Monday 2 July 2012

Flights of Fantasy: AI – IA merger saga

Gyanendra Kumar Kashyap

The latest twist to the Indian aviation story is provided for by the stir called upon by the pilots of Kingfisher over non payment of salaries for the last five months. This has masked, the not so much in news now, the agitation being staged by IPG. With the agitation staged by IPG entering its 57th day, (the longest being in 1974 when IPG’s agitation lasted for 90 days on account of cost cutting measures) is not only causing financial losses, but is also causing a lot of embarrassment and harm to brand ‘Air India’

In July 2006, the high-level panel consisting of officials from Air India, Indian Airlines, ministry of civil aviation, and ICICI Bank chairman emeritus N Vaghul were zeroing upon a consultant to chalk out a roadmap for operationalizing the mega merger between two state run carriers. The well intentioned overwhelming thought then was to create a competitive national airline on the lines of British Airways and Singapore Airlines. Air India and Indian Airlines were merged on March 1, 2007 to create a new company called National Aviation Company of India Ltd, later changed to Air India Ltd. However five years post the mega merger, it is apparent that the amalgamation was ill – conceived, whimsical and a marriage of two incompatible individuals. In the lack of oversight and of leadership Air India has literally slipped into an abyss.

In the present context, the agitation called by the Indian Pilots Guild, IPG, which represents the Air India pilots’, started on May 8, 2012 when the pilot members took mass leave protesting the move to provide Boeing -787 Dreamliner training to pilots from the erstwhile Indian Airlines. Now in its sixteenth day, the so called agitation has lead to a loss of over Rs. 600 crore. The pilots have made four demands which include exclusive flying rights on Boeing 787 aircraft, payment of arrears from 2007 onwards, travel on first class when not working, and the right to be promoted as commanders within six years. The agitation in itself is not new, even last year in March, a group of pilots from the erstwhile Indian Airlines under the banner of Indian Commercial Pilots Association, ICPA, had adopted the same strategy to make their dissenting voices and demands  heard. The rivalry between the two wings of the merged entities has not only derailed the operations of the national carrier but has also caused a lot of embarrassment and harm to brand ‘Air India’. As a matter of fact the market share of the once dominant Air India has reduced from over 60 percent to just about 17 percent. Ajit Singh, the minister for civil aviation, has often in his media interactions specifically mentioned that the merger of the two erstwhile airlines in itself is the root cause of the crisis.

It is critical to delve deeper and see beyond the superficial and analyse as to what are the underlying reasons for the agitation – is it merely the exclusivity of flying rights and issues of career progression or are there inherent malaise that has gradually led to the mega merger not working out as planned. Why is it that the benefits as advocated by the consultants, Accenture with Ambit Corporate Finance, in terms of synergy, economies of scale and profitability not happen? Synergy is a far off cry for this merger. To this day, the merger is only 70 percent complete. Significantly, critical Human Resource functions, which go to the core of the problems over the clash of cultures, haven’t been merged. The truth is that there are several human resources issues unresolved among the pilots of both the sides. There are differences in their salary structures, work schedule, perks, training & orientation programs, and even promotion schedules. Even to this date, Indian Airlines employees are always given orientation towards domestic operations while Air India employees are trained for international operations. The differences are not just with the pilots; the case is similar for the engineers, cabin crew-in-charge, cargo managers, and other functionaries of both entities. They too are voicing the same resentment over the merger.

Talking of profitability, in Air India’s case the merger was expected to result in a saving up to Rs. 1200 crore from 2010. It is an all together different issue that the merged entity is neck deep in debt and losses; the net loss for Air India in 2010-11 was Rs. 6,994 crore and the provisional loss figures for 2011-12 stands at Rs. 7,853 crores. This wide gap between what was projected and the reality raises the question as to whether it was indeed a merger or a murder; critics however prefer terming it a murderous merger. Interestingly both Air India and Indian Airlines were making cash profits till fiscal 2006-07 but have been witnessing losses soaring thereafter. As of now the total debt for Air India is a whopping Rs. 44, 000 crore while the accumulated losses turn out to be Rs 20,000 crore. The underlying truth is that the merger hasn’t spawned the promised benefits primarily because till date the merger has merely remained on paper.

Justice Dharmadhikari Committee Report

Post the agitation staged by ICPA and the fact that the stop gap solution for pay parity did not find many buyers; the ministry set up Justice D R Dharmadhikari committee in March 2011, with the task of studying and making recommendations on matters of HR integration, level-mapping and pay parity of the two organisations that were merged to create the 28,500 employee Air India in 2007.

The committee submitted its report on January 31, 2012. Reports in the media state that the committee has recommended a voluntary retirement scheme, VRS, to prune the workforce at Air India; implementation of a ‘no work no pay’ concept and a comprehensive analysis of the pay structure across the airline to bring it on par with other public sector units. The committee advocates that both sets of pilots should get uniform salaries. Further the report recommends cross-utilisation of pilots, which means Indian Airlines pilots can fly Dreamliners, and Air India pilots can fly Airbus aircraft after obtaining requisite endorsements and training. Cross utilization would imply that neither set of pilots get monopoly over a particular aircraft type or on international routes. IPG would certainly not be happy with this recommendation as they claim that the pilots’ career progression is under threat, and that they alone should fly the new Boeing 787 Dreamliners. With computerization of pilot duties, which until now was done manually at the behest of pilot unions, would mean that erstwhile AI pilots lose their hegemony over lucrative long-haul flights to Europe and USA.

Why now?

It can be reasoned that the strike is an expression of all the prejudices against the merger; the present agitation by IPG and the previous one by ICPA are telling examples of their animosity, reasons enough as to why the merger of the two erstwhile airlines - AI and IA- matter little to either of them.  Experts and independents observers alike have condemned the agitation calling it untimely and premature. This is so because the recommendation of Justice D R Dharmadhikari committee is with the government and it will soon be implemented. However, the myopic vision of IPG can be gauged from the fact that at a time when the bailout package to the tune of Rs. 30,000 crore was approved by the government and with Dreamliners joining the fleet would in effect help reduce operational cost & optimise capacity on routes; the union has opted to agitate.

What next?

The civil minister did lend his ears listening to the grievances of 13 unions (excluding IPG) and said that there would be no victimization of the agitating pilots. However, till date the Air India management has sacked 101 of the agitating pilots bringing to open the clear disconnect between what is said and what is done. The agitating pilots union also claim that the management is yet to respond to its overtures. In their second press conference, IPG minced no words in stating that they are willing to talk to the minister and that they don’t want their core demands to be met right now. What they want is the reinstatement of the sacked pilots and an assurance that their demands would be discussed. They went on to the extent of stating that they are willing to join the duty ‘right now.’  Well now they want the PM and UPA chief to look into the matter...

Thus it is amply clear that the ball is in the government’s court. While no union should be allowed to dictate terms; the ministry as in past should reinstate the sacked employees, listen to the demands of the union, explain to the agitating unions the larger picture and benefits that can be derived from the merger and come to an amicable solution. Procrastinating the issue will help none. The AI – IA merger should not be allowed to go down in history as a FAILURE.



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