Air India seeks to spin off some units

Air India seeks to spin off some units

Mumbai: Air India Ltd, the debt-laden state-owned airline, plans to spin off its engineering and ground-handling units pending government clearance as part of its turnaround strategy, according to two executives of the carrier who asked not to be identified.

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The airline wants the government to invest up to 500 crore in each of the new companies created. The move will reduce the number of employees in Air India from 28,500 to 7,000.

Consultants dismiss the plan as a temporary measure. Air India, created by the merger of Air India and Indian Airlines, has seen its debt balloon and losses swell on account of an incomplete integration of the two, inefficiency and a bloated workforce. The airline had debt of 42,570 crore on its books as of 31 March and accumulated losses of 22,000 crore. It operates 470 flights to 101 destinations every day in India and abroad, with a total workforce of 28,500. By contrast, Jet Airways (India) Ltd has 12,976 employees and operates 585 flights a day to 107 destinations. The airline’s financial state is reflected in April and May salaries having been paid on 28 June, according to Air India executives. And it is yet to pay productivity-linked incentives amounting to about 70% of pay in some cases.

The government has committed to invest 5,000 crore as equity in the airline and has so far pumped in 2,000 crore. It will invest an additional 1,200 crore in 2011-12, and also lend the airline 1,800 crore.

“The financial recast and turnaround plan were presented before the finance ministry and the group of ministers on 22 June. The government will conduct the due diligence on the plan and approve it," said one of the executives cited above. “Equity infusion and final recast approvals should be complete by 30 September. Therefore, we can kick-start the financial restructuring from 1 October." This person said the new companies will be formed before 31 March next year and offer services to Air India and other airlines.

In a separate development, Air India is also looking to fill three key positions at the director level in the personnel, commercial and finance departments, two of which have been vacant for a few months.

“Hiring a personnel director is critical as the airline is in the process of integrating employees of the erstwhile Indian Airlines and Air India into one company. Besides, the Dharmadhikari committee will submit its report shortly," said the second Air India executive cited above.

In March, Air India decided to constitute an independent four-member committee headed by retired judge D.N. Dharmadhikari to look into issues such as pay parity that have driven a wedge between the two groups of employees.

An expert said neither of the measures would solve the airline’s real problems.

“These are short-term measures by the airline. In other words, the airline is buying more time," said Manish Agarwal, executive director at audit and consulting firm PricewaterhouseCoopers Pvt. Ltd.

The first Air India executive agreed that the airline needs to focus on long-term measures and said it’s trying to do that. “The appointment of a commercial director is a boost to efforts to generate sales. Sales of Air India have increased to an average of 32 crore a day in June compared with 27 crore in May," he said.

He added that Air India would save an additional 1,000 crore if it is able to implement its restructuring plan.