The comprehensive turnaround plan of Air India, envisaging no trimming of its staff or reduction in their wages, is a complete change from the earlier plan. And, it was actually pushed through by the five independent directors (IDs) on the AI board, reinforced by the strength of their numbers.
Says an ID who did not want to come on record: “We have made it clear to the management that the main priority is financial turnaround, for which SBI Caps has been hired. Then, we will look into the number of employees we need. If, for instance, we can increase our revenue by three per cent, we might need all these employees. So, we will decide on the HR issues — what is the ideal number of employees, is there a surplus, after the financial restructuring is complete.”
Quid pro quo
The director said the strategy was adopted to get the employees to support any restructuring proposal. “We (the IDs) had a two and a half hour meeting with the 12 unions and we told them we would be able to financially turn around the company. It is essential to demonstrate to them that change is possible,” said a source close to an ID.
The endorsement of the new plan represents a big shift. The airline was earlier looking at cutting cost by reducing the salary bill of Rs 3,100 crore by about Rs 800-900 crore. This included cutting the productivity-linked incentive part of the salary by half. It was talking about improving productivity and longer hours of working. All this was resisted by the unions, who also went on strike.
Civil aviation minister Praful Patel, who was instrumental in selected the IDs, endorsed the line, saying the aviation scenario had changed. “The industry is growing and even Air India has registered 18 per cent growth in carriage and increase in yields in the first quarter this year. This all led to the shift in the strategy,” he told Business Standard.
Sources also say the independent members have enough clout in the board to push through resolutions. Says a source close to one of them: “There are five independent directors, mostly from the corporate sector, the chairman and managing director and two representatives from the civil aviation ministry. The rest are all functional directors of Air India, so the IDs have the numbers to push through all key decisions. The board is structured to ensure this.”
Taking charge
The IDs say they have already put in place various committees like a board-run company — finance, human resources (HR), strategy and audit. These committees, in which they and corporate bigwigs from outside are also members, have met twice and made presentations on various decisions they would like implemented.
Anand Mahindra, vice-chairman of Mahindra & Mahindra, Amit Mitra, secretary general of Federation of Indian Chambers of Commerce & Industry, industrialist Harsh Neotia, retired Air Chief Marshal Fali H Major and Dubai-based Yusuffali M A are the five IDs. The audit and finance committees are headed by Mahindra and Neotia and the strategy committee has all the four IDs. Mitra and Major head the HR committee. The executive directors of the respective departments also are on the committees.
Board members say many key decisions have been taken quickly, instead of the usual slow decision making in public sector undertaking boards. A search committee to appoint a Chief Operating Officer (COO) had four members, which included Mahindra and Uday Kotak, vice-chairman of Kotak Mahindra Bank. “The IDs said we must appoint him now and authorise the CMD to negotiate the salary part. This resolution was passed by the board and it is unheard of in PSU governance, where appointments take months.”
The IDs have also agreed to take up issues like the rationalisation of pay and the position of employees of the erstwhile Air India and Indian Airlines, which have still to be addressed after years of the merger.
The board recently cleared plan to increase revenues by launching low-cost operations in the domestic sector and generating revenue through various other business units like the maintenance, repair and overhaul and ground handling subsidiaries.
Air India’s need for a sovereign guarantee to convert high-cost debt into low-cost has also been taken up by the board. Minister Praful Patel has announced the government is willing to consider it. The guarantee will bring down the cost of the debt, which is huge. The airline has a working capital debt of Rs 18,000 crore and Rs 20,000 crore as the capital expenditure debt. Of the Rs former, Rs 11,000 crore is high cost.
