Revival of a Sick Airline

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					 Revival of a
 Sick Airline


1. Introduction …………………………… 3
2. Over View    …………………………… 4
3. Identified Challenges and
         Compacting Strategies …………. 5

4. Conclusions ………………………….. 16

5.   References ………………………….. 17

      It is often said that managing an airport is like being mayor of a city.
Similar to a city, an airport is comprised of a huge variety of facilities, systems,
users, workers, rules, and regulations. Also, just as cities thrive on trade and
commerce with other cities, airports are successful in part by their ability to
successfully be the location where passengers and cargo travel to and from other
airports. Furthermore, just as cities find their place as part of its county’s, states,
and country’s economy, airports, too, must operate successfully as part of the
nation’s system of airports.

      The international airline industry provides service to virtually every corner
of the globe, and has been an integral part of the creation of a global economy.
The airline industry itself is a major economic force, both in terms of its own
operations and its impacts on related industries such as aircraft manufacturing and
tourism, to name but two. Few other industries generate the amount and intensity
of attention given to airlines, not only among its participants but from government
policy makers, the media, and almost anyone who has an anecdote about a
particular air travel experience.

      With Air India incurring losses for three consecutive years and moving into
a category that qualifies it being called sick, the Board for Reconstruction of
Public Sector Enterprises (BRPSE) has sought financial details of state-owned
National Aviation Company of India Ltd (Nacil) or Air India from the civil
aviation ministry.

      The BRPSE, set up by the government in December 2004 to review sick
companies and suggest revival plans, hopes to chart a turnaround course for Air

India. It has so far been instrumental in turning around 14 sick government
companies of the total 30 referred to it by various administrative ministries.

      Nacil, formed by merging Air India and Indian Airlines in August 2007,
qualifies to be termed sick, a senior official with BRPSE said. Air India has
accumulated losses of Rs 7,200 crore as on March 31, 2009. Its net worth has been
wiped off.

Over View
      Airport world is changing at a rapid pace; airports are facing capacity and
financial constraints, and privatization of airports is being resorted to overcome
such constraints.
      Airlines are turning to bigger and larger aircraft, increasing consumer
interests are some of the irritants and the thrust areas of airports.

      Airport revenue accrues mainly from operational activities and the trend is
to maximize the non-aeronautical revenue and enhance the overall earnings. There
are some strategic options and management techniques to Balance Demand-
Supply with organizational demands with the change of ownership and also the
impact on change management.
      Hind airline incorporated in 1980, employing over 15,000 employees is
based at Cape and Hind operates on major international trunk routes with a
concentrated network in the Middle East with a fleet strength of 60 aircraft
comprising mostly of B 747-400, AB 300/310/320 and few B 777. Air Hind
though enjoys world-wide traffic rights, the airline has been progressively
reducing its route networking, resorting to code sharing and other cooperative

arrangements for the past few years. Air Hind has been in the red for the past five
years and is faced with growing inadequacies, thereby loosing its image day by
day. Hind is in need of immediate remedial measures to prevent it from

Identified Challenges and Compacting

     Capacity Expansion

      The capacity expansion in Air Hind in such a short period was not justified.
It led to massive competition amongst the airlines, which ended up chasing
passengers and offering huge fare discounts, leading to extremely low yields and
losses even when the flights were full. All of this happened at a time when costs,
especially of fuel, were rising steeply and the growing operations pushed up
manpower costs.

     Aging Fleet and Low Profitability

Ageing Aircraft Conference 2011

Ensuring cost effective legacy fleet sustainment and airworthiness

      Ageing Aircraft concerns have dramatically escalated in the military
aviation community during the past decade. Some models, which have already

been in service for more than 40 years, will need to be retained for another
two decades or longer, often serving in roles and in theatres very different from
what was envisioned when they were originally designed.

What are the typical Ageing Aircraft challenges?
      Technological obsolescence
      The specter of runaway maintenance costs
      Safety issues
      Spare parts, processes and tooling may no longer be available
      Logistic procedures may have changed
      Suppliers may be out of the business
      Budgetary limitations
      Higher fleet utilization will increase the demand to cope with ageing
      Reliance will grow on major subsystems like engines and avionics

Reasons for low profitability

1. Inconsistent government policies
Nobody knows what government policy will be for any reasonable period of time.
Government can and does change the rules whenever it is politically expedient to
do so. This can have unforeseen disastrous effects on businesses.

2. Excessive taxation
Every product taxed over and over. Earn a salary and pay tax on it. Spend it and
get taxed again. Pay your bill and pay excise tax which is then viable. Anything
imported is charged duty and then VAT even on the duty. Fuel has tax upon tax
upon tax which then feeds into the cost of everything else. All this tax would
make sense if it was fairly shared but those who can afford good accountants pay

less, mines pay less, and new investors pay less. The formally employed carry a
disproportionate share. Again sharing on the expenditure side is disproportionate.
Taxes pay for politicians children to go to expensive private schools and the
children of the poor have to pay to go to school because government funding is
insufficient to run the school.

3. Unfavorable exchange rates
Exchange rates favor importers not producers. Producers create employment.
Importers export jobs to other countries but the un-employed cannot move to
where the jobs are.

4. Excessive license requirements and fees
An average tourist business in Livingstone needs 40 or 50 licenses all of which
have to be renewed and paid for annually. This is too many and overloads the

5. Excessive dependency ratios
The average working time has too many dependents. This is partly due to high
birth rates and partly due to lack of education and unemployment. On average one
salary supports 15 people. This severely limits nutrition, education and health
because all require money.

6. No uniformity between the formal and informal sectors
The informal sector has no licenses or taxation, no minimum wage, workers
compensation but they compete with and undercut the formal sector.

7. Excessive variations in product prices
Market prices of products can vary by 50% or more. Prices can vary from profit to
loss in a fairly short space of time. This is especially true of agricultural products.

8. Excessive variations in input prices
Input prices can change without warning by huge margins. This can be due to
exchange rate fluctuations or inconsistent government policy or seasonal

9. Very high interest rates
Interest rates are more than double inflation rates, at least for borrowers. Savings
interest rates are pathetic. This is one reason why banking is one of the few
profitable businesses in Zambia.

10. Huge distances to cover to reach a large number of customers
To reach a significant number of customers in Zambia requires transporting a
small number of products over a large distance. This adds significantly to the
distribution costs.

     Poor On time performance

For example: which has happened in the last week i.e. on 10th Jan, 2011 with
the south west airlines. Southwest’s December on-time performance, which,
according to Flight Stats, was a whopping 55% during the month. Of course, parts
of the month were affected by weather, but some of Southwest’s peers had over
80% of their flights arrive on-time (within 15 minutes of scheduled arrival).

       Southwest and Flight Stats are now trying to figure out what’s going on.
But even looking at government data – there is some reason to wonder about
Southwest’s performance. The airline ranked ninth of the airlines that report their
DOT numbers in October 2009, while Southwest came was 17th in the same
month in 2010. Meanwhile, Southwest’s on-time performance for October
decreased year-over-year while it improved for all airlines that report overall. Poor
on-time performance is certainly is worrying for a few reasons:

Southwest’s recent focus on business travelers: The airline has focused more on
business travelers lately, adding markets like LaGuardia and re-vamping its
frequent flyer program to reward passengers who pay for higher fares. Southwest
has a good sales pitch for business travel, but poor on-time performance hurts that.

The addition of the 737-800: Southwest’s announcement that it would add the
larger 737-800 to its fleet was certainly exciting, but has operational and
scheduling implications. Logic would dictate that a 737-800 would take more time
to turn between flights, so that requires scheduling adjustments, and probably
some additional ground handling procedures.

Air Tran: Adding Air Tran brings another fleet type, the 717, arguably adding
more complexity to Southwest’s operation. Meanwhile, if something is off with
Southwest at the moment, logic would dictate that only makes an acquisition more

      There are some Republic flights mixed in so I focused on weekdays to
minimize those. For on-time performance percentages, this chart excludes
cancellations and diversions. (For the DOT’s monthly reports, cancellations end
up hurting on-time performance. I decided to exclude them here to get what I
think is a better sense of operational performance on this specific route.)

     Lack of Leadership

A major complaint from executives throughout the world is the changing
work ethic and lack of commitment by employees.

      With the lack of leadership today, I'm amazed we have any work ethic or
commitment by employees.

      Employees rebel against the authoritarian leadership style and if they are
forced to endure it, they are probably performing at a maximum of 20 percent
capacity. Nor do they want the "flavor of the month" new management technique.

      People want to be led; they want leaders with human values and
respect for people's unique talents and the contributions they can
make. Employees want leaders who will create an environment that nurtures
excellence, risk taking and creativity.

Vision: Leaders need to develop the vision for the enterprise and articulate it to
the entire organization. This creates a common purpose with everyone working
toward a common goal. This communication needs to be face-to-face, not videos,
publications or large meetings. For frontline employees this means their
supervisors, not the CEO or the executive team.

Trust: Without trust, vision becomes an empty slogan. Asking employees to take
risk, be entrepreneurial and give up the known for the unknown requires a strong
foundation of trust.

      Managers and employees view change differently. Senior managers
consistently misjudge the effect of this misunderstanding, and do not understand
the effort required to instigate change.

      Nordstrom Inc. issues its workers just one instruction: "Use your good
judgment in all situations." For employees to trust their leaders, their leaders must
walk the talk. To talk about change without any visible change in the behavior of
the leaders is like shoveling sand against the tide.

Participation: The leader's challenge is to unleash the intellectual capacity of the
organization - getting everyone involved. That makes each employee responsible
for the success or failure of the company.

Learning: Studies show that companies that train workers and give them a stake
in the business are more profitable than those who do not. Paying attention to
what many analysts term the soft side of business - developing skills in
management leadership and interpersonal areas of communication - is the real key
to a successful change in management strategy. Make a decision to become a
superior learning organization and apply this knowledge to create real customer

Diversity: Today's leader has a deep appreciation for people's differences. His
definition goes beyond age, gender and ethnicity, and includes differences in
lifestyle, religious beliefs, working habits and personalities. The best leaders are
not threatened by individuality. As a result, people who retain things that are
important to them make far more committed employees.

         Different people require different forms of leadership. And, what's the most
important thing in diversity? Having a culture of respect. The leader understands
that people who feel equal and respected are likely to deliver superior

Creativity: In today's fast-paced world, creativity is essential. The best leaders
focus on the strengths of a company's employees and helps them manage their
weaknesses. The greatest contribution a leader can make to an employee is to help
him discover his talents and how those talents relate to the job at hand. Create the
environment for people to experiment, take risks and fulfill their creative
potential. The secret is to discover what people do well and ask them to do more
of it.

Integrity: Today's leader is a person of authenticity, honesty and integrity. He
stands for something. Companies with ethical reputations attract the best
employees. They also attract and retain loyal customers.

      Most leaders, I believe, want to be ethical; but in business there is a
constant challenge involving conflicts and compromises and doing the right thing
isn't always easy. So when it comes to ethics, the leader must show people the
way. Leaders never sacrifice their long-term benefit for some immediate short-
term gain by compromising their ethics.

Community: Today's leader does not just measure success in terms of
profitability of the enterprise or individual earnings. He measures his success by
what he does for others. Leaders, by caring beyond themselves, find a deeper
sense of self-fulfillment and gratification by the contribution they make to their
community and the world at large. Leaders and their companies receive
incalculable returns by engaging with their communities.

     Unhealthy Industrial Relations

The primary objective of industrial relations is to maintain congenial relations
between employees and employer. The other objectives are:
1. To promote and develop congenial labor management relations.
2. To enhance the economic status of the worker by improving wages, benefits
and by helping the worker in evolving sound budget.
3. To regulate the production by minimizing industrial conflicts through state

4. To socialize industries by making the government as an employer.
5. To provide an opportunity to the workers to have a say in the management and
6. To improve workers€™ strength with a view to solve their problems through
mutual negotiations and consultation with the management.
7. To encourage and develop trade unions in order to improve the workers€™
8. To avoid industrial conflict and their consequences and
9. To extend and maintain industrial democracy.

Functions of Industrial Relations

1. Communication is to be established between workers and the management in
order to bridge the traditional gulf between the two.
2. To establish a rapport between managers and the managed.
3. To ensure creative contribution of trade unions to avoid industrial conflicts, to
safeguard the interest of workers on the one hand and the management on the
other hand, to avoid unhealthy, unethical atmosphere in an industry.
4. To lay down considerations which may promote understanding, creativity and
co-operation to raise industrial productivity, to ensure better workers
      The industrial scene is affected by lack of central values, class struggle,
competition and unhealthy compromisers. Even in the latter part of the century,
the management considers trade unions as a nuisance or a hurdle. The trade unions
on the other hand considered the management and managers as exploiters.
Workers are misled by their trade union leaders on the one hand and they allow
themselves to be exploited by management.
      The trade unions are organs of political organizations and they follow the
ideologies of those organizations even at the cost of their own interest in the
industry. As a result, the collective bargaining ends in either aggressive bargaining
or futile waste of time. These and many other considerations led the ILO to
formulate certain principles for promoting healthy industrial relations. They are:
(a) Good labor-management relations depend on employer and trade union
capacity to deal with their mutual problems freely, independently and responsibly.
(b) The trade unions and the employers and their organizations should be
interested in resolving their problems through collective bargaining and if
necessary with the assistance of proper government agency.
(c) Workers and employers organizations should be desirous of associating with
government agencies taking into consideration the general, social, public and
economic measures affecting employers and workers relations.

     Inadequate Cash Flow

      Assessing what capital expenditure can be delayed and paying extra
attention to capital structure are also critical. The maturity of debt should be
extended to avoid repayments eating into cash needed for restructuring or
investment. Covenants should be loosened where possible. Payments to key
suppliers should not be halted, however quite obviously, aircrafts will be
recovered by lessors if you default on payments, and aircrafts will be impounded
if airport charges are ignored. Delaying payment to fuel suppliers could result in
demands for cash in advance of receipt of the fuel, which would undermine
careful management of cash and sends a worrying message to the market and

             The airport management as a profession was established because of a
need that evolved during the past 80 years of civil aviation expansion. An analysis
of the airport organization structure across the globe highlights the fact that the
organization was primarily focused on appreciation of thrust areas. Airport
revenues accrue mainly from aeronautical and non-aeronautical activities. Airport
world is changing at a rapid pace where it had to face many challenges.
Improvised new technology can be implemented for the automation which can
increase the capacity constraints of the airports as well as airlines resulting in the
growth of GDP of Aviation Industry and Indian Economy.

             Hind airline must also concentrate on the other factors as the airlines
are now turning to larger and bigger aircrafts as a means of making each
movement more productive in terms of the number of passengers or the amount of
cargo. Other major activities that are to be concentrated include airline related
passenger services, government activities, direct passenger services, non-
passenger related services and airline functions. All these functions have to be
performed with a clockwork precision to meet on-time performance.

      Air Hind must be run as a business, with tough managers, on commercial
lines, without too much flamboyance and impulsiveness. Air Hind need to be
Customer focused because he is the one who pays for, uses, supports, or derives
value from the systems you create. The financial problem that the Air Hind is
currently encountering is broadly associated with long-term adjustment to airline
industry. It is now clear that the airline industry has needed and still needs time to

adjust to its ridding itself of remaining cost inefficiencies, doing a better job of
matching capacity with demand, and anticipating and responding to changes in
traveler preferences. Both the market and enlightened public policy can enhance
industry financial viability

    Some more PDF files.





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