Mumbai: In a move to restructure its balance sheet, cash-strapped national flag carrier Air India will shift at least one-third of its work force—around 10,000-12,000 out of 31,000—to two new strategic units that will take care of ground handling and engineering.
Both are proposed to be hived off from the parent company as subsidiaries.
These two subsidiaries will start operations immediately after the government clears the proposal. The clearance is expected by the fiscal year end in March 2011, according to two Air India executives.
Air India has formed two subsidiaries—Air India Air Transport Services Ltd for ground handling and Air India Engineering Service Ltd for aircraft maintenance.
Ground handling includes general administration, baggage, freight and mail handling, and the engineering division takes care of maintenance, repair and overhaul (MRO) of aircraft bodies and engines.
“Around 10,000 to 12,000 employees will be transferred to the subsidiaries and their wages will be linked to productivity. We are in dialogue with the employees,” said a senior Air India executive, who did not want to be identified. “The engineering and ground-handling businesses will be launched as separate entities immediately after the government gives its green signal.”
The proposal to transfer one-third of employees to the new subsidiaries may be opposed by workers.
A senior union leader, representing the All India Aircraft Engineers Association, said there was no consensus about transferring employees to new subsidiaries. “There is a proposal to shift some employees to subsidiaries, but the management has not reached any understanding with us,” he said. The union leader did not want to be identified.
In 2007, when Air India and Indian Airlines merged to form a single entity, the airline had 34,500 employees on its rolls.
According to experts, the transfer of one-third of the employees to two subsidiaries will strengthen the balance sheet of the parent company and help the carrier achieve better aircraft-to-employees ratio of around 1:150.
The creation of the two subsidiaries may help the management focus more on the airline, which is burdened with a Rs 40,000 crore debt, including Rs 19,000 crore of working capital loans.
Air India spent at least Rs 3,000 crore on paying salaries in fiscal 2010.
Though there is no international benchmark for the ratio of aircraft to employees, Air India’s was 1:214 last year. For British Airways Plc, it’s 1:178.
Air India, which has a fleet of 160 aircraft, posted a net loss of Rs 5,551 crore in the year ended March against the previous year’s net loss of Rs 7,189 crore.
M.S. Balakrishnan, former director of finance at the erstwhile Indian Airlines, said forming the subsidiaries was akin to an “escape mechanism”.
“These changes are going to be restricted to books and accounts. Also, employees may not want to move out to a new company without a pay hike. In fact, there would not be much change as the parent company is not yet out of the trouble,” Balakrishnan said.
A senior airline consultant, who is not advising Air India and did not want to be identified, said Air India had tried creating separate profit centres in the past too, but that did not yield any result.
“In 1996, Air India had identified a few divisions, including the jet engine overhaul shop and the central training establishment of the airlines as profit centres, but nothing happened,” he said.
One of the two Air India executives cited above said the airline was in the process of convincing its employees to start new strategic business units.
Originally, the launch of these units was slated for the beginning of this fiscal, but was delayed due to tax implications, which are being sorted out now.
Air India is buying 68 planes from Boeing Co. and as part of this deal the US-based plane maker is building an MRO facility in Nagpur.
“The necessary land for the MRO has been handed over to Boeing by the state government project MIHAN (Multi-model International Cargo Hub and Airport at Nagpur). The facilities will be fully operational by 2012 end. Air India, jointly with GE Aviation, will build a facility to repair aircraft engines at Nagpur,” he said.
Commercial and military jet engine maker GE Aviation is a unit of General Electric Co.
The ground-handling division of Air India had a revenue of Rs 700 crore in 2008-09, with a presence at 65 Indian airports.