic; the $10 million profitwas in fact a $10 million loss. Managing Director Michael Mascrenhas announced the newsafter taking over from Brijesh Kumar, whose two-year term had just expired. Mascrenhascolored the news in the best possible light, noting in Air Transport World that Air-India hadlost money only "six times in the last 43 years."

A planned merger between Air-India and Indian Airlines was canceled in spring 1998. Nevertheless, closer ties between the two carriers remained after the aborted deal. As Air-India cut routes, it maintained code-sharing deals with Air France, SAS, Singapore Airlines,and Austrian Airlines. Still, market share fell from 35 percent to 20 percent in 1997-98.

Reducing its annual payroll costs of $40 million was a top priority for Air-India, which had

not found sufficient productivity increases to match its generous incentive programs. Air Transport World reported that Mascrenhas trimmed $23 million in other areas.

In spite of these savings, Mascrenhas predicted Air-India would not pull out of the red for another two years after projecting a 1997-98 loss of $44 million. To raise desperately neededcash, the airline offered its hotels and two 747 airliners for sale. As the carrier planned for its$150 US/Canada security issue, the Indian government also was considering a rescue plan.

Principal Divisions: Ground Services; Engineering and Maintenance; Engine Overhaul.

Further Reading:

"Air-India's Chief Eyes Chicago, Los Angeles Routes," Travel Weekly, February 6, 1992.Hazarika, Sanjoy, "Air-India's Head Quits to Join Private Sector," New York Times, July 18,1990."India's Airlines: Keeping Aloft," Economist, July 27, 1985.Janigan, Mary, "A Tragedy's Haunting Legacy," Maclean's, June 23, 1986.Kaufman, Lawrence H., "Air India Turns to Jet Leasing to Ease Cargo Capacity Crunch,"

 Journal of Commerce, October 15, 1990.Lefer, Henry, "A One-Way Freight Operation," Air Transport World, May 1991.Mamu, H.P., "Air-India on the Rebound,"

Interavia Aerospace Review,October 1989.

Mhatre, Kamlakar, "Air-India Battles Back," Air Transport World, September 1997.----, "Mumbai Mirage," Air Transport World, March 1998, pp. 107-08."Record Profit for Air-India," New York Times, August 6, 1991.

Source: International Directory of Company Histories, Vol. 27. St. James Press, 1999.

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