The Descent of Air India (9 page)

I am, in fact, prompted to quote Mr Kazua Isamori, the founder of Kyocera Corporation, Japan, who was appointed the CEO of Japan Airlines in 2011, when the airline’s survival was at stake. After interacting with his senior managers and evaluating them, he observed to the Japanese media that ‘an extremely low number’ of his senior managers had business sense and that they ‘would not be able to run a green grocery [business] with their ideas’.
¹
The scenario at Air India has not been very different. The HR department has been unable to provide the airline with the right people for the right jobs.

What should the HR department have done? To begin with, given the exigency of the situation, it should have instituted a robust selection process, especially for senior roles, where, if an internal candidate did not fit the bill, the airline could consider external applicants. It should also have alerted the board, considering how critical it was for the airline to have a strong leadership. It should have also assumed the responsibility of setting up a framework for employee–management negotiations and created an atmosphere in which the airline’s interests would be the guiding force for any decision.

But Air India was faced with a paucity of talent across its departments, and the HR department was no exception. As promotion to the top job came about for the wrong reasons, the departmental heads failed to show initiative in their roles; they were beholden to those who had given them the opportunity and went about doing their bidding. I used to often tell my colleagues that we in Air India had managed to turn Mahatma Gandhi’s adage on its head. Mahatma Gandhi had preached that work is worship, but some Air Indians had interpreted the worship of the chairman/managing director to mean work. In fact, during several interactions and official interrogations, when the HR department’s officials were asked about their lack of action on critical issues, they had just one reply: ‘What could we do? The CMD did not ask us to.’

The HR function was also never given its due importance within the airline. As a result, in the past 25 years, the department has mostly been managed on an ‘additional charge’ basis, which meant that the HR function was always a shared responsibility and the department never got the focused attention that it needed. For instance, Rajan Jetley, when he was the managing director of the airline in the late 1980s, entrusted the HR portfolio to S. R. Gupte, whose strength lay in managing the finance function. Chairman Y. C. Deveshwar appointed Madhavan Kutty, who was an external appointee, and when he quit in under a year, entrusted the department to J. J. Rindani, who was from the Department of Finance. The HR portfolio was also briefly managed by P. B. Kumar, the head of the Engine Overhaul Department. In August 2003, for instance, even though Air India had five ‘qualified’ HR executives who had been in the general manager grade for over six years, the then managing director, J. N. Gogoi, brought in A. N. K. Kaimal, the head of Civil Works Department, to run HR. On his retirement, I was given the portfolio by Sunil Arora.

A weak management had seeded a weak HRD, and that, in turn, had strengthened the unions. Also, my experience showed that the HR department officials and the union leadership in Air India shared a symbiotic relationship. They used each other to oust non-pliant departmental heads. Also, in the case of an employee–management dispute, the HR Department would wash its hands off the matter and ask the relevant departmental head to negotiate a settlement. This had disastrous consequences because, firstly, most department heads were overburdened with their operational duties, and secondly, they were not adequately trained to negotiate with trade unions. By giving in to irrational demands for pay hikes, they were, in fact, reducing passenger amenities and weakening the product through decisions such as withdrawal of Dom Perignon champagne from the menu for first class passengers, exclusion of pickle sachets and chocolate bars from the menu and, when the financial position worsened, carrying food from India for return flights instead of picking up fresh meals from foreign destinations because the latter was more expensive. Economy measures also led to a freeze on hiring even though it meant that flight operations were hampered, there being a need for trained staff due to the introduction of new flights and the retirement of employees. The airline also resorted to curtailment of expenses for travel for seminars and conferences, training programmes and other such requirements. The result was a slow but steady erosion of the quality of the product.

The weaknesses of the HR department affected the entire organisation and left it unprotected against the onslaught of its competitors. The problem had been long brewing and J. R. D. Tata had mentioned it in a letter way back in 1972 in which he had noted, ‘We must face the facts that our efforts at establishing good relations with our employees in Air India have not met with full success up to now, at least in India.’He had pointed out that the problem was that unions in Air India believed that they owed it to their members to be hostile towards the management and that the HR department ought not to be weak in handling issues of indiscipline from the unions but should be more humane in the way it dealt with other employees (see
Appendix 4
).

Why did the HR department play such a role? Besides the fact that there was no one in the HR department and in the rest of the leadership team capable enough to put up a strong counter-attack, there was also another reason. Many in the HR department helped the union leaders for personal gain. Since the promotion process in the airline was not transparent and the union leaders had begun playing an important role in the choice of departmental heads, some employees would appease a section of the union leadership in return for a recommendation or support for promotion. As a consequence, even when Brijesh Kumar and V. Thulasidas, as chairmen, gave HR professionals N. S. Rajan, S. Mukherjee (for a couple of months) and V. Ferreira the leadership of the department, they could neither dent the union’s increasing influence over the airline nor address the erosion of a professional work culture in the airline. And some of the decisions taken under the leadership of HR professionals have done long-term damage to the airline. An example of how the department suffered under their leadership can be seen in the signing of the agreements with the Indian Pilots Guild (IPG) under the then managing director Captain D. S. Mathur, when V. Ferreira, as the HR official posted in Operations Department, facilitated this patently wrong agreement. And it was during the tenure of N. S. Rajan that the productivity-linked agreements with the other unions were signed. While the agreement with IPG was castigated by the CAG, the ministry frowned on the productivity-linked incentive (PLI) agreements as it was in violation of the Bureau of Public Enterprises norms. Both these ill-conceived agreements ensured higher payments with no enhancement in productivity, which was the stated objective. The productivity-linked incentives have mercifully been replaced, effective 1 July 2012—16 years after it was introduced—and the system of paying flying allowances to pilots is in the process of being restructured in 2013—19 years after it was signed in 1994. Both agreements have caused immeasurable damage to the airline. The lack of understanding of the company’s needs was again evident in 2004–06 when Mr Ferreira, as the HR head this time, signed wage agreements imposing an additional financial liability far in excess of what the airline could afford. Moreover it was in violation of the commitment that the airline had made to the ministry that there would be no additional outgo on wages and if there was any increase, it would be balanced out through commensurate enhanced productivity and cost cutting measures. But the airline’s wage bill was allowed to rise without instituting work practices that were more productive. Such behaviour on the part of a few HR officials indicates that there was perhaps either collusion between them and a section of the employees or a negligence of the airline’s interests.

SERVING SECTORAL INTERESTS

Captain D. S. Mathur, officiating as managing director after the sudden exit of Y. C. Deveshwar from the post in February 1994, signed an agreement with the IPG in 1994 that replaced the then existing practice of paying pilots a fixed daily allowance when on duty abroad with a payment system that was based on the number of hours flown. A professional pilot, Captain Mathur had led the IPG in a prolonged strike in the early 1970s, for which he had been dismissed from Air India and subsequently reinstated. The HR Department went along with his proposal for incentive-based payouts to pilots without considering its fallout on other categories of employees, and the Finance Department neglected to evaluate the financial impact.

Consider the implications of the change. Every pilot’s salary comprises two elements: a monthly wage and a variable allowance. The allowance is a consolidated amount that is meant to compensate pilots for meals and other daily needs while overseas. Traditionally, the allowance was calculated on the basis of the number of days spent away from the base station. Pilots were paid a fixed amount for every night of stay at an overseas destination. The new scheme brought in the concept of ‘the more you fly, the more you earn’, whereby pilots’ allowances were determined according to the number of hours flown and not the days spent at a foreign destination. The rate at which the allowance was calculated varied according to the seniority of the pilot. The new compensation system increased the amount that would be paid out by increasing the base of the calculation, and stated that the earnings of a senior pilot could not fall below that of a junior pilot. Thus, if a junior pilot earned more because he had flown longer hours, the difference would be made up for—provided the senior pilot was available for flight duties—through a ‘shortfall allowance’. If a junior pilot flew 70 hours a month, for instance, and a senior pilot 55 hours, the senior pilot would be paid a shortfall allowance for the difference of 15 hours at the applicable rate.

The scheme led to an increased expenditure of
307.20 crore as shortfall allowances during the period 1995–1999, and much more in subsequent years. It also had a negative impact on employee morale. The CAG, which used to regularly evaluate the various functions of the airline, said in a report on the expenditure incurred on pilot agreements: ‘The shortfall scheme formulated as a part of the hourly payment scheme defeats the very objective of the hourly payment scheme. According to the management, the hourly payment scheme sought to encourage the productivity of the pilots, and yet it provided for payment of shortfall to a senior pilot when he flew lesser hours than his junior. As the senior pilot was paid shortfall at hourly rates applicable to his grade, a senior pilot earned more for not flying, than the junior pilot did for flying.’ The Air India management replied that in order to be eligible for this shortfall payment, a pilot had to be available to the company for flying duties for 25 days a month, which ensured better utilisation of the pilots. The CAG was not convinced and said in its report, ‘This reply has to be viewed in the light of the fact that the availability for flying duties does not tantamount to actual flying and consequently cannot be construed as leading to higher utilisation and increased productivity.’The CAG also criticised the way the agreement was drawn up. No approval was sought from the board of directors, and the team negotiating with the board/ministry on behalf of the management had two executives who stood to directly gain from the agreement. Moreover, the managing director’s approval was not available on record—the report said. More importantly, how could one man—even if he was the managing director and had given his sanction to the scheme—push through a change that would impose such a huge burden on the airline without approval from the board? Why did the Finance Department officials not alert the management about the financial implications of such a move? Why was the HR department silent on the impact that this would have on the morale of the rest of the organisation? How can one explain the situation except by terming it as a complete breakdown at every level of management?

Captain Mathur’s agreement with the IPG was annulled a year later, when a new managing director took over, but it continued to play havoc because labour laws stipulate that a bilateral agreement signed with a union, even if terminated, will continue as long as a new agreement replaces it. When the time came in 2005–2006 to sign a new agreement, the HR department faltered again. Though there was no union at that time—the IPG having been derecognised in 2003—the management, instead of abolishing the shortfall payment altogether, tinkered with it. Instead of a variable incentive-based payout, the airline committed to pay pilots an allowance for 80 hours of flying every month. The wage bill ballooned once again beyond Air India’s means to meet the increased payout.

THE CURSE OF PLI

The Productivity-Linked Incentive (PLI) scheme, introduced as a consequence of the agreement for pilots, played a huge part in the decline of Air India’s fortunes. Under the scheme, employees were offered incentives on the basis of key performance indicators, which varied according to the grade of the employees and the job profile of the department. The indicators were passenger load factor, on-time performance, availability of aircraft and such others, as listed in the agreements signed with the different sections of employees. The earnings under the 1996 PLI agreement were over and above the payments effected under the earlier wage agreement signed by the airline.