The Descent of Air India (35 page)

Unfortunately neither has been achieved. When COPU pointed out the delay in the accrual of benefits due to synergy and also the status of the merger as on date, the ministry replied that Accenture had projected a saving of 3–4 per cent in costs and an increase of 3–4 per cent in revenue (arising out of synergy benefits) to accrue over a period of time. This was based on the consideration that the merger would enable optimal utilisation of the existing resources through improvement in load factors and yields on commonly serviced routes, as well as through the deployment of the freed capacity on alternate routes. The merger was also to provide an integrated, international/domestic footprint, enhance the customer proposition and ensure its entry into one of the three global airline alliances. But none of this actually happened; the points remained on paper, and the two airlines continued their fall into oblivion. Even the recommendations made of Accenture were ignored.

Air India has also been kept out of the Star Alliance and the official reason is that the airline failed to comply with the minimum requirements, but the real reason, many say, is that Air India’s dipping profile among fliers made it an unattractive proposition. As for cost and revenue rationalisation, that too has fallen apart. The consultants had projected a figure of
820 crore on account of synergies at the end of the third year after the merger, but the real figures are nowhere close to this amount. There have been limited savings on fuel uplift and on account of shutting down one of the two offices. The losses sustained in the post-merger period far exceed the financial gains. What is perplexing is the fact that the total revenue of the merged Air India was less in 2012 than at the time of the merger.

The Parliamentary Standing Committee on Transport, Tourism and Culture report points out, ‘The Consultants had to prepare a road map for the merger specifically related to the integration of flight schedules, networks, infrastructure, marketing and distribution channels, integration/rationalisation of the fleet, subsidiary companies, and business strategy and plans for the merged entity. They were also asked to support change management and communication during pre- and post-merger stages and look into the issues involved in the integration of manpower resources and support implementation of various integration measures/initiatives for a period of one year after the merger.’ But without support from the ministry, they could not achieve any of this.

EXPLANATIONS AND EXCUSES

Given the severe indictment from various committees, the Ministry of Civil Aviation was forced to explain. On the charge that it had not taken any steps to ensure a smooth integration of functions between the airlines, the ministry said that it had set up a ‘cross-functional integration cell’ under the chairman-cum-managing director for the purpose. It also said that there was a three-tiered grievance redressal machinery that had been instituted, but was silent on the fact that none of this had managed to achieve what they had set out to do. The problem, as the ministry sought to establish, was not that there was a lack of effort on its part to make the merger work but that circumstances and people had let it down. The ministry further told the committee that it had extended all support to the board of NACIL to implement the merger. However, the COPU was unconvinced, and the report was categorical in its censure of the Ministry of Civil Aviation: ‘Nowhere does it reflect the assistance you have provided. You will see the reply is totally beating around the bush. You are not talking about what exactly you are doing about it.’

The COPU also asked what, in the opinion of the ministry, had been the impediments in the way of the merger taking place as per plan. The ministry replied, ‘There were a number of issues involved in the merger of the two erstwhile airlines in the areas of IT, Manpower, Sales and Marketing, Network Integration, Finance, Materials Management, etc. Merger of Air India and Indian Airlines coincided with the global recession and increasing fuel prices, which has further complicated the matter and affected the pace of integration negatively. While there has been progress in the areas of route rationalisation, combined insurance policy, sourcing of fuel, sharing of engineering facilities, management of working capital, etc., the progress in certain areas like IT, manpower integration has been slow.’ On being asked who was responsible for the mess that the merged entity had landed in, the ministry replied, ‘At the time the merger was contemplated, it was anticipated that there would be optimal utilisation of all the resources and a growth in market conditions and global commitment for travel. Subsequently, due to the recessionary conditions affecting the market conditions in India and abroad, there has been a continuous pressure on yields, passenger load factors, etc. The loss of NACIL is mainly attributable to these factors, including the expansion of fleet, which has resulted in additional interest and depreciation charges. Added to this, the implementation of the wage agreements and the spiraling ATF prices has also impacted the bottomline.’The ministry was trying to absolve itself of all blame, but nothing could have been further from the truth. For any merger to succeed, it is imperative to ensure that the merged entity is allowed a stable leadership whose vision is synchronised with that of the rest of the organisation and a dedicated team of professionals to stand by the leader. These are the two pivots on which the success of the entire exercise will rest. Both were missing in the case of the Air India–Indian Airlines merger.

First, let us look at the quality of the leadership. It was the government’s responsibility as the owner of the airlines to bring in or promote from within a candidate who was familiar with the pitfalls and potential of the aviation sector. But bureaucrats with little or no knowledge of aviation, Air India and the changing market scenario were appointed. They were chosen not for their expertise but for their proximity to the political establishment. Even that would have been acceptable if the people who took on the mantle of chairmen were willing to learn on the job or take hard decisions that would help give the merged entity a chance against the competition. If the government was committed to turning the airline around, the best option would have been to appoint someone with a proven track record. A perfect candidate would have been one who was associated with both Indian Airlines and Air India and had performed commendably in both and was in active service. Sunil Arora fit the bill. However given his independent streak—he had sent a strongly worded letter to the Cabinet Secretary in June 2005 protesting at the way pressure was being mounted on him and his colleagues on the boards of Air India and the Airports Authority of India—his candidature has not even been considered by those in power.

The government also played a game of musical chairs with the position of CMD. In the period of five years since the merger of the two airlines, there have been five people—V. Thulasidas, Raghu Menon, E. K. Bharat Bhushan, Arvind Jadhav and Rohit Nandan, all bureaucrats—at the helm. Did anyone have any experience in managing a merger, leave aside running an airline? No! Worse still, none had the chance to settle into the job and understand the needs of the airline. Even before they had taken a measure of the problems within the airline, they were moved out.

With Air India’s future at stake, should the ministry and the political stakeholders in the airline not have sought people with professional credentials who could have been held accountable for their actions? A bureaucrat—and that too, one whose job was constantly under threat— meant that the airline was being asked to perform with its wings tied to its side. It seemed that the ministry treated the process of appointment of chairmen like buying a lottery ticket in the fond hope that someday, someone would hit the jackpot. Or maybe, it was a case of misplaced optimism that the chair would make the man—after all, operating from the same room and chair as the legendary J. R. D. Tata should have some beneficial effect! On a more serious note, this was the attitude that killed the airline’s hopes of revival. There should have been just one committed chairman to drive the merger agenda, and not a new man at the helm every one or two years.

As one who spent almost two-and-a-half years in the merged airline and has since retirement been closely observing the developments, my impression is that the ministry and the airline’s leadership were negligent of the needs of the merged airline. A project, howsoever simple, can’t be left on auto mode. It needs a dedicated and consistent effort from all the parties involved. And given that the merger between Air India and Indian Airlines was of a complex nature, it was even more important to monitor it closely every step of the way and ensure that the people in charge were not moved mid-way through the execution process.

To quote the COPU report, ‘The Committee feel that there is a need for consistency in plans and policies of the company for the merger to consolidate and for this purpose, there is a need for some credible leadership at the top.… The leadership of NACIL should be put on a mission mode with a mandate spelt out in unequivocal terms to turn around the Company within a specified period. The postings in the top slot of the Company should invariably be governed on the basis of performance and accountability.’

Merging two airlines requires the integration of networks and manpower on the rolls of the respective airlines. Saikat Chaudhuri, assistant professor of management at Wharton School, University of Pennsylvania, who studies and teaches mergers, acquisitions and innovation management, wrote in an article titled ‘Opportunities and Challenges in Merger of A-I, Indian’, published in
The Economic Times
on 2 April 2007, ‘A well-implemented merger would catalyse growth efforts as well as provide revenue and cost synergies.’ According to him, the merger should have bestowed upon the airlines ‘the ability to optimise networks and reduce overcapacity, expand geographic coverage, capitalise on economies of scale and scope in fleet utilisation and ground facilities, remove duplications in back-end operations, and increase bargaining power in purchasing activities as well as airport slot negotiation’.

For Air India and Indian Airlines, all promises of enhanced performance have remained unfulfilled. While the Single Code Passenger Reservation System, which is essential for the merged entity to operate all its flights on a single code and helps reap the benefits of network integration through seamless travel for passengers on all domestic and international routes, was operationalised only in early 2011, manpower integration is still a pipe dream. In fact, the environment has become so vitiated today that senior officials in charge of the merger are being accused of favouring one airline over the other and their decisions are being challenged. This does not augur well for the merger and for the aviation sector as a whole.

NO COMMON GROUND

To be fair, managing people is the toughest part of any merger. But the manner in which it has been handled in Air India makes a mockery of the entire exercise. The integration should have been driven by the chief of the HR department with active support from the rest of the team. In Air India, the HR department has traditionally been a weak spot. It has never had a strong leader. It was the same story even after the merger. The HR heads looked towards the chairmen for guidance for every minor change. But the chairman’s post was a moving target, and every time a new man came to the job, he brought a different perspective and set of guidelines. He would also invariably change the HR head, in keeping with the general trend that all senior positions were seen as handouts and favours. The CMD chose a person whom he was close to—not necessarily one who was right for the job—and then let personal prejudices get in the way of support for the chosen person’s actions. For instance, V. Thulasidas felt that a member of the board of NACIL, Anup Srivastava, who was head of the HR department and belonged to the erstwhile Indian Airlines, was choosing his former employer over the merged body when it came to key decisions such as emoluments and promotions for the employees. Mr Thulasidas was quite open about his mistrust of the gentleman and said so on several occasions at internal meetings. He would, thus, prefer to deal directly with the junior members of the department, thereby undermining the authority of the chief, which did immense damage to the merger process. Another chairman-cum-managing director, Arvind Jadhav, decided to entrust the HR department on a part-time basis as additional charge to the head of the airline’s medical department. Thus, for a while, human relations was managed by a doctor and then by an official from the materials management cadre, who had been censured by the Central Vigilance Commission a few years earlier. Rohit Nandan, the current chairman-cum-managing director, who, unlike his predecessors, isn’t essentially a hands-on chief executive, handed over charge to two executives from the erstwhile Indian Airlines, who had limited experience with corporate HR. Ironically, the board-level position of director of the HR department remained vacant for a year-and-a-half when it was needed most, further demonstrating the lack of interest and commitment at the political level in making the merger work. Now, the airline finally has appointed a deputationist from the Indian railways to head the personnel department, and it remains to be seen if he succeeds.