National passenger carrier Air India plans to “re-negotiate” its agreements with vendors and suppliers to save operational costs of up to Rs 500 crore ($780 million) with in the shortest possible time period. The ambitious short-term target to be achieved in 12-weeks time has been set by the company’s new Chairman and Managing Director, Rajiv Bansal. “There is always scope to cut and manage costs. My focus is to manage cost but not by inconveniencing the passengers in anyway,” Bansal told IANS in an exclusive interaction soon after Air India’s inaugural New Delhi-Copenhagen non-stop flight landed here. “Internally, we are looking to optimise our leases with our vendors and services providers … renegotiations might be needed to fully optimise our agreements,” he said.
The mega cost saving plan envisages at least “one major initiative per week” to be taken on expenditure optimisation. The cost savings measures which have been identified range from anywhere between Rs 10 crore and a maximum of Rs 50 crore per year. “We must continue to chip away at the cost factor… My approach is to take one important initiative a week in this regard. It may be for as low as Rs 10-20 crore,” Bansal explained.
“For example we will be looking for bulk discounts and re-negotiation of some international contracts on the back of prevailing low interest rates globally.”
“The idea is to take one initiative every week which brings savings in small amounts on yearly operating expenses.”
The central government, though busy in consultations over the privatisation prospects of the debt ridden airline has agreed to provide the initial support required for the savings initiative. “We have floated a global RFP for short-term loans of about Rs3,000 crore. I am confident of getting these by the end of this month,” he said.
“The loans are government-backed and will help in settling dues of various vendors like oil companies and airport operators and this also gives a chance to make a final one-time settlement with some of the vendors.”
The savings emanating from the cost management programme will be on “operational expenditure” basis and will be recurring, thereby the actual amount saved might be much higher. The plan assumes significance as the airline is currently under a massive debt of more than Rs 50,000 crore.
Loans and losses over the last 10-years have become one of the biggest obstacles to its financial viability, besides an ill-planned merger and the Union Cabinet’s subsequent “in-principle” approval to divest the government’s stake in Air India.
Consequently, a ministerial group on Alternative Mechanism was formed to look into the modalities of the divestment process. It is headed by Finance Minister Arun Jaitley. The group has been mandated to guide the strategic divestment process and to decide on key issues such as treatment of AI’s debt and hiving-off of its assets.
However, in the face of an eventual divestment, Bansal added: “My mandate is to run the airline profitability and on commercial considerations. Apart from savings we are also aggressively looking for revenue optimisation, route rationalisation, better deployment of our assets and to add some new international routes in the short term.”
The central government had appointed the IAS officer as Air India’s Chairman and Managing Director late last month. Besides his current responsibilities to Air India, he is also the Financial Advisor to the Petroleum & Natural Gas Ministry.