Air India shortlists McKinsey, Bain and Co, EY to chart business strategy

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New Delhi: Air India has shortlisted three consulting firms—McKinsey and Co., Bain and Co. and EY—for a project to draw up its business strategy for the coming years, said Ashwani Lohani, the state-run airline’s chairman and managing director.

The firms have been shortlisted out of several that made presentations after the airline floated a tender inviting proposals in October last year.

“They will help us in improving our network, cash flow and other things,” Lohani said.

The financial bids are yet to be opened, said another person with knowledge of the matter who did not wish to be named. The person said the contract will initially be for 3-6 months and may be followed by two more phases.

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“They will help look into product development, brand management, market share, competitiveness, frequent flier programme and the entire business model,” he said, “Basically tell us what we need to do urgently.”

This is the first time in a decade that Air India is hiring consultants for a major project. In 2006, consulting firm Accenture Plc was signed up at a cost of about Rs8 crore to execute a merger between the state-owned international and domestic airlines—Air India and Indian Airlines. Subsequently, the two were merged to create an entity called Air India.

Air India, which has the largest fleet of 140 planes in the country, including brand new Boeing Dreamliner planes, flies to 41 international cities and 72 domestic destinations. It is the biggest international carrier from India with a 17% market share. It also controls 14.6% of the domestic passenger market.

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The airline has so far received Rs23,993 crore of the Rs30,231 crore of the equity infusion promised by the government under a financial restructuring plan in 2012.

The gross value of Air India’s fixed assets stood at Rs46,074.07 crore as of 31 March 2016, whereas the long-term borrowing was Rs35,806 crore, according to the aviation ministry.

After a botched merger that was heavily criticized by the Comptroller and Auditor General of India, the airline’s losses have reduced and industrial relations improved in the absence of any major strike by its employees in recent years.

The airline reported a loss of about Rs3,587 crore in 2015-16, from a loss of Rs5,859 crore in the previous year.

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New York-based former Jet Airways CEO Steve Forte said the airline should follow up on tough recommendations even though some may be painful.

“Some of the study recommendations will be painful and the question is whether the Air India top management, in other words the government, will have the guts to implement them,” Forte said. “As long as Air India is not privatized, the culture and modus operandi—of low productivity and high costs—will not change much. The consultant has to address these points and the government has to make a strong commitment to accept the changes otherwise the consultancy will be a waste of time and of taxpayers’ money. Not the first time it happened.

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