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Air India and Ayci: In Air pocket

Commerce can never have priority over country’s interests. Geopolitical considerations will outweigh the commercial ones. Ayci may be replaceable. — KK Srivastava

 

Around the world several carriers face a heightened risk of bankruptcy, thanks to Covid. However, Air India was already on sick bed, on a ventilator support provided by the government. However, future forecasts about global passenger revenue at $227 billion is promising even if still below pre pandemic levels. Underlying demand will recover as curbs are lifted. But the rebound has to be smart. Everybody starts the race from point zero – it is therefore all about how fast can you pirnt, sustain, and that too safety. One has to run to capture the market, maintain the network, and sustain operations. But wait a minute/commercial interests can never overshadow country’s satefy and welfare.

The Tata Group finally acquired Air India in January. But it is the beginning of an arduous long haul flight for the loss-making carrier. Moreover, the skies in which the industry operates have changed considerably ;  the budget or low cost flights now hold a dominant position, commanding about 80% of the market. Notably, Vistara, the Tata Group’s full service venture, with no less a partner than SIA, has struggled to establish a foothold. With Air India added, now the Tatas have bulk of their combined domestic market share of more than 20% in the less in demand full service segment. To add to the woes, the newly acquired Air India Express and already there (with Tatas) Air Asia are also running on Oxygen support. The Tata Group clearly needs to optimize the portfolio and returns there from so as to ensure viability and profitability.

Equally on the international front too challenges galore, the latest ones being the Covid related curbs on commercial flights operations. The number of flights AI can operate are severely curtailed. Air India has limited bilateral arrangements with counterpart countries too. The challenges are formidable, excess staff, antiquated aircrafts, sarkari culture of employees, no bottom line orientation ...  the list seems endless. To add to them is the factor of fiercely competitive players both in domestic and global area. IndiGo (domestic) and Gulf Air, etc. (international) are not easy to concede ground.

Maharaja’s stables need to be cleaned real had. Warren Buffet has famously said, it takes 20 years to build a reputation and five minutes to ruin it. Here is a classic case of a brand which has leisurely taken decades to paint itself bad enough. NSE nowadays is another example. India is replete with examples from business which are nothing short of scandalous. Air India overtime has been delivered reputational knock. Even if AI’s role could have been indirect (since it was being run as not for profit enterprise by Govt, many would say) the damage caused to all the stakeholders is real. There is this local docu series bad boy billionaries: India. It traces the rise and fall of tycoons like Modil, Mallya, Subrato Roy ... if someone decides to make a movie on running of Air India it will likely have equally engaging narrative, with lot of facts and enough drama.

It is in this background that the Tatas decided to hand over reins effective April 1, to former Turkish Airlines boss M. Iiker Ayci, as CEO of Air India. He has a sterling seven year record of turning around the formerly state run Turkish Airline. This Airlines added international destinations prolifically, an important component of strategy of turnaround; under Ayci it consolidated the position and became financially stronger. For Air India to the path to growth and profitability emanates from capturing international travellers, since these generate higher revenue and margins plus extra traflic, to add to the domestic one. If business ennui and poor finances had not gripped the AI it was best positioned to internationalize profitably, given its fleet, parking slots, and bilateral rights. But between 2008-09 and 2019-20, while its revenue grew at an average of 8% per year, the share of the international segment stagnated of nearly 30%. On the contrary, Turkish revenues grew at an average of 30% per year, and the contribution of the international segment soared to as high as 90%. 

It successfully adopted hub and spoke model, bringing passenger to Istanbul and then packing them off to these respective destination. Under Ayci, the Airline went to 122 countries – the most by any airline. Compared with 2005, in 2020 it was servicing thrice as many destinations. Notwithstanding several challenges, Covid being just one of them, the Airline under Ayci stewardship successfully turned around from being a loss making venture in 2016 to posting three straight years of rising profits. In the third quarter of 2021, it registered a profit of $722 million. In contrast, Air India had lost Rs. 7,983 crore on revenue of Rs. 28,524 crore in 2019-20. Remember, 49% of Turkish Airline is till owned by the government there. But the airline, unlike Air India, has been a business priority of the government there. Yet, to be sure, Air India too has a fleet of various aircraft sizes and makes, a highly trained flying crew-even if customer unfriendly, formidable aviation assets .... the blessings can be counted as many. What is lacking is able stewardship. Ayci fits the bill or does he?

And yet, is Ayci the right man to be handed over the responsibilities? We are not too sure. Notably, perhaps the government of India is not either. As of now, although he is supposed to join Air India on April 1, he has not been handed over security clearance. Rules require an airline to obtain a go ahead from the powers that be before key managerial personnel – especially the expatriates – are handed over the reins. But Ayci’s proximity to Turkish president Recep Tayyip Erdogan, who is not exactly known as a friend of India, is well known. This alone should be good enough a reason to jeopardise his security clearance. The Turkish President has repeatedly taken an anti-Indian stance, including supporting Pakistan on Kashmir Policy. Post plane hijack of 1999 to Pakistan, the need for security clearance of high officials of Indian airlines is being felt more acutely. Now the government has amended the Aircraft Act and made security clearance mandatory.

Udner Erdogan, Tukey has been seen to turn more Islamic and grown closer to Pakistan, repeatedely raising the issue of Kashmir. He has also expressed concern over the situation in Jammu and Kashmir and compared the situation there with his country’s fight against foreign domination. No wonder, due to the frosty relation between Erdogan and Modi Turkish Airline was not able to gain enough foothold in India. Expressing reservation about proposed appointment of Ayci, a very close confidante of Ergodan since last nearly three decades, comes naturally therefore to anyone who is remotely concerned with a business which is deeply intertwined with national security. The least therefore that can be done is to put his candidature under the scanner for a very deep and thorough probe.

What are the option of Tatas meanwhile? Well, for one they can appoint a coo if there is a delay in the security clearance of Ayci. In any case Tata Sons have already witnessed loss of German National Marc Listosella to head Tata Motor’s before he could join. Besides, it is said that the recruitment firm Egon Zehinder had shortlisted five professionals from five top airlines in the world. Alternatives do exist.

Now since Ilker Ayci has walked out of the race, this chapter can be treated as closed. However, the basic question remains that how the corporates can remain insensitive to the national security. Corporate autonomy can not be considered above the national interest.    

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