Mumbai: National Aviation Co. of India Ltd (Nacil), which operates Air India, on Tuesday said it will disburse August salaries on schedule, but didn’t comment on paying performance-linked incentives, an issue that’s become contentious with employee unions.

Walking a thin line: Nacil chairman and managing director Arvind Jadhav and employee unions were locked in a meeting late on Tuesday in New Delhi to reach a consensus on the proposed incentive cut. Harikrishna Katragadda/Mint

Nacil last week proposed slashing the incentive for all employees by 50% as it struggles to come out of its worst crisis. It has already held back incentives payable for July. Performance-linked incentives account for 30-50% of the salaries in Air India.

An Air India spokesman said a certain category of its employees would be paid the incentives with their August salaries. He didn’t elaborate.

Employee unions and Nacil chairman and managing director Arvind Jadhav were locked in a meeting late on Tuesday in New Delhi to reach a consensus on the proposed 50% cut in incentives.

Earlier in the day, a section of the airline’s employees started a hunger strike to protest delays by Nacil in disbursing salaries.

In a media statement, Air India said employees need to view the current crisis facing the airline that has forced it to reduce costs. “Manpower, incidentally, is the second largest component of airlines’ expenditure after ATF (aviation turbine fuel)," Air India said in a statement. The airline has around 31,500 employees.

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

Its current equity capital is Rs145 crore.

The firm stands to save at least Rs700 crore a year by slashing the performance-linked incentives. The outgo from such incentives in 2008-09 was Rs1,400 crore.

Representatives of employee unions told Mint they had written a letter to Jadhav on Tuesday, prior to the meeting, stating that they would not budge on the incentives.

“....the attempt to pass on the burden of the losses to the shoulders of employees will be resisted by the workmen covered by our unions," the Civil Aviation Joint Action Front (CAJAF), said in its letter written to Jadhav.

The front is an organization formed by the Air Corporation Employees’ Union (ACEU) and the Aviation Industry Employees’ Guild (AIEG), which together represent at least 20,000 Air India employees.

CAJAF says in the letter that the incentive scheme and the settlements arrived at by previous managements with ACEU and AIEG cannot be altered to the disadvantage of the staff.

“The course opened by you by not making the payment of PLI (performance-linked incentives) to the workmen is an open invitation to revolt and has laid down the foundation for a long-term disorder and conflict," CAJAF says in the letter. The letter is signed by J.B. Kadian, general secretary of ACEU and George Abraham, general secretary of AIEG.

In submitting a parallel turnaround plan, CAJAF had written to Prime Minister Manmohan Singh requesting the government to write off the accumulated losses of Air India and demanding infusion of equity and granting an interest-free loan.