Air India flies into another storm

New Delhi: About 1,600 employees of Air India earn more than Rs 25,00,000 per year, an aghast Civil Aviation Minister Praful Patel told Business Standard a few weeks ago while talking about the airline’s turnaround plan. As if on cue, the Air India’s new chief Arvind Jadhav began some tough talk with the airline’s 14 unions — take paycuts or face layoffs. Jadhav, like Patel, also focussed on the airline’s controversial ‘productivity-linked incentive’ scheme (PLI) through which staffers often get around half their incomes. If it was an incentive, how could it be fixed, and surely it would have to go when the airline was making losses? Jadhav unilaterally announced a 50 per cent cut in the PLI which would help save Rs 620 crore in one go.
The unions responded by rejecting the offer in a meeting with Jadhav and went on dharna (even after it came to an end, they threatened further action). But Jadhav cannot back down as the government’s decision to infuse equity into the company is contingent upon his taking tough action. And something that can help Jadhav reduce a fifth of his bloated wage bill of Rs 3,100 crore a year will clearly be seen as a tough measure, more so since it will bring down Air India’s wage bill to around 16 per cent of its turnover from the current 20 per cent. Rival low-cost carriers (LCCs) spend around 8-10 per cent of their sales as salaries — Air India’s ultimate goal is to become an LCC. Indeed, a sharp cut in the wage bill is something Jadhav has committed to the government.
More important, it is the only thing he can do in the short run. Retrenchment is not something that happens in a hurry, so reducing the number of staffers per aircraft to levels comparable to his competitors will take Jadhav some time. Cuts in basic salaries could lead to legal wrangles, so the PLI is the ideal low-hanging fruit, fraught with the least legal consequences.
The problem with Jadhav’s approach, however, is two-fold. For one, it is not fair — rival Jet Airways, for instance, has senior executives taking higher cuts.
31/08/09 Surajeet Das Gupta/Business Standard

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Categories: NACIL Aug 2009