The Descent of Air India (33 page)

Lack of dissent had vitiated the decision-making process in the airline. Board meetings had been reduced to a joke. With virtually no participation of members other than those who were genuinely concerned about the airline, agenda papers were sent to members only a day or two earlier. This included occasions when proposals for acquisition of new fleet were being discussed. In fact, when the board met on 26 April 2005 for its 106
^th
meeting, the copy of the financial evaluation report was neither sent with the agenda papers nor given to members during the meeting. Instead, a powerpoint presentation was made by the Director of Planning in the course of the meeting.

This prompted one board member to write to the company secretary, ‘It would be appreciated that on a matter of such importance, involving huge outlays, a copy of the Financial Evaluation Report should have been made available to the members of the board of directors at least a week or ten days before the board meeting.’ This was in fact a reiteration of what he had stated almost a year earlier on 28 May 2004 at the time of discussing the concept of Air India Express as a low-cost airline. He had said, ‘I do feel that making available the papers on such sensitive issues either on the day of the board meeting or a day before does not serve any useful purpose and makes the entire exercise somewhat opaque.’

While the CAG and the two parliamentary committees headed by Sitaram Yechury and V. Kishore Chandra Deo have produced damning reports on Air India’s aircraft acquisition, none has been taken to task yet. The Public Accounts Committee is seized of the matter, and one hopes that the Special Leave Petition filed in the Supreme Court of India, with which I have an indirect association, will hold those responsible guilty. The petition assumes significance in the background of the failure to prevent the purchase of aircraft in such large numbers, even though the government had been warned at the highest level by Sunil Arora about the way in which the order was being pursued. One has therefore no option but to rely on the courts for a fair hearing of the issues.

Air India today stands at a crossroads. Some are seeking privatisation, and others want an infusion of funds for breathing fresh life into the airline. Corporate denizens and industry associations have been candid in their call for privatisation, pointing out that this is the only route to future survival, but the current minister for civil aviation, Ajit Singh, has been guarded and said that although the country does not need a national carrier, Air India will not be privatised. With losses growing year after year, market share dwindling year after year, more and more people moving away from the airline, and turnaround plans failing, the government ought to take an urgent note of the real state of the airline for corrective action before it is too late.

NOTES

1
.  Commercial aviation traffic rights are usually expressed as “freedoms of the air”, which constitute a set of commercial aviation rights granting a country’s airline(s) the privilege to enter and land in another country’s airspace.

3rd freedom:The right to fly from one’s own country to another country.

4th freedom:The right to fly from another country to one’s own country.

2
.  6th freedom: The right to fly from a foreign country to another foreign country while stopping in one’s own country

CHAPTER ELEVEN

troubled alliance

AIR INDIA AND Indian Airlines were conceived and allowed to function as distinct entities ever since they were established under the Air Corporations Act of 1953. One flew the home skies while the other plied international routes; both were owned by the government, but they were raised to be independent of each other be it in terms of the customers they served or in the brand that they embodied. Thus, even though the two airlines were both government-owned, they were managed very differently. The decision to merge the two in 2007, therefore, raised a storm in both airlines, and those with even the slightest understanding of the task at hand balked at the audacity of the proposal.

A STUDY IN CONTRAST

Air India existed even before the Air Corporations Act came into being. It was known as Air India International till 8 June 1962, when the word ‘international’ was dropped from its name. The 1953 Act did not materially impact its functioning because not much changed except its nomenclature. Indian Airlines, on the other hand, came into being after the 1953 Act. It was created by bringing together a clutch of airlines into existence at the time—the Air Services of India, Bharat Airways, Deccan Airways, Himalayan Aviation, Indian National Airways and Kalinga Airlines. The Act created Indian Airlines out of several old companies. But Air India merely changed from a privately owned airline into a public sector company.

There were other differences too. Air India had grown up in the shadow of the legendary J. R. D. Tata, who had conceived it as a professionally managed organisation. The team that Mr Tata had handpicked to set up the airline also helped in its transition from a private to a national carrier and instilled global management practices and quality standards at the time of its nationalisation. Also, Air India had been exposed to competition, albeit in a limited manner, from global airlines operating out of India. It had been exposed to international practices early in its existence and had a reputation to protect. Thus, right from its initial days, the airline was known for its on-time performance and well-groomed and polite cabin crew. It was also recognised for its uniquely Indian appearance and had been informally anointed the country’s unofficial ambassador of culture. Industrialists, film stars, politicians, sportspersons and artists—they all flew Air India. It was the face of India away from home.

Indian Airlines, on the other hand, was born as a public sector unit. It operated in a monopolistic environment and functioned like any other governmental entity with all the attendant infirmities. Its service was nothing to write home about, and it had never had to woo passengers or worry about setting its fares on par with those of other airlines. It was managed as an extension of the ministry of civil aviation and was more vulnerable than Air India to political pressures. The two airlines were, clearly, leagues apart. In fact, a passenger who flew both airlines till the 1990s once succinctly summed up the difference. He said, ‘When we had an unpleasant experience on an Air India flight, we used to feel anguished, but when faced with a similar experience on Indian Airlines, the reaction was laced with anger.’ Air India’s fliers were loyal and willing to give the airline a long rope for its lapses in service. But Indian Airlines was not treated with the same patience. We could not have had two companies more different from each other, not just in their operational approach and attitude but also in terms of customer perception and brand identity.

The two corporations were so different from each other that the Committee on Public Undertakings (COPU) that decided to look into the merger of the two airlines in an effort to understand the malaises afflicting public sector undertakings also commented on it. The report that the COPU considered and adopted on 20 January 2010 said, ‘[The] critical fact to be noted is that prior to the merger, Air India and Indian Airlines were distinct entities having wide variances in critical areas such as operations, fleet requirement, requisite expertise, service conditions to a good measure, conditions of recruitment, pay structures, IT requirements and functioning.’Thus, the committee pronounced that the merger was a marriage ‘between two incompatible individuals with hardly any meeting ground’. The obvious mismatch between the airlines has led many to question the idea and seek a rationale for its genesis.

Rajiv Gandhi, former prime minister of India and an ex-pilot with the Indian Airlines, was the first to moot the merger of the two government-owned carriers. After assuming charge in November 1984, he had retained charge of the civil aviation portfolio for the initial months. During that time, he initiated the process for setting up three major institutions—The National Airports Authority of India for the management of domestic airports, Pawan Hans for managing helicopter services and Indira Gandhi Rashtriya Udaan Academy for providing training facilities to young boys and girls aspiring to be pilots. All three institutions came up in 1985—which, on hindsight, can be described as one of the most decisive years in the history of Indian civil aviation.

S. S. Sidhu, a 1952-batch IAS officer and the then civil aviation secretary, explained to me that Rajiv Gandhi, while laying the foundation for civil aviation in India through the creation of such bodies, had mooted the merger. A study was duly undertaken, and subsequently, a cabinet note was drawn up. The merger was actively considered and discussed during those months. Soon thereafter, Rajiv Gandhi handed over charge of the civil aviation portfolio to Jagdish Tytler, and industry denizens Ratan Tata and Rahul Bajaj were appointed as the chairmen of Air India and Indian Airlines respectively. And the merger proposal was quietly buried. Even at that time, the people involved with the entire proposal say that Air India wasn’t enthused with the idea as Indian Airlines did not have a comparable profile and Air India did not wish to dilute its globally recognised brand.

REVIVING AN OLD IDEA

For many years, there was no mention of the merger proposal. Neither airline saw the need for joining forces as long as they were both flourishing in a monopolistic environment. But times changed, and the government opened up the skies. Soon, private airlines emerged as competition for the domestic business and snatched market share away from Indian Airlines. Around the same time, the government allowed international airlines greater access to the Indian market and Air India found itself under pressure.

As competition got tougher, Indian Airlines and Air India began to crack under the pressure of their own weaknesses. And the merger proposal was brought back into play. The ministry began looking for a solution that would enable the two airlines to build on their strengths and survive the onslaught of the private Indian and foreign airlines. Consulting firm Accenture was appointed to study the situation, and the report that came out of the study suggested that Air India and Indian Airlines should coordinate their operations more closely.

The idea of a merger appealed to everyone. And even those who were not keen to see the two airlines join hands were willing to see merit in the proposal, but what flummoxed everyone was the pace at which the plan was pushed through. There was no attempt at debate; nor did anyone take into account the history of mistrust between the airlines. V. Thulasidas and Praful Patel were in a hurry to see the plan through and in the process, they ignored the lessons that would have helped take a more judicious call.

There were two things the merger enthusiasts should have considered. One was the merger between Indian Airlines and Vayudoot, which had been carried out in the mid-1990s but which, more than a decade later, was still a source of acrimony for the employees of the airlines. And the second was an attempt made way back in 2003 to bring about greater synergy in the working of Air India and Indian Airlines. The government had set up a committee to look into the affairs of the airlines, and the suggestion had been that they should coordinate their efforts, but that did not happen. It would have been worthwhile for the ministry to look into the reasons for this before launching into the merger.

It became increasingly evident to most of us that the merger was being effected not for the good of the airlines but for reasons not obvious to anyone. In fact, this was also the question raised by the parliamentary committee that looked into the merger and its aftermath. It questioned the ministry’s rationale for the creation of National Aviation Company of India Limited (NACIL). The ministry replied that the merger was the best decision in the history of both Air India and Indian Airlines. In fact, the COPU report records the ministry’s statement that the merged entity would have a fleet of more than 140 aircraft, which would help take on the growing competition from the private airlines and international carriers and that it would help the airline join the list of the top 30 airlines globally and the top 10 airlines in Asia in terms of fleet size. The ministry submitted before the committee that with the merger, Air India had become the largest airline in India and was comparable to other airlines in Asia. In fact, at the time of the merger, this is what the minister and the chairman had assured us. They were also very keen to move ahead at the earliest because, as they said, time was of the essence.

Once the merger had been approved and NACIL had been created, the sense of urgency seemed to evaporate. The euphoria, if any, generated by the government’s decision to merge its national carriers started fading in almost all the areas—administrative, financial and operational even before it had actually become effective. Employees of both the carriers felt apprehensive about several aspects of the new set-up. They claimed that they were not consulted when some major decisions regarding the merger were taken.

The Parliamentary Standing Committee on Transport, Tourism and Culture in its report commented on the situation thus, ‘The merger process was started in the year 2007 and both the existing national carriers were merged into one entity called NACIL but even after a period of two years, the merger process was yet to take shape. Even after two years there are literally three entities functioning till date namely, the Air India, Indian Airlines and the newly created NACIL.’ The Ministry of Civil Aviation replied that time was a factor in every merger deal. In view of the complexity of the process and the time required for the same, the question of derailment of the merger process did not arise. The ministry quoted instances of international mergers, such as JAL–JAS and AF–KLM, to support their argument. But the committee was not convinced. It said in a damning indictment of the entire process, ‘The merger is neither visible in the air nor on the ground.’ It said that the merger had been delayed beyond reasonable limits and that it appeared that ‘all the planning and road map for this [have] gone haywire’. In addition, it said, ‘Any successful business model, in fact, depends on the proper integration of men and material from the beginning and not in the mid-way. In this case, the essential integration has not yet taken place in real terms. As per the merger document, the integration of human resources will take at least two more years. In such a scenario, NACIL is having virtually three managements, namely, NACIL itself, erstwhile Air India (NACIL-A) and Indian Airlines (NACIL-I).’