Indian Airlines Ltd. Business Information, Profile, and History

Company Perspectives:

Indian Airline's has been setting the standards for civil aviation in India since its inception in 1953. It has many firsts to its credit, including introduction of the wide-bodied A300 aircraft on the domestic network, the fly-by-wire A320, Domestic Shuttle Service, and Walk-in Flights. Its unique orange and white logo emblazoned on the tails of all its aircraft is perhaps the most widely recognized Indian brand symbol and over the years has become synonymous with service, efficiency, and reliability.

History of Indian Airlines Ltd.

India's chiefly domestic state-owned carrier, Indian Airlines Ltd., flies passengers and cargo to 59 domestic and 16 international destinations. Its fleet numbered 52 aircraft in 2000. Indian Airlines has traditionally based its network around the four main hubs of Delhi, Mumbai (formerly Bombay), Calcutta, and Chennai (formerly Madras). The airline carries about six million passengers a year and has a substantial freight operation.

Origins

The Air Corporations Act of 1953 amalgamated India's dozen or so airlines, most of them undercapitalized, into two nationalized air carriers: Air-India Ltd., given responsibility for international routes, and Indian Airlines Corporation (IAC), the domestic airline.

The eight airlines that were amalgamated into IAC included Air Services of India Ltd., Airways (India) Ltd., Bharat Airways Ltd., Deccan Airways Ltd. (already 70 percent government-owned), Himalayan Aviation Ltd., Indian National Airways Ltd., Kalinga Airlines, Ltd., plus the domestic operations of Air-India Ltd.

IAC began operations with a fleet of 74 of the war surplus Douglas DC-3s that had founded its short-lived predecessors. The airline also had three times as many employees as it needed, writes R.E.G. Davies, a situation that was slow to change due to the government's refusal to allow layoffs. Davies also writes that the standard of maintenance was low and the airline suffered many accidents in its early years. IAC soon moved to bolster its fleet by ordering a few new de Havilland 114 Herons, retired after only a couple of years of service, and Vickers Viscount 768s, which were assigned to trunk routes. The DC-3s continued to supply feeder traffic; they soon began to be phased out by Fokker F-27s and Avro 748s. IAC began flying short-haul jets--French-made Caravelles--in the mid-1960s. The Caravelles were so popular that IAC soon needed larger jets to on the routes between Bombay (Mumbai), Delhi, Calcutta, and Madras (Chennai) that formed the India's domestic trunk network. IAC's first Boeing 737s entered service in 1971.

Between 1962 and 1972, IAC was called upon to support the military in several campaigns, first in skirmishes with China, and later with the wars with Pakistan that ultimately led to the creation of Bangladesh.

Confidence and Crisis in the 1970s and 1980s

IAC announced a Rs45 million loss for 1972. The next year, the company had several incidents of aircraft damage or loss. Labor unrest, high fuel costs, political burdens, and built-in inefficiencies added to the company's problems. However, these were met with such resolve that IAC had the confidence to order its first wide-body jets, Airbus A300s, in 1975. A program to produce ground support equipment in Indian factories was part of the deal. In 1976, new routes stretched across political divisions to Kabul, Afghanistan, in the northwest, and the Maldive Islands in the south.

The government allowed the formation of a few new limited service airlines in the 1970s: Air Works India, Huns Air, and Goldensun Aviation. None of them had long life spans. Around 1979, IAC dropped the word "Corporation" from its name.

Another national airline, Vayudoot, was formed in 1981 and tasked with carrying feeder traffic from India's smaller communities. Indian Airlines' managing director, Gerry Pais, was Vayudoot's part-time chairman. Vayudoot was serving more than 100 destinations within India by 1990. The government also set up a helicopter corporation to serve off-shore oil fields.

Britain's Financial Times described Indian Airlines as the world's third largest domestic carrier in the mid-1980s. With business growing at better than ten percent a year, it was increasing its capacity. Indian Airlines ordered a dozen of the new Boeing 757s in August 1984. After Rajiv Gandhi, a former Indian Airlines pilot, became prime minister, this order was changed to Airbus A320s due to what were perceived as political reasons. However, the crash of an Indian Airlines A320 in Bangalore on February 14, 1990--the type's second major crash globally in a two-year period--sorely tested management's faith in the plane, which featured new fly-by-wire flight controls and electronic cockpit instrumentation.

As part of a plan to merge Indian Airlines with Air-India, the state's international carrier, two leading young industrialists were appointed to chair the boards of the two companies in autumn 1986. Neither these plans nor the new chairmen lasted very long. In 1987, Indian Airlines carried 10 million passengers and earned a profit of Rs630 million ($48 million). However, the quality of its service was facing criticism, to be heightened by the coming entry of new carriers into the market.

New Competition in the 1990s

In a fresh wave of deregulation, nine new independent airlines were launched in India in the early 1990s. Vayudoot, the state-owned feeder airline, itself collapsed in 1993. One of the start-ups, East-West Airlines, offered such attractive wages that they prompted a pilots' strike at Indian Airlines in December 1992 during the winter tourist season. Indian Airlines had 570 pilots at the time, making an average of Rs30,000 ($962.00) a month. The airline lost Rs2.11 billion ($64.34 million) for the year.

As a result of the strike, Indian Airlines hired several Tupolev Tu-154 trijets, complete with crews, from Bulgaria and newly independent Uzbekistan. One of these, attempting to land in pre-dawn fog at Delhi on January 9, 1993, flipped over and broke into three pieces. Amazingly, all of the 165 passengers aboard survived.

After another, fatal crash and a couple of hijackings in May 1993, chairman and managing director L. Vasudev resigned, blaming the aviation ministry for undermining his authority. He had been hired in July 1992, filling a position vacant since the previous chairman had resigned due to the handling of yet another strike. Former Tata Iron and Steel head Russi Mody was named chairman of both Indian Airlines and Air-India in late 1994. He resigned two years later, also citing a lack of authority.

By the end of 1996, two of Indian Airlines' competitors, East-West Airlines and Modiluft, were grounded. However, Jet Airways, backed by a London-based expatriate and two Persian Gulf airlines, would soon be making a $486 million purchase of new Boeing aircraft.

In September 1997, Tata Group dropped its plans to launch an airline, citing obstruction from the ministry of civil aviation over the previous three years. Tata, whose founder had also started Air-India a half century earlier, also complained of lobbying from Jet Airways. Tata had planned to form the airline as a joint venture with Singapore Airlines.

After eight years of losses, Indian Airlines posted a Rs45 crore profit for the fiscal year ending April 1998. However, competitors like Jet Airways and Sahara Airlines continued to gnaw away at its market share, down to 60 percent by the end of 1998.

During 1998, a plan was drawn up to created a holding company in preparation for the long postponed merger of Indian Airlines with Air-India, along with Helicopter Corporation of India and Indian Airlines subsidiary Alliance Air. Both Indian Airlines and Air-India were losing money and needed to restore their aging fleets; it was hoped combining them could save some money on maintenance and other combined functions. Also in the works were plans to partially privatize Air-India. However, by the end of the year, the Civil Aviation Ministry had dismissed a joint board of directors from the two airlines.

In 1999-2000, Indian Airlines earned Rs2.8 billion ($60.2 million) from its cargo operations. During the following fiscal year, the airline considered plans to convert two of its Airbus A300 jets into dedicated freighters, a first step in making cargo a separate profit center. The company had an agreement to provide U.S.-based Emery Worldwide cargo space on its outbound flights to Singapore. It had cancelled a cargo service to the United States in 1996.

Indian Airlines trimmed a dozen positions from its managerial staff in a March 2001 reorganization. It had earlier reduced its workforce significantly by lowering its retirement age from 60 to 58. The 2000/2001 fiscal year produced a loss of Rs175.25 crore, due in large part to two 30 percent increases in the cost of fuel during the year. Indian Airlines reportedly would have earned a profit of Rs50 crore without the fuel price hikes. Though its market share had slipped to 50 percent, the company posted revenues of Rs3,755 crore, up slightly from the previous year.

To regain its profitability, the airline was planning a 10 to 15 percent increase in fares on trunk and tourist routes, reported The Hindu. Indian Airlines was enjoying lower fuel prices, thanks to deregulation in the fuel market.

When the government put Indian Airlines on the block in 2001, only two bidders came forward: Videocon International and the Hinduja Group. The latter was under investigation for an alleged scam, and Videocon had been suspended from the capital market for allegedly rigging its share price.

In November 2001, the Civil Aviation Ministry announced a plan to provide Rs9,000 crore to Indian Airlines, which was planning to reequip its fleet with around 40 new planes.

Principal Subsidiaries: Alliance Air.

Principal Divisions: Cargo.

Principal Competitors: Jet Airways; NEPC-Skyline; Sahara Airlines.

Chronology

• Key Dates:
• 1953: Indian Airlines is formed as India's domestic airline.
• 1965: Short-haul Caravelle jets enter the fleet.
• 1972: IAC records a rare loss.
• 1975: The company orders its first widebody jets.
• 1992: India's domestic air market is deregulated.
• 1998: Plans to merge Indian Airlines with Air-India are drawn up but not approved.
• 2001: The Indian government solicits bidders for partial ownership of Indian Airlines.