Airline mergers are notoriously complicated and tough to pull off. There are enough examples of troubled marriages all over the world — Delta Air Lines and Northwest; America West and US Airways and so on. And labour issues have invariably headed the list of potential complications. That’s because all airlines have their own culture and their own working rules, and integrating the two can be nightmarish.
Delta, for example, went through hell in the initial years of the integration — it had the worst record for on-time arrivals and accounted for a third of customer complaints on lost bags and so on. Three years hence, much of those problems have been sorted out and the tie-up is now widely seen as a success, though the airline still has unresolved merger issues on its plate. Labour woes also delayed the full integration of US Airways’ 2005-merger with American West, diluting the benefits of the deal.
Given this background, the committee set up last week to examine the three-member Justice Dharmadhikari panel’s report on Air India’s HR issues has a tough task on hand. All the more so since the Air India-Indian Airlines merger has possibly been the worst-planned integration exercise in the Indian corporate history. The government was so eager to close the deal that many other issues, particularly those related to labour, got brushed aside, eventually festering into an obstacle to the combined carrier’s efforts to come out of the mess.
The recommendations of the Dharmadhikari panel’s report have not been made public, but it’s obvious that any such report has to focus on the issue of aligning Air India’s salary structure within legal parameters. The hopelessly loss-making airline has been violating the salary guidelines set for public enterprises by paying performance-linked incentives (PLIs) to its employees. While Air India employees, especially the pilots, do not want to give up the PLIs, what has made things more difficult is the demand by pilots of the domestic operations of the erstwhile Indian Airlines for pay parity with commanders on international flights.
The Dharmadhikari committee has reportedly suggested that the PLI of the merged entity’s employees be merged with their basic salary and such incentives be linked with the profitability of the carrier, not with operational parameters as is the practice currently. The recommendation is hardly rocket science and is an obvious one, but given the past track record, the question is will the civil aviation ministry have the courage to bite the bullet? For, it would affect the take-home salary of Air India employees. In the past, such suggestions by managements have been put in cold storage by successive ministries because of protests, agitations and strikes by employees.
For example, the management had earlier proposed to reduce the PLI of its executive-level officials, including pilots and engineers by up to 50 per cent, which was opposed by employees. Following a strike by its executive pilots, the management was forced to put the move on the back burner. Later the airline’s management set up a sub-committee of its board to look into the issue “in totality”.
Air India’s accumulated losses are over Rs 15,000 crore; its net worth, despite repeated capital infusion by the government, was negative to the tune of around Rs 4,500 crore. Yet, its annual wage bill is about Rs 3,200 crore of which almost half goes to paying PLI to its 29,000 workforce.
The almost absurd PLI scheme has been continuing for ages now and the irony is that the incentive, which inflated the annual wage bill hugely, was never linked to productivity from the start. Amazingly, the total payment under the PLI often exceeded the airline’s losses in a particular year. For proof, read an earlier Comptroller and Auditor General’s report on the wage policy of Indian Airlines. It says the entire incentive policy seems to have been designed to meet the airline’s pay-more-for-less policy. By definition, incentive should be a motivator for employees to perform better. Strangely, Indian Airlines pegged the base of the incentive below the average performance level.
For example, for on-time performance, the base performance level for payment under the PLI was fixed at 60 per cent compared to the 65.92 per cent average performance level prior to the scheme. Similarly, for average annual flying hours per aircraft, the performance level under the PLI was fixed at 2,300 hours compared to 3,055 hours average performance before the scheme was introduced.
A closer look at the scheme reveals several other glaring loopholes. Conventional wisdom says any incentive plan should be linked to an increase in revenue. But Indian Airlines seemed to know better. Employees got additional incentives even though the number of passengers flown, on average, per day declined during a particular period. It’s no surprise, therefore, that a former MP famously described the PLI scheme as nothing but a legalised bribe.
The committee to examine the Dharmadhikari panel’s report is expected to come up with its suggestions by next week. But if the past is any indication, it may turn out to be another case of honest recommendations that have remained on paper.
