The Descent of Air India (41 page)

The various chairmen who had moved in and out of office, particularly after 2003, were responsible for most of the damage done to the airline by either acquiescing with the unreasonable demands of the politicians and the trade unions or, in some cases, not resisting or opposing them strongly enough. Responsibility also rests with the ministry, which did not appoint the right people, and with the prime minister’s office, which refused to respond to pleas for help. Sunil Arora, the former chairman-cum-managing director (CMD) of the erstwhile Indian Airlines, for instance, wrote to Cabinet Secretary B. K. Chaturvedi in June 2005 complaining about the pressure being mounted on him to take a certain stance on leasing and purchase of aircraft for Air India. This was ignored either conveniently or deliberately. The Central Vigilance Commission displayed a lack of interest in holding persons accountable for acts of commission and omission. And when Air India Board member V. Subramanian asked some pointed questions at a board meeting, he was immediately transferred out of the ministry. All of this indicates a larger game plan, implying an intentional objective to destroy Air India once and for all.

Let us look at some of the important decisions that should have helped Air India but didn’t. These were all decisions taken to make Air India a premier airline, but they were either abandoned or allowed to unravel even before they had reached a reasonable size and scale. Issues like the acquisition of aircraft in numbers that were far in excess of what Air India could afford or gainfully deploy, the leasing of aircraft in a manner that was certain to do harm, a recklessly implemented merger, and extravagant expenses incurred at a time when the airline was starved of working capital have been elaborately dealt with in the earlier chapters. But numerous other decisions have crippled the airline; it is as if the strategic blueprint had been scripted to achieve the result that is evident now but was made to look like an attempt to transform Air India into a premier airline.

Consider the role of the ministry. Was the decision to merge Air India and Indian Airlines taken by the boards of these two airlines or was it an agenda thrust from above by the ministry? And why has it failed to achieve the objective that it had set for itself—that of making Air India an airline that evokes pride in one’s countrymen?

One suspects that the murder of the national carrier was achieved in a systematic manner through a series of motivated decisions. To begin with Indian Airlines – which had a well-established brand name and often voted as one of the most recognised brands in the country - was asked to change its name to ‘Indian’. The stronger brand name was lost forever. Changing the brand name was not an idea recommended by any committee or an external consultant. Neither did it originate from within the airline. Within a short time after this development, the merger was announced by creating National Aviation Company of India Limited – NACIL, for short. In the process, both brands - Air India and Indian Airlines - were destroyed completely. Though the merged airline is still called Air India, the process was so botched as to squeeze the value of the brand altogether.

The ministry: the prime suspect

The parliamentary committees have been scathing about the role of the ministry in Air India’s decline. They questioned the ministry about its inability to implement the merger of Air India and Indian Airlines and asked for details about the monitoring mechanism that had been put in place. The ministry indulged in bureaucratic doublespeak, and the committee admonished the bureaucrats for dishing out automated responses instead of addressing the points raised. The parliamentary committee also asked the ministry to state the specific steps that had been taken by the government to strengthen the merged entity, NACIL. Once again, the ministry skirted the issue. It said, ‘The NACIL’s Board was reconstituted with chairman and managing director, joint chairman and managing director, eight functional directors, one non-official director and two government directors with a view to provide professional guidance in the merger process. States were requested to exempt the properties of NACIL from stamp duty on the transfer from the original companies to the merged company. The ministry of finance was requested to amend section 72A of the Income Tax Act in a manner so as to extend the benefit of carry forward of the unabsorbed depreciation of Air India and Indian Airlines to the new merged entity to be set off against its taxable profits in the future. Government of India Guarantee was to be provided for acquisition of aircraft.’

Many of the steps that the ministry listed out in its response to the COPU queries raised by were pure administrative decisions. They were not meant to ease the post-merger operational issues. The ministry had merely created a common board for NACIL by combining the two boards of Air India and Indian Airlines. The parliamentary committee sought information about what the ministry had done with respect to: (i) route dispersal guidelines, (ii) route dispersal in non-profitable areas, (iii) fleet acquisition and management, (iv) leasing of aircraft, (v) capacity utilisation, (vi) passenger load factor, (vii) wage disparities, (viii) controlling of costs, (ix) code sharing, (x) ground handling services, (xi) maintenance and repair overhaul services, (xii) joint ventures, (xiii) performance of subsidiary companies and (xiv) various other issues relevant to the merger of Air India and Indian Airlines. In response, the ministry said, ‘No specific instructions were issued. However, as per time-frame provided in the consultant’s report, NACIL was required to complete the process by 18/24 months.’The parliamentary committee asked whether the ministry had reviewed the implementation of the merger since the year 2007. The ministry said, ‘Apart from keeping a tab through government directors on the board of NACIL, implementation of merger process was reviewed from time to time at secretary/minister level.’ So the parliamentary committee asked, ‘With what effect, if any?’The ministry was silent. The ministry attempted to conceal its inaction by shifting its responsibility on to the board of NACIL.

The responses established what many of us had suspected. The ministry believed only in setting the rules, but was interested neither in monitoring their final impact nor in their implementation. As far as management principles go, this attitude violates every single rule in the book. Having initiated the merger process, the ministry should have played a more responsible role.

In response to a query about the impediments to the merger, the ministry said that there were multiple issues and that some, such as route rationalisation, insurance and fuel sourcing, had been resolved, while progress on IT, manpower integration and such other areas was slow. While the ministry’s reply suggested that routes were rationalised to ease the merger process, the objective of the exercise was not necessarily to aid Air India but to pave the way for allocating flying rights to be given to private airlines. It was a classic case of ‘
suppressio veri, suggestio falsi’
—a legal dictum that says that by suppressing the truth you suggest the exact opposite of the same. Some countries allow only two airlines from India to fly their skies. Thus, a private airline could not have entered the space if Indian Airlines and Air India had been flying under their old call signs. One airline had to withdraw, which is what happened after merger. As a consequence, six years after the merger, Air India is flying fewer international passengers than it did earlier. The point, once again, is not that private airlines should not have been allowed into the international skies but to question why Air India’s interests were never considered. Also, why were the recommendations for the airline’s revival selectively implemented?

The committee had sought to apportion the responsibility for the state of mess within Air India, and asked for an explanation of the ministry’s action or lack of it. But the ministry parried all questions by deflecting the blame onto external circumstances. For a moment, let us accept the position that the merger failed because the aviation business changed and not because there was mismanagement or lack of direction. The ministry was the administrative authority in charge of the merger. Why was there no attempt to smoothen the process? For instance, as in most mergers, one of the biggest problems was creating a homogenous workspace so that employees of both airlines felt motivated and secure. But instead, the merger heightened the differences, with each party feeling slighted by the way things had turned out.

It is a truism that people make all the difference in a merger, and given the history of acrimonious employee relations at Air India and Indian Airlines, HR was a critical piece. When NACIL was conceptualised, the ministry had assured us that manpower integration would be accorded priority. And yet, nothing had been done. Employees were not taken into confidence; the respective HR departments of Air India and Indian Airlines were not helped with the transition; and discontentment was allowed to fester till it broke out into prolonged agitations. The merger was meant to follow orders. The two airlines worked with different HR policies. The pay grades were different, as were the promotion policies. And even six years after NACIL was formed, Air India and Indian Airlines continue to work as two distinct units. The employees are still at loggerheads over seniority issues, and so deep is the rift that when the Indian Pilots’Guild, the representative body of erstwhile Air India pilots, went on strike in May 2012, the pilots’ union of the erstwhile Indian Airlines (ICPA) went out of their way to extend support to the management in taking a tough stand against their counterparts.

The Justice Dharmadhikari Committee was constituted more than three-and-a-half years after the merger was initiated to harmonise manpower issues, and that too, only after the Indian Airlines pilots went on strike in April–May 2011 seeking parity with their counterparts in Air India and after Praful Patel’s exit from the civil aviation ministry. Why did the ministry, the board, or the chairman not act earlier? When everyone had acknowledged that HR was going to make all the difference between success and failure, why was nothing done?

Accomplices or suicide assistants?

The ministry appointed Accenture as the primary consultant to study the potential and possible benefits of creating one organisation out of the two airlines. As evident from the mandate, the consultant was expected to justify the merger as the decision had already been taken. The team from Accenture said that the merger was an opportunity to ‘undertake a comprehensive transformation programme to improve the overall competitive and profit position’ of the two airlines. Overall, they were positive about the merger, which they said could help bring about:

•   Clarity on the operating model for the airline business
  
•   Integration and restructuring of the network
  
•   Strategic cost reduction and productivity enhancement
  
•   Fleet renewal and product revamp
  
•   Significantly enhanced focus on service level
  
•   Cash injection/liquidation of non-core assets
  
•   Lead to reviewing of options of outsourcing non-core areas
  
•   Targeted injection of best-in-class management skills
  
•   Strong branding and communication campaign (at the right stage)
  
•   Continued governmental support
  
•   Regulatory support to prevent overcapacity and crowding
  
•   Infrastructure to support growth
  
•   Favourable negotiations on bilateral rights
  

The ministry used the report to show why a merger was the best way forward for Air India and Indian Airlines, but it ignored the other recommendations that Accenture had made. For instance, a critical requirement for the merger’s success was the injection of fresh funds. It has taken the ministry almost five years to act on this suggestion. NACIL, in the meantime, has accumulated huge losses and is battling for survival. Why was this allowed to happen? Why did the airline not take control of the situation even when it was hit by falling revenues, rising expenses, shrinking market shares and ballooning losses?

The creation of NACIL presented a unique opportunity for consultants to oversee the merger of two public-sector giants. And as was expected, many well-known consulting companies pitched for a slice of the business. Consultants were also appointed for a host of other reasons and it will be an interesting exercise to track the total number of consultants that were appointed one after another for the purpose of increasing seat utilization, expanding the network, reducing costs and for fulfilling other similar objectives—all at the cost of the airline. In many instances, the ministry did not pay for most of the consultants since it would have meant having a clear and transparent approach to their selection, terms, and so on. It was always convenient to leave it to the company board to appoint the consultants, who were obliged to carry out the wishes of the minister

Consultants were appointed, but their suggestions were not considered. Amitabh Malhotra, the managing director of Rothschild which was one of the consultants appointed, said, ‘We had several meetings with the top brass of the airline and the ministry; submitted our recommendations but got no response despite sending several reminders.’When I asked him, ‘Were you paid?’ he said, ‘Payments were linked to milestones but we weren’t paid even though we had attained the first milestone by the time discussions were abruptly terminated.’

Internally, employees were being kept in the dark about the true state of affairs, and political compulsions were being allowed to dictate terms when the market should have been given precedence.

SINS OF OMISSION OR COMMISSION?

The government played around with the post of chairman even in times of crisis, raising once again the issue of its seriousness in dealing with the entire problem. In the post-merger period of six years, the airline has seen four CMDs, not counting E. K. Bharat Bhushan, who was a stop-gap appointee for only a week: V. Thulasidas, who held the post at the time of the merger, was succeeded by Raghu Menon on 1 April 2008. Arvind Jadhav was appointed on 4 May 2009 only to be removed on 12 August 2011, when the current incumbent Rohit Nandan succeeded him.