Air India - Management Case Study (MBA) | Online Mini MBA (Free)

AIR INDIA: BACK ON THE RUNWAY

ROAD TO RECOVERY

04/10/23 SURESH SRINIVASAN @ myBskool 1

AIR INDIA: BACK ON THE RUNWAYWHAT WENT WRONG ?? 10 DAY STRIKE IN 2011 –FLIGHTS CANCELLED – REVENUES LOST ON TIME PERRFORMANCE WAS BELOW 80 % AI –IA MERGER HAPPENED IN 2007 INTENSE COMPETITION, WORSENING OPERATIONAL PERFORMANCE MASSIVE AIRCRAFT PURCHAES, ILL CONCEIVED MERGER TOTAL LOSSES – Rs 20000 Cr & DEBT BURDEN – Rs 43000 CrTOTAL LOSSES – Rs 20000 Cr & DEBT BURDEN – Rs 43000 Cr MR ROHIT NANDAN – “ No point in focusing on Market Share @ the cost of Profitability”…..


3 REASONS AIRLINES MERGEAdditional revenue/assets

Increased connectivity and presence (size) lead to additional revenue – additional value from:

Larger carriers achieve a disproportionate share of revenue (S-Curve)Better schedule optimizationLess pricing competition

Improved operating efficienciesStrategic Acquisition


Examples of Areas of Potential Cost Synergies From a MergerRental Expense (other than aircraft)

Combining space, ground equipment, etc.General and Administrative Expenses

Combining office space, joint purchasing of supplies, etc.

Labor costs for aircraft & traffic handlingCombining of redundant staff


Key Merger Considerations

Mergers involve four fundamental challengesDifferent systemsDifferent fleet typesWorkforce integration issuesCultural differences


Merger/Fragmentation Models

Two Structural Merger ModelsThe full operational integration model with employees mergedNo operational integration. A holding company with operational entities (the double breasting model)

Fragmentation Models involving the sale of part of an Fragmentation Models involving the sale of part of an airline airline

A transaction between two carriers involving assets onlyA transaction between carriers involving assets and people


The Labor Element

Labor is the key element in determining successful integration of merging companies

Labor laws need to be understood and applied across borders for this to happen

Merging companies have to include labor in the process

As a participant, with input into the process, not as an observerWithout labor as a player, consolidation will not succeed


The Labor Element

Why is Labor Integration So Important To Airline Why is Labor Integration So Important To Airline Consolidations?Consolidations?

Airline labor, especially pilots, are highly skilled and long Airline labor, especially pilots, are highly skilled and long training cycles make labor a valuable assettraining cycles make labor a valuable assetAirline labor unions often deal directly with the customerAirline labor unions often deal directly with the customerLabor costs are a large enough portion of expenses to have a Labor costs are a large enough portion of expenses to have a major impact on cost structuremajor impact on cost structureLabor issues can often lengthen consolidation timeline and Labor issues can often lengthen consolidation timeline and financially weaken the merged companyfinancially weaken the merged company


The Labor Element

Merging Seniority Lists and collective agreementsMerging Seniority Lists and collective agreementsDifficult and sensitive processDifficult and sensitive processALPA has a “Merger Policy” that is intended to:ALPA has a “Merger Policy” that is intended to:

Preserve jobsPreserve jobsAvoid windfalls to either groupAvoid windfalls to either groupMaintain or improve pre-merger working conditionsMaintain or improve pre-merger working conditionsMinimize detrimental changes to career expectationsMinimize detrimental changes to career expectations


The Labor Element -Pilots

Need to review legal framework to protect Need to review legal framework to protect pilots interestspilots interests

Engage in bi-lateral negotiations with Engage in bi-lateral negotiations with management, as necessarymanagement, as necessary

Meet and Develop Protocol of Cooperation Meet and Develop Protocol of Cooperation between pilot groupsbetween pilot groups


The Labor Element –Pilots Phase 2

Develop Transition Agreement covering the following Develop Transition Agreement covering the following terms:terms:

Status of Pilot Signatory Unions and Collective Agreements Status of Pilot Signatory Unions and Collective Agreements at _____ and _____ during this Agreementat _____ and _____ during this Agreement

Separation of Aircraft and Personnel during this AgreementSeparation of Aircraft and Personnel during this AgreementSee Attachment ASee Attachment A

No Layoff of Pilots during Term of this AgreementNo Layoff of Pilots during Term of this AgreementNew Hires during Term of this AgreementNew Hires during Term of this Agreement

New Aircraft during the Term of this AgreementNew Aircraft during the Term of this Agreement


The Labor Element – Transition Agreement

Seniority Integration Process and Procedure Designation of Merger RepresentativesPreparation of Employment DataExchange of Employment DataNegotiations/Mediation/Arbitration

Relative Position on Pre-Merger Lists MaintainedPreservation of RightsReimbursement of Merger-Related Expenses


The Labor Element – Transition Agreement..contd

Company Acceptance and Implementation of the Seniority List

Process to Negotiate Combined Collective Agreement for the Combined Companies

Resolution of Disputes arising under this AgreementEnforcement of Arbitration Decisions under this

AgreementMutual assistance during this Agreement

Duration of this Agreement04/10/23 SURESH SRINIVASAN @ myBskool 13

The Labor Element – Post Integration

Implementation of final integrated Implementation of final integrated seniority listseniority list

Implementation of combined working agreement

Establishment of an appropriate Union Establishment of an appropriate Union structurestructure


The hurdles not recognized in a nut shell – 3 Main :

IGNORES THE COMPLEX LABOR DIMENSIONS

THE ACQUIRER DOES NOT UNDERSTAND THE BUSINESS MODEL OF THE ACQUIRED AIRLINE ..and

FALL VICTIM TO LAPSES IN PLANNING & EXECUTION


The NEW CEO’s Checklist – 3 Main :

Customers

Operations..and

Integration of labor/management


The AIRLINE MERGER INTEGRATION: 2 PART


The AIRLINE MERGER INTEGRATION: LAST PART


The PARTNER SELECTION


The PARTNER SELECTION


3. Realize Significant efficiencies and Economics of Scale


MERGER INTEGRATION TEAM STRUCTURE - Proposal


FIRST 100 DAYS - Phased Integration Approach


FIRST 100 DAYS - Drivers Of Revenue Synergies

Conditions under which Mergers work??Conditions under which Mergers work??• Bring in Labor as early as possible.• Recognize & let the Pilots “Own” the Integration issue.• Clear Incentives for Finalizing the deal.• Transparency.• Costs of Incentives are offset by the synergy of Operations.• Quick “Exit Gate” gateways.• ONE Airline feeling.• Compatibility of the 2 Airline’s CRS & IT Systems – ease to

passengers/travel agents /Hotels etc• Effective and Interactive “Fleet” and “Operational Systems”

Compatibility.


Conditions under which Mergers work??Conditions under which Mergers work??• Passenger point of view:• Cabin interior changes• Cutlery & Crockery• In-flight Entertainment• Rapid Check –in’s• Rapid Exits• Hassle free bookings & onward connections –Integration of

All Airport Operations• Price Stability of tickets• FFP• CVA• Finally..”Under sell & Over Deliver” Strategy !!!Finally..”Under sell & Over Deliver” Strategy !!!04/10/23 SURESH SRINIVASAN @ myBskool 26

Conditions under which Mergers work??Conditions under which Mergers work??• Employee point of view:• Retaining the STARS• Giving the top “Stars” freedom to work, take decisions etc• Constant Communication• Use of alternate tools for communication –web sites,

meetings, news letters etc• Clear Incentives for TOP Performers• “What’s in it for me” ??...Employees BUY IN Important• Finally..”Under sell & Over Deliver” Strategy !!!Finally..”Under sell & Over Deliver” Strategy !!!



KEY PERFORMANCE INDICATORS –TO LOOK OUT FORKEY PERFORMANCE INDICATORS –TO LOOK OUT FOR

AIR INDIA: BACK ON THE RUNWAYWHAT AI IS GOING TO DO RIGHT ?? REPLACE 19 PLANES THAT ARE MORE THEN 20 YRSOLDREPLACE 19 PLANES THAT ARE MORE THEN 20 YRSOLD HIVE OFF GROUND STAFF & ENGG SERVICES AS SEPARATE ENTITIES HIVE OFF GROUND STAFF & ENGG SERVICES AS SEPARATE ENTITIES – SAVINGS OF Rs 1000 Cr– SAVINGS OF Rs 1000 Cr ANOTHER 5 YEARS, WORKFORCE NOS TO REDUCE TO 17000 FROM ANOTHER 5 YEARS, WORKFORCE NOS TO REDUCE TO 17000 FROM 24000 !!!24000 !!! INDUCTION OF ANOTHER 27 , 787 DREAMLINERS – REDUCE FUEL INDUCTION OF ANOTHER 27 , 787 DREAMLINERS – REDUCE FUEL BILL BY 25 %BILL BY 25 % PHASE OUT 60 % OF 777 WHICH A/C FOR 60 % OF LONG HAUL FLEET



ROAD TO RECOVERY•HEADHEAD YEARYEAR REVENUE (Rs) REVENUE (Rs)

in croresin crores•REVENUE 2010/11 14062

2011/12 14713

2012/13 17000

2013/14 19000 **- Projections




in croresin crores•EBITDA 2010/11 -1687

2011/12 -2259

2012/13 + 19

2013/14 +1040 **- Projections




in croresin crores•NET LOSSES 2010/11 (6865)

2011/12 (7559)

2012/13 (5100)

2013/14 (3990) **- Projections



ROAD TO RECOVERY• MARKET SHARE AS ON MAY 2013MARKET SHARE AS ON MAY 2013• AIRLINEAIRLINE MARKET SHARE (%)MARKET SHARE (%)• AIR INDIA 19.1• INDIGO 29.5•JET + JET LITE 22.5• SPICEJET 19.8• GOAIR 09.0•{ AIR INDIA MKT SHARE IN MAY 2012 WAS 16.2 %}{ AIR INDIA MKT SHARE IN MAY 2012 WAS 16.2 %}



ROAD TO RECOVERY• EARN MORE, SPEND LESS IN YEARS TO COMEEARN MORE, SPEND LESS IN YEARS TO COME• AIMS TO SAVE Rs 300 Cr in INTEREST PAYMENTS• EXPECTS WAGE BILL TO FALL FROM Rs 3500 Cr to Rs 2500 Cr • Wage % to fall from 25 % in 2011/12 to 14 % in 2013/14• AIMS TO GET Rs 500 Cr FROM REAL ESTATE SALES A YEAR for 10 YEARS• AIMS TO BE CASH POSITIVE FROM 2016/17 & EARN NET PROFIT BY 2019/20



ROAD TO RECOVERY• COMPETITON – FUTURE ???COMPETITON – FUTURE ???

•JET DEAL WITH EITHAD AIRWAYSJET DEAL WITH EITHAD AIRWAYS

•AIR ASIA ENTRYAIR ASIA ENTRY

•FURTHER TO INTENSIFY IF THE FDI RULES OF 49 % STAKES ARE INCREASEDFURTHER TO INTENSIFY IF THE FDI RULES OF 49 % STAKES ARE INCREASED



ROAD TO RECOVERY THANK YOUTHANK YOU

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Air India - Management Case Study (MBA) | Online Mini MBA (Free)

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