Air India to cut staff costs by up to 16% a year

State-owned airline on collision course with unions.

State-owned National Aviation Company of India Ltd, which runs domestic and international operations under the Air India brand, appears to be headed for a stand-off with staff unions. A four-member committee has been set up to suggest ways to reduce the company’s wage bill 16 pent cent or Rs 500 crore annually.

Although the airline has insisted it will not retrench staff, salary cuts are a strong possibility, which Air India’s six-odd unions have rejected after meetings with Chairman and Managing Director Arvind Jadhav.

The airline has already said it will defer paying June salaries by 15 days and has asked senior management from general manager upwards to forgo their July salaries.

Air India’s losses almost doubled to over Rs 4,000 crore in 2008-09 from Rs 2,226 crore in 2007-08. The airline, which was formed after the merger of the international and domestic carriers, has 31,000 people on its rolls and an annual salary bill of Rs 3,000 crore.

The committee, comprising executives from HR and finance departments, has been given time till July 15 to submit its report. It will scrutinise all the agreements on wages, flying allowances and productivity-linked incentives between the management and the employee unions and examine other ways to cut costs.

“We are willing to cooperate with the management in improving productivity and even transfer employees to the low-cost subsidiary Air India Express, where emoluments are lower. No cost-reduction agenda has been discussed with us,” said Dinkar Shetty, president of Air Corporation Employees Union (ACEU), which represents half the airline’s employees.

Other unions have followed ACEU’s lead. "We are ready to cooperate with the management in these tough times. But the management will have to understand that the current mess has not been created by the employees. And there has been no discussion with the management on any reduction in salary at all," said Aviation Industry Employees' Guild (AIEG) President Y E Reddy.

Senior Air India executives said the management has little choice. "There is a global crisis in aviation and Air India is facing it too. These are tough times and we need tough measures,” said Jitendra Bhargava executive director.

“We have tried to cut costs and have also delayed salary payments to get out of the problem but that is not enough. That is why a committee has been set up to look at cost savings and reduction in the wage bill," he added.

Jadhav is meeting Principal Secretary T K Nair in the Prime Minister’s Office (PMO) and the aviation secretary M Madhavan Nambiar to discuss a revival plan — of which the cost-cutting committee is a part — that will also require fresh funds from the government. The size of the revival package could be over Rs 5,000 crore in fresh equity and debt.

Unions said Jadhav will have another round of meetings with them and has a second and more drastic contingency plan if the government does not agree to provide more funds. This would include dramatic route rationalisation, cutbacks to the fleet and rescheduling delivery of new aircraft.

The airline has taken delivery of 45 aircraft out of 111 that it ordered and they are mostly being used to replace leased aircraft.

Competitors, however, said the cost cutting is cosmetic. “For a company with such high losses, this cost cutting is merely being done to justify a bailout,” said a senior executive of a leading private carrier.