Air India to cut wages to bring down costs

Pay revision to happen with retrospective effect from July; senior officials’ positions to also be rationalized
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First Published: Mon, Dec 24 2012. 10 23 PM IST
Passenger revenue in November rose 11.3% to `1,127 crore against `1,012 crore in the year ago and select routes have begun making profits after fuel-efficient Boeing 787 Dreamliners were inducted. Photo: Ramesh Pathania/Mint
Passenger revenue in November rose 11.3% to Rs.1,127 crore against Rs.1,012 crore in the year ago and select routes have begun making profits after fuel-efficient Boeing 787 Dreamliners were inducted. Photo: Ramesh Pathania/Mint
Mumbai: Air India Ltd is revising the basic pay of 28,000 employees on its payroll. This will lead to a saving of at least Rs.156 crore a year, to start with, according to two executives. The airline has a revenue shortfall of at least Rs.400 crore a month.
Apart from the revision of the basic pay, India’s oldest airline is also rationalizing senior executives’ positions, as recommended by the Dharmadhikari committee on pay and wage rationalization.
The government appointed the independent panel, headed by former Supreme Court judge D.M. Dharmadhikari, to address integration of human resources and remuneration issues following the merger of Indian Airlines Ltd with Air India Ltd.
“Some employees may gain more, some may lose...but it has to be brought in line with the department of public enterprises scales, followed by other public sector undertakings. The revision will happen with retrospective effect from July 2012,” said one of the two Air India executives. Both requested anonymity.
Employees will be paid salary under the new pay structure from January.
The airline may approach the cabinet separately if it wants to give special perks to retain its pilots and engineers who will also be covered by the new pay structure along with the ground staff.
The airline had already discontinued the payment of productivity-linked incentives, or PLIs, from July.
“Cutting wages is not a step in the right direction,” said K. Sudarshan, country head of London-based EMA Partners International Ltd, a global placement firm. “Indeed, it is difficult to turn around with a bloated workforce and compete with private and international airlines, but Air India should have sought productivity-increasing measures rather than cutting wages.”
The Air India management has been trying hard to turn around the airline with accumulated losses of Rs.27,000 crore over the past five years. Between April and October, 95 flights on its network were meeting cost of fuel and operations and only 12 services were meeting total cost.
“The permanent employees count has come down to 28,000 from 32,000 a year ago,” said one of the two executives. In the next five years, the headcount will be whittled to 21,000.
On 18 December, K.C. Venugopal, junior aviation minister, told Rajya Sabha, the upper House of India’s Parliament, that the aircraft-employee ratio at Air India was 1:237 in January 2012. Once the firm hives off its engineering and ground-handling activities, the ratio will improve to 1:92, the minister said. Air India has set a cut-off date to hive off engineering and ground-handling divisions on 1 January.
“The indications in the third quarter are positive. In this quarter, Air India has maintained a seat occupancy of 81.5% on domestic routes and 75% on international routes,” one of the executives said, adding that the company earned a record revenue of Rs.48 crore on 21 December.
The passenger revenue in November rose 11.3% to Rs.1,127 crore against Rs.1,012 crore in the year-ago period. Select routes such as Delhi-Frankfurt have started making marginal profits as the airline inducted fuel-efficient and brand new Boeing 787 Dreamliner planes. Air India has already taken delivery of four such planes.
“We have tied up $378 million for four Dreamliner planes. As we are planning to take delivery of four more by March 2013, we would tap the loan market for a little over $400 million,” said the second executive.
On 20 December, aviation minister Ajit Singh expressed his concerns over the estimated monthly average cash flows of Air India.
Between October 2011 and March 2012, the airline showed a net shortfall of Rs.404 crore every month, with inflows at Rs.1,348 crore and outflows Rs.1,752 crore.
Out of the Rs.404 crore net shortfall, Rs.121 crore is for the repayment of the principal amount borrowed and Rs.227 crore for interest. The airline has Rs.47,226 crore debt as on 31 July.
Air India is expected to post a net loss of Rs.4,270 crore in the current fiscal, Mint reported on 7 December, citing an internal estimate, compared with a loss of Rs.6,865 crore in 2010-11.
The government in April approved a Rs.30,000 crore package to bail out the airline.
This includes an upfront equity infusion of Rs.6,750 crore and assured equity support of Rs.23,481 crore till 2020-21.
Banks have since recast their exposure to the airline, resulting in savings of Rs.1,000 crore a year.
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First Published: Mon, Dec 24 2012. 10 23 PM IST
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