Mumbai: Ailing state-owned carrier National Aviation Co of India Ltd, or Nacil, which runs Air India (AI), aims to save around Rs700 crore by halving productivity-linked incentives (PLI), an airline executive said.

The total outgo from such incentives for Air India in 2008-09 was Rs1,400 crore, Nacil spokesman Jitender Bhargava said. The airline suffered losses of at least Rs5,000 crore that year. PLI accounts for 30-50% of the salary for AI employees.

Weighed down: Air India’s headquarters in Mumbai. Announcing a turnaround plan for the airline earlier this month, company chairman Arvind Jadhav said, ‘It is going to hurt; it’s going to hurt a lot of people.’ Abhijit Bhatlekar / Mint

The decision to cut incentives follows a 25 July meeting of the committee of secretaries, or CoS, which suggested that Nacil prepare a cost reduction proposal, including an alternative for its current incentive scheme, within the framework of the department of public enterprises, or DPE, guidelines.

With accumulated losses of Rs7,200 crore and borrowings now up to Rs15,241 crore as of June from Rs6,550 crore in November 2007, the cash-strapped Nacil had asked for a loan and equity infusion of around Rs15,000 crore from the government. Its current equity capital is Rs145 crore.

Nacil chairman and managing director (CMD) Arvind Jadhav, while announcing a turnaround plan for the airline earlier in August, had said, “It is going to hurt; it’s going to hurt a lot of people."

In June, Jadhav requested Nacil’s top executives in the level of general managers and above to voluntarily forgo their salaries and incentives payable in July. In August, Nacil held back PLI for all its employees.

Jadhav is likely to meet union representatives on Tuesday to discuss the incentive issue further.

“The Air India board, at its meeting held in Mumbai today (Thursday), decided on reduction of PLI to employees and flying allowance paid to crew by 50% till an alternate formula for governing PLI is put in place within a three months period," Nacil said in a statement issued late Thursday.

“It further decided to evolve an alternative formula for governing incentives, linked to the company’s expected performance in terms of on time performance, yields, seat factors, operating margins and profitability," it added.

In the statement, Nacil says Jadhav thanked employees for accepting the board’s decision.

The employee unions don’t quite agree with that.

J.B. Kadian, general secretary of the Air Corporation Employees’ Union, or ACEU, too said the unions have not agreed to the decision.

“We have categorically told the management we cannot accept this decision since employees were not responsible for these huge losses. Moreover, the board cannot unilaterally change the terms and conditions agreed earlier by two parties—employees and management," Kadian said. “We will chalk out the action plan if the board is not reversing its decision."

“In fact, Air India CMD has asked us to express our views by Tuesday... The board cannot reduce PLI at their terms," said George Abraham, general secretary of the Aviation Industry Employees’ Guild. The guild and ACEU together represent at least 20,000 out of Air India’s 31,500 employees.

The Nacil board had also discussed other cost reduction measures apart from the cut in incentives. Bhargava, Nacil’s executive director of corporate communications, did not divulge more details about the meeting or the proposals on cost cutting.

In July, the finance ministry had said all government officials flying by air on official duty would have to travel only by Air India to help the flag carrier.

A person close to the development, on condition of anonymity, said the government now plans to instruct all public sector employees as well to travel only by Air India. “The overall travel budget of the government is estimated approximately at Rs1,000 crore. Now if all state-run companies fly Air India, the airline can be assured of another Rs1,000 crore in terms of revenue."