60 Minutes: "Air India has to grow, or it will die''

60 MINUTES
"Air India has to grow, or it will die''

As one of its longest-serving CEOs, Michael Mascarenhas has flown Air India on a wing and a prayer. In an interview to BT's Sunit Arora, a bitter, but hopeful, Mascarenhas spoke his mind. Excerpts:

Are you happy with the government's disinvestment plan?

It's not a question of being happy or unhappy. The airline has to grow to survive, otherwise, it will wither away and die. If the funds are not available from the government, we have to tap some other source. I hope the disinvestment helps us achieve our objective of finding sources of funds. And since the government has allowed foreign holding of up to 26 per cent, we look forward not only to source of funds, but also to modernisation.

But will the rider on majority domestic ownership stonewall serious bids for the airline?

I am optimistic. Look, 26 per cent under the Companies Act gives a partner certain powers. In any case, foreign airlines have been interested in India for years now. They were waiting for a policy announcement. For some time now, we have been getting feelers from several airlines.

What kind of airlines are these?

We straddle the air lanes between the east and the west. Dubai is not a mid-point, and Singapore is way down south. Even if you discount Mumbai, which has constraints of space and size, there are other attractive centres. Look at Delhi. For Rs 15-20 crore, you can build a superb hub here. Then, you have Chennai. There is a tremendous potential for growth.

But right now, Air India is going nowhere...

I agree. The government applies the same yardstick to all PSUs. So, what is applicable to Modern Foods is also applicable to Air India. But with Rs 50 crore, Air India can buy just one vertical stabiliser and one engine. Our ministry (of Civil Aviation) has been extremely supportive, but there is the Ministry of Finance, Economic Affairs, pre-Public Investment Board (PIB), post-PIB... The irony is that we are not asking for money. We're simply asking them to allow us to expand on our own. Borrow money, if need be, and pay it back on the due-dates-like we've done all these years.

So, AI has remained small.

There are a variety of reasons. Its marketshare has declined for the simple reason that it hasn't grown, while everybody else's has. We never received a single paisa of grant or subsidy from the government. We are probably the most under-capitalised State-owned company in the world, with just Rs 153.84 crore as the government's investment in equity. But, according to various estimates, our asset-base is worth Rs 12,000 crore. Where has that come from? From the generation of (internal) resources. To grow, we need money. The money must come from the government and, if it can't, then the only other route is disinvestment.

When do you expect the disinvestment exercise to be completed?

I don't know. I haven't had the opportunity to discuss it with the Civil Aviation Ministry. Indian Airlines is close to finalising a global advisor. It hasn't taken them too long... about three to four months. If we follow the same process, the exercise could last anywhere between nine months and a year. But first, I want to see what the government has to say. We require total transparency in bids.

Are there any indications of what the valuation could be?

Let the process finish its course. As far as I am concerned, everything should be thrown in. We have properties all over India. Even abroad. Our Nariman Point office is worth Rs 1,500 crore. We occupy less than 40 per cent of that space. Asset valuation will form an important part of the disinvestment process.

What about your immediate investment needs? The government has refused fresh equity infusion.

We're managing very well, thank you, Sir. The only thing we can't do is to grow. We don't have the funds... for upgradation. As far as operations are concerned, there's no problem. The sale of fully-owned subsidiary, Hotel Corporation Of India, which should happen in the next six months, will fetch us Rs 800-1,000 crore. We'll use that to retire immediately our working capital debt of around Rs 1,000 crore.

What about profits? Can the airline turnaround any time soon?

The day after we write off our working capital loans, we will be profitable. In fact, we should be making profits next year. Of course, there are problems. One of them being our staff emoluments. We have, possibly, outstripped our ability to pay. We cannot continue paying the kind of money we do today-not with the current head-count. Since we can't go back on agreements, we will try to reduce the numbers.

But Voluntary Retirement Scheme (VRS) means money. And there your hands are tied.

My hands are not tied. We have floated a VRS which, I think, we can afford. And I hope it's cleared by the Department of Public Enterprises. Whatever package we offer is going to have repercussions. So, we have to convince them that what we float is what we can afford. It's a generous one, and, I think, we can afford it. The pay-back period is going to be 15 to 18 months.

Are you planning to shut down any more offices abroad?

No, they are our selling points. Why do we maintain a three-member office in Frankfurt? Because they sell a lot of traffic. Ditto for the other foreign offices. We have stopped flying on a few routes, but the strategy is a temporary one intended to generate more cash. We were not losing money on the India-Frankfurt-Chicago or India-Rome routes, for that matter. It was a radical re-deployment strategy, but the options were limited.

Now, do you plan to dry-lease more aircraft?

We hope to reduce to two aircraft type. As of now, we don't know what kind of aircraft we are going to get in the lease, and at what rates. The market for lease rentals is firm and climbing. The timing is not the right one.

Did you ask the government for funds?

Yes, but their answer was a No. Then we asked if we could get enough money to pay the interest on our working capital. Their answer was a No, again. Please don't forget that, until now, we haven't received a single paisa in subsidy or grant from the central government. And yet, people say that this airline has had it; that this is a chronic, loss-making airline. We are a model PSU. We have lent money to other PSUs like Vayudoot and Indian Airlines, and they haven't paid us back.

You are in a unique situation of managing an airline that will be privatised soon.

I don't think there is a problem here. One is a financial exercise. And the second is day-to-day operations. We have to do whatever we can to increase value.

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