“Heads I win, tails you lose” : Latest MRO Offer from Air India

Air India
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Today, India’s National carrier, Air India, is looking for a private player to operate and manage the air frame branch of maintenance, repair and overhaul (MRO) facility which Boeing had set up at Mihan in Nagpur and handed over to the carrier about 6 months ago. Boeing had helped in setting up the Rs 6,000 million facility as part of its MoU with Air India in bargain for purchasing of over 100 aircraft way back in 2006. However, the MRO project at special economic zone (SEZ) of multi-modal international cargo hub and airport (Mihan) in Nagpur had got delayed for several reasons including that of land acquisition. The facility now has two 100×100 metre hangars for wide-body aircraft and another 24,000 sq m area for other related work. Each of the two hangars can house four wide-bodied aircraft and six narrow-bodied aircraft at a time. It is interesting to note that Boeing today has teamed up with Tata to develop Apache Fuselage in Hyderabad. Air India MRO

According to the aviation advisory firm CAPA, in the past, most of the maintenance jobs were conducted in-house. In 1990s, there was a shift towards outsourcing the work to independent and third-party providers, led by the emerging LCCs. Thus, the global MRO business today is estimated to be over $50 billion. The largest providers typically offer the three main MRO capabilities: air frame, engine and component services. Engine maintenance makes up the largest proportion of the global market (35%), followed by component (22%) and airframe heavy maintenance (13%). It is true that presently, due to lack of adequate world-class MRO facilities in India, many airlines, especially the low-cost carriers, have been taking their planes to other nearby countries including Singapore, Dubai or Colombo. Most airlines outsource the maintenance work to a third party for their convenience. This allows them to focus on their main business, which is commercial flying. As a consequence, India loses millions in foreign exchange.

Air India would award the MRO contract to a willing and capable partner. A Corporate having annual turnover of US $49 million or less will not be considered. 

“Heads I win, tails you lose” seems to be the offer from Air India. The present maintenance capability of Air India can be gauged from a fact that it sometimes has to ground its aircraft on shortage of funds to procure spares (See earlier report Dreamliners grounded). While Air India itself is saddled with debt of around Rs 4,00,000 million, it expects its MRO partner to invest further, accept the Infrastructure/Facilities provided by Air India Ltd in “as is where is”  condition and bear the business risks. The party would be allowed to carry out Airframe MRO job without modifying the existing facility of MRO and generate revenue with its own manpower while Air India Ltd shall remain the owner of the MRO facility. Air India wants the party to express its interest in MRO only if the party is armed with such other outstanding virtues:-

  • it should have the complete technical capability to overhaul/ maintain Airbus and Boeing Airframe and components with at least 10 years recent experience in wide body Airframe MRO business, +
  • it should be a profitable organization and its current net-worth should be positive +
  • it should have a turnover of 50 million USD +
  • it should  preferably have 5 Airline clients +
  • it appoint a Service Provider for maintaining E&M, HVAC, Fire, CCTV, AC, Plumbing, Gardening, Security, sweeping and cleaning services at its own cost + 
  • it shall bear all operational expenses for running the MRO including consumables, administrative  expenses, Government levies, property taxes, water and electricity, etc.
Assuming an applicant fulfills all such conditions, and given Air India’s dubious financial credentials (See Air India struggles), the 51-million dollar question remains as it is. That is:

Will the share of revenue of the new investor be a feasible 2% or more per month ?
OR
Can it get a return of USD 1 million per month after investing USD 50 million ?

Today, Air India is surviving on a Rs 3,02,310 million bailout package extended by the previous UPA government in 2012. This money is indeed public money. When asked how long the Government would put tax payers’ money into loss-making Air India, the then Aviation Minister Ajit Singh had said: “Air India will have to fulfill the tasks set out in the Turn Around Plan and meet all the milestones on a regular basis to get these benefits. Air India will have to be in line with the industry norms. The government will not continue to lose public money like this indefinitely.”

The Minister had then also said that the releases of various tranches would be subject to milestones like pay load factor, on time performance, fleet utilisation, yield factor, rationalisation of various emolument structure of the employees. An oversight committee of the officers would be constituted to monitor and ensure that the milestones were achieved by Air India before the release of tranches.

Under the Turn Around Plan (TAP), which runs till March 2021, Air India has already received Rs 2,22,800 million. As per a  senior AI official, the carrier has sought about Rs 33,000 million from the government under the TAP and backlog amount of around Rs 9,770 million. The backlog amount is mainly on account of steep appreciation in dollar against the rupee. The financial situation looks better since the fuel prices are at low levels now.

This demand has been made as part of the Budget wish list for the 2016-17 fiscal starting from April 1, 2016.

The saving grace for Air India has been its real estate and other fixed assets. In November 2015, the country’s largest lender, the State Bank of India (SBI) bought Air India’s four premium flats in Mumbai’s Tony Peddar Road area for Rs 900 million. Since 2013, the airline had gradually leased out space across 16 floors to State Bank of India (SBI), and a part of the ground floor to Bharatiya Mahila Banka and Income Tax and Service Tax Departments. The deals haul in over Rs 800 million annually for Air India. The move is in keeping with its asset monetisation plan. Air India hopes to squeeze out another Rs 50 million a year from its former HQ in Nariman Point, Mumbai. It has invited bids to lease out more space for a further 9-yr period.

In November 2015, Air India mopped up Rs 70,000 million by selling 9 of its 21 Dreamliners under SLB.

Even today, trade analysts believe that it would be the Real Estate assets of Air India that would eventually bail Air India out of its financial mess and salvage some of its pride. The subject MRO project in Nagpur has more Real Estate value than Aeronautical. Air India may find more takers if it treats the 24,000 sq m of Nagpur area as real estate. 

India’s domestic market growth is highest in the world as reported by the aviation body IATA. (See IATA) Even under this situation, and after investing billions of tax-payers’ money, Air India has come up in 2015 with a performance like this –  16.4% market share in terms of number of passengers carried. As reported earlier, Air India maintains to lose its ground, while other airlines make profits.

Meanwhile, the impecunious Air India continues to struggle after a series of mishaps and incidents.

[Feb 2016] Air India flight AI-054 could not take off on time because a comedy show was going on board. Eyewitnesses said that the situation looked like a comedy show, with passengers using newspapers to ward off mosquitoes. Nishit Bajoria, western region head of a paper pulp importing company and a passenger on AI-054, said, “Everything was going smooth and we even boarded on time. But once we entered the plane, it was hell with a swarm of mosquitoes hovering all around. The entire situation resembled a comedy show.” A swarm of mosquitoes delayed Air India flight AI-054 from Mumbai to Kochi by an hour and a half. Over 125 passengers on board refused to fly till the crew tackled the mosquito menace. Passengers alleged that when they complained, the cabin crew expressed helplessness. Though mosquito repellents were sprayed, it didn’t have any effect.This led to some fliers yelling at the cabin crew. Upon this the pilot asked the passengers to deplane, and after fumigation, flight AI-054 from Mumbai to Kochi did take off. But it was after a delay of 90 minutes. Air India spokespersons were unavailable for any comment. A Mumbai International Airport Ltd (MIAL) official said that they have complained to civic authorities several times to treat the source of mosquitoes – a nearby water body – but that has not yielded any results.

Here’s another example of a big problem in a small package – as recent as December 2015. Air India’s 256 fliers heading to London lived through a nightmare, as their flight had to be grounded, because a rat had been spotted on board. This ‘discovery’ was made two and a half hours into the flight, forcing the pilot to turn the aircraft to Mumbai again which obviously made the passengers unhappy. Rats chew anything like crucial wiring in the aircraft, leaving the plane out of control. However, passengers were more upset about the unusual delay, especially since the airline eventually could not even find the rodent in the aircraft. The prolonged delay caused great suffering to the passengers as they missed connecting flights. When the passengers explained this to the airline staff, they had nothing to offer but excuses.

[Feb 2016] Another news reported. Air India’s Engineering Maintenance Standards & Procedures Raise Serious Questions.  Air India’s Delhi-London flight diverted to Frankfurt due to a technical glitch. A London-bound Air India flight from New Delhi made an emergency landing at Frankfurt Airport after being diverted due to technical reasons. An Air India spokesperson said the Dreamliner Boeing 787-800 aircraft had departed for London from the Indira Gandhi international Airport but it had to be diverted to Frankfurt after the pilot reported some technical issues in the plane.

A similar incident had taken place in December 2015 in Kolkata. Flight AI 021 with lawmakers Avijit Mukherjee(Cong) and Babul Supriyowas(BJP) on board, was delayed for nearly 7 hours due to a “technical glitch” and could take off when the problem was rectified. The passengers agitated in the lounge against the delay, and were pacified only after the airlines announced the time of the take-off.

In December 2015, a rare unfortunate mishap took place in Air India. Freak Accident: an Air India technician dies after getting sucked into the engine of an aircraft at the Mumbai airport. Its Chairman and Managing Director, Ashwani Lohani, had to issue a statement: “An Air India technician died in a mishap during pushback of flight AI 619, (the) incident is being investigated. We are deeply saddened and regret the tragic incident at Mumbai airport. Our heartfelt condolences to the bereaved family.”
 Air India Ashwani
In January 2016, the news media carried a headline:

“Air India’s Flight Delays For Nearly 2 Hours For Want Of Pilot: an Air India flight to Bhubaneswar from New Delhi was delayed by nearly eight hours.”

Passengers including an NHRC delegation on board an Air India flight AI-75 were stranded for nearly two hours as the airline did not have a pilot for the Bhubaneswar-bound flight. All the passengers including the NHRC delegation checked-in on-time. However, it failed to take off as there was no pilot available to fly the plane. During this period, the passengers remained seated in the aircraft. The flight could take off only after the passengers protested and demanded that the airline arrange the flight crew. Earlier, one of the airline’s flights to the Bhubaneswar was delayed by eight hours as Air India had allegedly assigned the aircraft and crew of that flight to its Bhopal flight to favour some VIPs.

This is Air India’s story of Pilot shortage. (See Pilots)  In another incident in November 2015, passengers of an Air India flight were stranded at Hyderabad airport for more than six hours, after the carrier failed to get landing clearance in Bengaluru due to “bad weather” and thereafter had to deploy new set of pilots. Because of bad weather in Bengaluru, AI did not get clearance. After getting clearance, the two pilots came under “Duty Time Limitations”. So AI had to get another set of pilots. The flight took off after 6.5 hours delay causing its 153 passengers great inconvenience.Air India pilots agitate

In another incident, in January 2016, a Delhi-bound Air India flight AI 102 with 325 passengers on board made an emergency “precautionary” landing at the Indira Gandhi International Airport after the commander reported low pressure in one of the aircraft’s (Boeing 777-300ER) tyres.

In yet another incident, in January 2016, Delhi Police Chief BN Bassi had to tweet an alert. Nearly 40 minutes after take-off for Milan, an Air India flight AI 137 plane returned to Delhi after reports of smoke filling the passenger cabin.  The plane, a Boeing Dreamliner, landed in Delhi with ambulances and fire engines on stand-by. There were 167 passengers on board; all were evacuated and transferred to another aircraft.

With such dubious distinctions, Air India is still seeking funds close to Rs 43,000 million from the government for the next financial year.

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