Gopinath cuts costs, sends expats home

Gopinath cuts costs, sends expats home
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First Published: Wed, Apr 28 2010. 11 42 PM IST
Updated: Wed, Apr 28 2010. 11 42 PM IST
Bangalore/Mumbai: Domestic low-fare aviation pioneer G.R. Gopinath has taken the shears to his cargo airline, cutting costs by shedding expatriate employees at the company that recently sold a stake to Reliance Industries Ltd (RIL).
The expat employees let go include Jude E. Fonseka, chief executive of Gopinath’s Deccan Cargo and Express Logistics Pvt. Ltd. Fonseka is a Sri Lankan settled in Australia.
RIL, India’s most valuable company by market value, bought a stake put at anywhere between 26% and 50% in the company that runs freighters under the Deccan 360 brand for an undisclosed amount, it announced on 16 April.
Fonseka, who used to work for FedEx Corp., will be retained as a consultant. He was hired to turn Deccan Cargo, which started cargo flights in May, into an Indian version of the global logistics provider.
Gopinath, chairman of Deccan Cargo, told Mint that senior expatriates had quit the company at intervals as contracts had ended.
“We had seven-eight expats at senior management. Now, we have no expats at the company,” he said. “However, Fonseka is now a full-time consultant at Deccan 360.”
Gopinath, who founded India’s first low-fare carrier Air Deccan (later sold to Kingfisher Airlines Ltd), said expatriates had to be paid top salaries and that local executives had been trained to fill those roles.
Fonseka declined to elaborate on his move.
“There are many reasons behind my decision,” he said in an email. “I will be happy to share the reasons at a suitable time.”
Gopinath hired foreign executives when he launched Air Deccan in 2003, among the first such recruitments in the Indian aviation business. In 2007, Gopinath sold the airline to Kingfisher. As India’s aviation business grew thanks to cheaper tickets, rivals such as Jet Airways (India) Ltd, Kingfisher and National Aviation Co. of India Ltd, which runs Air India, also started hiring foreign executives to overcome the shortage of local talent and cope with the rapid rise in passenger traffic.
Apart from managers, their ranks included engineers and pilots. But with the downturn in 2008, airlines began sending home many of them as they had been hired at two or three times the salaries paid to local personnel. The disparity has led to labour trouble at Jet Airways, with Indian pilots disrupting operations last year over the formation of a union and other issues.
“(The reason for) Deccan 360’s decision to shed expats could be beyond human resources challenges and could be cost challenges. But the key issue in the airline industry is that domestic airlines have created a huge compensation cost structure for expats and airlines find it difficult to afford it now,” said Ganesh Shermon, partner and country head of people and change practice at KPMG Advisory Services, an audit and consulting firm. “Also, airlines are now in a position to replace international skill pools as the Indian skill pool is increasing.”
According to a 22 April report on skills shortage published by aviation consulting firm Centre for Asia Pacific Aviation, Indian aviation currently has limited depth in management because most of the positions did not even exist until a few years ago, when the industry was much smaller.
“Given the shortage of qualified people, positions are often held by executives who through no fault of their own simply do not have the skills to maximize their performance,” it said. “Expatriates have been recruited for several senior management positions, although this has not been an entirely successful exercise, with cultural and environmental issues resulting in several early departures.”
“There is a case for bringing in international expertise in certain cases, but in the long term India cannot rely on expat management, it must develop local talent,” Capa said.
The Directorate General of Civil Aviation last week extended the time that Indian carriers had to phase out expatriate pilots by a year until 31 July 2011.
While Deccan 360 is focusing on local talent, citing costs, Air India has appointed Gustav Baldauf, a former Austrian Airlines executive vice-president, as chief operating officer in an effort to turn around the airline. Baldauf previously worked with Jet as vice-president, flight operations.
raghu.k@livemint.com
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First Published: Wed, Apr 28 2010. 11 42 PM IST
More Topics: Gopinath | Cost | Expat | Jet Airways | Kingfisher |