Air India are in debt to the tune of US$ 1.5 billion, India's government has pushed for substantial changes before committing to financial assistance. Chairman and Managing Director, Arvind Jadhav has responded with a major overhaul of the airline.

New structure and plans for IPO

Four, more manageable business units are to be created, cargo, engineering services, ground handling and airline operations. This provides potential for new revenue streams, as outsourced services can be offered to other airlines. Jadhav expects the next nine months to be about survival, medium term plans are for an IPO.

Renegotiating loans, leases and credit

The airline will ask banks to defer loans, leased aircraft will be returned and credit extensions on jet fuel payments will be discussed with state run oil providers.

Wider sector bailout - threats of strikes

The Federation of Indian Airlines (FIA) expects industry losses of around Rs 570 billion (US$ 11.9 billion). They and their privately owned members want an industry wide bailout and have tried forcing the issue without success. FIA and their members announced a 24-hour strike, grounding all domestic flights on August 18. Secretary General of the FIA, Anil Baijal commented, "We have thought about this and now we think the time has come for the government to bail out the private carriers".

Despite the strong stance the strike was cancelled. FIA claimed they didn't want to inconvenience passengers, speculation is that budget carriers IndiGo, SpiceJet and GoAir - who have a better cost structure - pulled out as they were not prepared to support costlier and consequently poorer Kingfisher and Jet Airways.

Switching to low cost

In addition, to the restructure, Air India plan to shift 150 flights a day - about half of Air India's domestic flights to their low-cost carrier, Air India Express. Jet Airways and Kingfisher are now following, switching their domestic fleet to budget flights.

India's budget airline fleet totaled 75 planes in January, Kapil Kaul of The Centre for Asia Pacific Aviation believes that number will grow to 160 by end of year, near 80% of India's domestic capacity. Ticket fares are likely to drop 25%.

Lack of demand

Refocusing on budget travel is a wise decision, low-cost air travel led the sectors growth in the first place, but only between 2% and 4% of the population fly, the rest use rail and road due to cost. India's aviation industry grew quickly, opening new routes and growing fleets, the failure to date has been the inability to stimulate demand in the larger market, consequently flights are empty and airlines unprofitable.

This may explain governments indifference. While they may prefer the industry to get its own house in order they must also recognise the importance of the sector to an emerging market. Division across the sector is no use, a common agreed strategy is required.