The Descent of Air India (47 page)

Air India also has to follow the government-stipulated pay scales for its employees. Under the given structure, the airline pays its employees at junior levels emoluments that are higher than the market rate and its senior employees emoluments that are lower than the market rate. Thus, its wage bill is high, but at the same time, it is unable to attract the best talent at senior levels.

The negatives therefore far outstrip the benefits that come Air India’s way on account of being a government-run airline. At present, the airline has very little say in matters that impact its bottom line—be it the acquisition and leasing of aircraft, the appointment of chairmen or entering into a strategic deal with a foreign carrier, like the one between Jet airways and Etihad. For instance, the decision to merge the airline was also taken by the government, but it did not take the responsibility of ensuring that the merger was a success and that all the recommendations made by the committees set up to look into it were implemented. Air India is also answerable to a larger constituency—unlike private airlines that are accountable only to their shareholders. Air India is vulnerable to complaints from ministers, politicians across the spectrum and the general public.

THE ROLE OF UNIONS

If I am allowed the luxury of dreaming that the government does pay attention to the plight of the airline and brings in a professional management team and adopts a hands-off policy, would the airline have a fair shot at recovery? Not really. Air India’s future hinges not just on bringing in better management practices but also on bringing in a change in the unions’ approach and attitude. Unions will have to cease their short-term and shortsighted way of functioning and agree to bury the old wage agreements that were drawn up when Air India was a near-monopolistic player. It is time for all to come to terms with the reality that the airline cannot effectively compete and hence survive with the various restrictive work practices enshrined in these agreements. The era of high pay and low productivity that has become the norm for almost all categories of employees in the airline has to come to an end. But that may be a pipedream, given the vociferous protests that have greeted the introduction of ‘Flight and Duty Time Limitation’ rules as per the DGCA guidelines and practiced by other airlines. The erstwhile Indian Airlines pilots’ union, the Indian Commercial Pilots Association(ICPA), has taken the management to the court in September 2012 on the issue. Likewise, the unions representing erstwhile Air India employees too has petitioned the court against their transfer to the subsidiary companies, Air India Air Transport Services Ltd and Air India Engineering Services Ltd. Their behaviour is indicative of the obduracy and ignorance of ground realities that continues to mark their actions.

It is time for the unions to introspect on whether they want to be a part of a resurgent Air India or would rather take it down. In fact, when the airline’s cabin crew challenged the increase in working hours in the Delhi High Court in November 2012, the judge Justice Suresh Kait had this to say, ‘Since the airline is going through a crucial financial crisis, it becomes the duty of each and every person who is part and parcel of the institution to work as per the established industry practices to enable the respondent airlines to pull through from its present position.’ A timely homily, well delivered, but the employees drew no lesson from the statement.

It would be fruitful at this juncture for the management to draw some lessons from their global counterparts. Many global carriers have at some stage or other had to reduce manpower costs and radically change work practices. How did they do it? US Airways went bankrupt twice within three years of the 9/11 attacks on the USA. It was turned around by 2006 by David Siegel and Doug Parker, two strong leaders who not only established the necessary trust with the pilots’ unions but also negotiated salary cuts totalling USD1.5 billion. The duo also subsequently merged US Airways with America West successfully. The story of Thai Airways is no different. Piyasvasti Amranand, an economist from London School of Business with no aviation experience, turned around the airline when the government infused a billion dollars into the airline in 2008. Thai Airways achieved record profitability by 2010, with its share price increasing ten-fold. Similarly, Air New Zealand merged with Ansett and subsequently slipped into bankruptcy in 2001, but the government nationalised it (again) and poured in billions of dollars. Ralph Norris, a banker, was asked to take charge, and by 2005, he had successfully turned around the airline. Malaysian Airlines collapsed in 2005 when faced with severe competition from low-cost carriers such as Air Asia—a predicament similar to that of Air India today. Idris Jala, a former executive of Shell, was handed over the reins, and by 2007, he had it back on its feet. He implemented an aggressive restructuring of the airline and took Air Asia ‘head on’ in pricing. More recently, Japan Airlines witnessed a remarkable turnaround through the implementation of a restructuring plan that included a 30 per cent cutback in its global workforce. JAL did that by selling off its subsidiaries, and the revenues that accrued from such sales helped keep it in the air after it had filed for bankruptcy protection with a debt of more than USD25 billion. Other initiatives included dropping unprofitable domestic and international routes and retiring over a hundred aircraft. The financial support extended included a debt waiver of USD6.2 billion mainly from financial institutions and an investment of USD4.2 billion in JAL by the Enterprise Turnaround Initiative Corp. of Japan, the company appointed to oversee the turnaround. Chairman Kazuo Inamori, appointed to guide the destiny of JAL, said on assuming charge, ‘We must do our utmost to make sure that this does not end as just fantasy.’

All these airlines have one thing in common: a strong leader at the helm. Air India needs one too. The chairmen of the beleaguered airlines who managed to turn the tide in their favour dealt with the crisis in their own individual ways, but they could not have done it without their employees’ trust and support. The management could not have negotiated staff compensation and linked it with productivity, developed cost-effective strategies and brought about a radical change in work ethic if the employees had taken a belligerent and antagonistic stand.

It is possible that when an empowered leadership is in place, Air India employees may open up to ‘reduced pay–more work’ type of negotiations and finally realise that their compromise will make a difference to the airline’s profitability and survival. The current scenario does not inspire confidence, as the unions are extremely reluctant to support the management, primarily because the leadership has neither been able to win their trust and confidence nor demonstrated that it means business. Without the employees’ cooperation, little can be achieved, because the government, in a bid to push through the merger proposal, has agreed to honour and protect all past agreements. This has lent legitimacy to unions’ insistence on adhering to all their agreements and refusing to change work practices. It is important for everyone involved in the future of Air India to understand that quite like the government’s desire to micro-manage everyday affairs, the unions’ insistence on past agreements too is an impediment to Air India’s survival. Moreover, it is inevitable that the government will be forced to withdraw its financial support in the near future. The unions will then be left with just agreements but no airline to work for.

Interestingly, not every leader in charge of a revival plan for the airlines was an aviation expert; instead, they had been chosen for their leadership and commercial skills because that had been the need of the hour. Air India, however, has continued to experiment with bureaucrats, which has been unfortunate for a host of reasons, as we have explained in the earlier chapters. Perhaps it is time for the authorities to take a hard look at the damage that this has done to the airline and draw lessons not just from global airlines but also from companies closer home, such as Satyam. The company, which faced a near-death situation after its promoter was hauled off to jail, has been revived by a new management that has taken some hard decisions and earned the trust of the employees.

Even as the obstinacy on the part of the government to retain its stranglehold on management and of the unions to hold on to the agreements governing work practices and wages continues to lead to the airline’s imminent marginalisation, the external developments arising out of policy decisions of the government are set to pose even greater threat in the coming years, making the survival of Air India still more difficult.

THE GOING WILL GET TOUGHER

The growing challenges emanating from Indian competitors gaining muscle as a result of foreign investment, the entry of Air Asia India, the growth of low-cost carriers, the opening up of the international market in the form of bilateral liberalisation and the changing nature of global alliances will impact each of the three key areas of Air India’s operations—long-haul international, regional international, and domestic. This is set to happen any day now, with the proposed Jet–Etihad deal in place and the government already having doled out a 37, 000 additional seats per week in each direction on the India–Abudhabi sector. As per CAPA, the Emirates, Qatar Airways and Turkish Airlines are also waiting in the wings, seeking an expansion of bilateral access, as they have exhausted their current entitlements. Singapore Airlines has in April 2013 been already granted enhanced access. As most of the airlines seeking additional rights are sixth-freedom carriers, further liberalisation will place increased competitive pressure on Air India’s key routes. The historical weakness of international services by Indian carriers—largely the result of incoherent Indian policies—has already resulted in more than a third of Indian international traffic travelling to its final destination via an intermediate offshore airport, with the Middle Eastern hubs accounting for more than half of such traffic.

As most of these airlines are significantly more efficient operationally and have aircraft that match market requirements, Air India’s long-haul and wide-body fleet issues will prove to be a major constraint. The new B777 fleet was being underutilized as it had been termed economically unviable. One cannot, however, gloss over the fact that this is primarily because Air India has not been able to generate the necessary traffic volumes and yields—particularly in premium cabins—to support the high operational costs of these large aircraft. Many global airlines are successfully deploying the same aircraft. Air India would do well to recognise its weaknesses rather than apportion all of the blame to the machines. But this is a tall order and seems way beyond the ability of the people in the government.

Air India is not preparing for the future; neither in terms of machines nor in terms of men. It has no plans for capacity augmentation. The airline’s aircraft pipeline will be dry once all the Dreamliners have been delivered by 2016 whereas other Indian airlines are adding to their fleet and foreign carriers are being allowed to increase their presence in India. Air India has been similarly unconcerned about its people requirements. For over two decades, there have been no fresh inductions into the senior management cadre. Positions that have fallen vacant have been filled up by promoting officers from the ranks but in a few years, even the internal pool of employees is going to run dry and unless the airline is looking at shutting down, it has to not only hire professionals but also develop a recruitment strategy for the rapidly changing market conditions. Clearly the only course of action the present policy makers believe in is inaction.

Thus, the only way Air India can survive is if its operations are subsidised. But that cannot be a long-term solution; a day is sure to come when the government will pull the plug, citing financial constraints. The only way to describe the way the airline has been and continues to be handled is that it is preparing for harakiri.

It will, therefore, be prudent for Air India’s friends and well wishers to act now. The first step should be to apportion responsibility for the current state of the airline. Employees who have been more concerned with their future—with emoluments, promotions and postings rather than the airline’s survival—and the unions, with their reckless propensity to go on strikes and stop work, are as responsible as the politicians and chairmen who have focused on their personal gains at the cost of the airline. The second step is to delve into the crisis and separate the strands of the current financial mess to arrive at a broad consensus on the losses accrued on account of government decisions and for being a public sector undertaking and those accrued on account of poor performance. For instance, the large number of aircraft ordered and the unplanned merger between the two airlines were government decisions, and these decisions have taken a huge toll on the airline’s financial health. The airline has also suffered for its poor service, low aircraft utilisation, poor on-time performance, dismal productivity norms, lack of revenue generation skills and unsatisfactory public perception. The government should compensate Air India to the extent of loss caused by it and let Air India face the consequences of its inefficiencies. If it can’t pay the employees, if it can’t pay the vendors, if it can’t expand operations, if it gets marginalised in such circumstances—so be it. By fixing accountability and identifying the issues that led to the current state, the airline can hope to emerge out of the crisis. Incidentally, there is a precedent for the government compensating an airline for its decisions: when A 320s were ordered to be grounded by the V. P. Singh government in the wake of the Bangalore air crash in February 1990, the government did compensate Indian Airlines financially and by transferring to it some of the profitable Gulf routes of Air India. We need to do this to dispel the myth that the government’s financial support has kept Air India afloat. And by apportioning responsibility, Air India employees who have still not recognised the gravity of the problem facing the airline will be forced to do so.