INDIAN AIRLINES

FLYING LOW
Continual losses Frequent human resource problems Gross mismanagement Lack of proper manpower planning and underutilisation of existing manpower

BACKGROUND
IA was formed in May 1953 with the nationalization of the airlines industry through the Air Corporations Act Indian Airlines Corporation and Air India International were established In 1990, Vayudoot, a low-capacity and short-haul domestic airline with huge long-term liabilities, was merged with IA IA covered 75 destinations (59 within India, 16 abroad)

In 1999, the company had a fleet strength of 55 aircraft and carried 7.5 million passengers annually In 1994, the Air Corporation Act was repealed and air transport was thrown open to private players Competitors like Sahara and Jet Airways (Jet) provided better services and network Staff cost increased by an alarming Rs 5.9 bn during 1994-98

By 1999 the losses touched Rs 7.5 bn In 1999, while IA's market share was 47%, the share of private airlines reached 53% Unnecessary interference by the Ministry of Civil Aviation was a major cause of concern for IA Very high debt to equity ratio lead to huge interest outflows(Rs.1.99 billion)

A report by the Comptroller and Auditor General of India stated, "Manpower planning in any organization should depend on the periodic and realistic assessment of the manpower needs, needbased recruitment, optimum utilization of the recruited personnel and abolition of surplus and redundant posts. Identification of the qualifications appropriate to all the posts is a basic requirement of efficient human resource management. IA was found grossly deficient in all these aspects."

FIGHTER PILOTS
Strikes, go-slow agitations and wage negotiations were common From November 1989 to June 1992, there were 13 agitations by different unions

REASONS
Demanded higher allowances for flying in international sectors Refused to fly with people re-employed on a contract basis The cabin crew earned higher wages than them Asked for increased foreign allowances, fixed flying hours, free meals and wage parity with Alliance Air Pay revision and a change in the career progression pattern

REACTIONS TO STRIKES
People heading the airline were more interested in making peace with the unions than looking at the company's long-term benefits Proposed to bring their salaries on par with those of Air India employees despite strongly opposed by the board of directors Increased the age of retirement from 58 to 60 IA unions opposed the re-employment of pilots who had left IA to join private carriers and the employment of superannuated fliers on contract: Crisis averted by creating Alliance Air Substantial wage hikes

IMPACT OF STAFF COST HIKE IN FARE INCREASE (%)

Date of fare increase 25/07/1994 01/10/1995 Impact (%) 16.22 25.00

22/09/1996
15/10/1997 01/10/1998

36.00
13.44 8.80

Source: IATA-World Air Transport Statistics

IA introduced the productivity-linked scheme but it was grossly misused Between 1991-92 and 1995-96, the increase in pay and allowances of the executive pilots was 842% and that of non-executive pilots was 134%

INCREASE IN STAFF COSTS

Staff cost as Staff cost (in Rs bn) No. of employees Per employee cost (in mn) Total expenditure (in Rs bn) percentage of Effective fleet size# Year

total
operational Expenditure

1993-94

2.85 3.74 (31.18%)* 5.71 (52.59%)

22182

0.13

20.75

15%

54

1994-95

22683

0.16

22.59

19%

58

1995-96

22582

0.25

26.00

25%

55

1996-97

7.10 (24.35%)

22153

0.32

29.29

26%

40

1997-98

8.17 (15.03%)

21990

0.37

32.21

27%

40

1998-99

8.75 (7.12%)

21922

0.39

34.31

28%

41

Source: IATA-World Air Transport Statistics * Figures in brackets indicate increase over the previous year. # Excludes 4 aircraft grounded from 1993-94 to 1995-96 as well as 12 aircraft leased to Airline Allied Services Ltd. from 1996-97 to 1998-99

A COMPARISON OF VARIOUS AIRLINES

Name of Number of aircraft in fleet 84 76 51 30 22 19 No. of ATKm3 (in ATKm per Employees

Airlines
Singapore Airlines Thai Airways International Indian Airlines Gulf Air Kuwait Airways Jet Airways

employees
13,549 24,186 21,990 5,308 5,761 3,722

Million)
14418.324 6546.627 2113.671 1416.235 345.599 1094.132

Employee
1064161 270678 398204 245831 92853 49756

per aircraft
161 318 431 177 261 196

Source: IATA-World Air Transport Statistics

TROUBLED SKIES

Analysts criticized the way posts were created in IA. In 1999, Six new posts of directors were created of which three were created by dividing functions of existing directors No basic educational qualifications prescribed for senior executive posts After superannuation, several employees were reemployed by the airline in an advisory capacity The rates of highly subsidized canteen items were not revised Various allowances such as out-of-pocket expenses, experience allowance, simulator allowance etc. were paid to those who were not strictly eligible for these

Retention of company car, and room airconditioners even after retirement All these problems had a negative impact on divestment procedure Freed from its political and social obligations, the carrier would be in a much better position to handle its labor problems The biggest beneficiaries would be perhaps the passengers