Privatisation on the horizon for debt-laden Air India?

During the heydays of privatisation, in Thatcher’s Britain, our national carrier was turned around. Like many nationalised companies in Britain, our national carrier had its focus on their demoralised staff rather than customers, operating without an ounce of consideration for making a profit and wallowing in its losses. Privatisation gave British Airways a new start – shifting its focus, resetting the agenda and ensuring the airline made $284 million in profit within the first year of new management.

With privatisation, BA was given a new lease of life. Could Air India do the same?

Around the world, airlines such as South African, who are owned fully or partly by their respective governments are flailing. Nationalised airlines are forced to operate politically motivated “prestige” routes which don’t make economic sense and simply don’t have the fresh ideas and logical leadership to take them forward.

Since their bailout in 2012, Air India has relied on taxpayer funds to stay afloat. However, in mid-2017, the Indian cabinet agreed that the process to privatise Air India should begin. Whilst Air India remains the largest international carrier in India, they have suffered a collapse in their market share due to the rise of low-cost airlines and the competition from other full-service airlines such as Jet Airways and Vistara whom have more economic competence. They only occupy 14.6% of the domestic travel market and, internationally, competition has come from the Middle Eastern airlines who have attracted customers through their Gulf hubs, travelling to Europe & North America. The bottom line is: under government ownership, Air India has failed to evolve and adapt around the changing dynamics of the aviation industry.

Middle Eastern airlines have adapted much more quickly, and taken much of the international market share from Air India.

Recently, further developments have been made and it is now expected that the Indian government and advisers are to analyse the shareholders’ agreement and other details to ensure that the board and key management personnel are appointed by an Indian entity. The government has also taken steps to ensure that the majority shareholder remains an Indian entity (with a 49% stake being offered to a foreign investor). The decision to allow foreign companies to invest is a marked change of tone from the Indian government, presumably to allow sufficient changes to be carried out in order to turnaround the troubled carrier. It has been reported airlines such as Vistara and SpiceJet (some of Air India’s main competitors) are interested in purchasing, and the former’s parent company Singapore Airlines may also be interested.

Air India does have a more modern flight than airlines such as Jet Airways, with A320NEO and B787 Dreamliner aircraft becoming increasingly prominent. Photo by: FlightGlobal

Ultimately, privatisation looks like the best option for Air India. Its a chance for the national carrier to shred their reputations, put their debt behind them and truly take-off. But with the process already attempted before in 2001, and constant obstacles such as parliamentary panels advising that Air India should be given five years to revive under government ownership and the unions’ holding of anti-privatisation rallies, the process is likely to be pain-staking and drawn out.


What do you think? Will privatisation help Air India rectify its problems? Get in touch with us, we’ll be happy to hear your opinions.

Airbus & Bombardier Turn up the Heat on Boeing

Politics and aviation often cross wires. With a protectionist President in the Oval Office, and an increasingly competitive world, this situation will likely become all the more frequent in the future. Read on to inform yourself of exactly what’s happening with Bombardier & Boeing.

background: who is bombardier? why is Boeing imposing tariffs?

Bombardier is a Canadian-British aerospace company, specialising in regional turboprop aircraft – such as the Dash 8 series. Recently, they branched out to the regional jet sector and the 100-150 Seater market with the introduction of the popular C-Series range. In 2016, Delta placed a firm order for 75 Bombardier CS-100 regional aircraft, representing one of the largest single airline orders for the aircraft type. However, in September 2017, the drama began. Boeing accused Canada and Britain of supplying Bombardier with ‘unfair state subsidies’ which helped them achieve the major order with US client, Delta. They proposed a 300% tariff on imports of the C-Series jets to the US, in an effort to dissuade Delta from taking delivery of the aircraft.

criticism for Boeing

Boeing and the US International Trade commission have widely been criticised by rival companies and the governments of the UK and Canada. Prime Minister Theresa May has said the UK’s long-term partnership with Boeing was being undermined by its behaviour towards Bombardier, adding she was ‘bitterly disappointed’ and Defence Secretary Michael Fallon said that if the tariffs went ahead, it could ‘jeopardise’ UK Defence contracts with Boeing. Justin Trudeau – Prime Minister of Canada – said in a meeting with Donald Trump that he ‘disagreed vehemently’ with the decision and threatened cancellation of Canada’s Defence contracts also.

Bombardier said the proposed import tariffs were ‘absurd’ and insisted they had manufactured a ‘superior aircraft’ and that the US/Boeing was just trying to ‘stifle competition’.

Conversely, Boeing, retorted in a statement saying that ‘it was about maintaining a level playing field’.

implications if the tariffs go ahead

Many fear that the import tariffs may drive the Canadian company to relocate its manufacturing centre in Northern Ireland, where it employs 4,100 workers and contributes to 18% of Northern Ireland’s Economy. About 1,000 of these jobs are linked to the C-Series, the wings of which are made at a purpose-built £520m factory at Queen’s Island in Belfast.

In addition, it could spark a trade war between the US and Britain, especially significant as the two nations share a ‘special relationship’ and want to sign a free trade deal as the UK leaves the European Union.

the deal with airbus

Ask anyone interested in aviation to name the biggest rivalry they can think of and they will most likely tell you “Boeing V Airbus”. And thus, its no surprise Airbus are helping Bombardier out here. Under the deal, which both companies aim to be finalised in 2018, Airbus would buy 50.01% of the C-Series programme, leaving 31% to Bombardier and 19% to Investissement Québec. This is a game-changing move and changes the dynamic of the spat with Boeing.

Airbus summarises the deal in their press release, with these main points:

Airbus to acquire majority stake in the C Series Aircraft Limited Partnership

  • Partnership brings together two complementary product lines, with 100-150 seat market segment expected to represent more than 6,000 new aircraft over the next 20 years
  • Combination of Airbus’ global reach and scale with Bombardier’s newest aircraft family to create significant value for customers, suppliers, employees and shareholders
  • Significant C Series production costs savings anticipated by leveraging Airbus’ supply chain expertise
  • Commitment to Québec: C Series Aircraft Limited Partnership headquarters and primary assembly to remain in Québec, with the support of both companies’ global supply chains
  • Airbus’ global industrial footprint expands with the C Series Final Assembly Line in Canada, resulting in a positive impact on operations in Québec and across the country
  • Growing market for C Series results in second Final Assembly Line in Mobile, Alabama, serving U.S. customers

The last point, perhaps being the most crucial. Airbus will allow C-Series aircraft delivered to the US to undergo final assembly in their factory in Alabama. This is in the view that it will allow the company to dodge the current import tariffs. Ceding the majority of a flagship project to another manufacturer is a risk for Bombardier, but they clearly believe its the best way forward. It will also give Europe a huge advantage in the regional jet market and, as Airbus doesn’t have a mainstream competitor in that market, it refrains from compromising their own aircraft sales.

What will Boeing’s retaliation be? Comment or contact me with your thoughts.

 

Featured Photo: Brian Griffin carlowspotter