Mumbai: Air India failed to reach an agreement with striking pilots over cuts in incentives, forcing the airline to consider suspending operations for a fortnight as it stopped taking bookings and was faced with the prospect of international flight cancellations to add to the 30 domestic ones that it couldn’t operate on Monday.

Turbulent times: Air India chairman Arvind Jadhav. Harikrishna Katragadda / Mint

Four Air India executives told Mint late on Monday that the state-run airline was contemplating the suspension following another failed round of talks between the New Delhi faction of the pilots and chairman and managing director Arvind Jadhav. State-run Air India, seeking to stem losses as part of conditions attached to a government rescue, is run by the National Aviation Co. of India Ltd (Nacil).

At the time of going to press, there was no official statement from the carrier on the proposal for suspending operations.

“The meeting ended without any agreement and thereby affecting chances of an early return to normalcy," the airline said in a press release late on Monday. “Air India management is deliberating various options in the wake of more pilots reporting sick affecting its operations."

Air India’s executive director, corporate communications, Jitender Bhargava declined to comment on plans for a stoppage. No schedule had been set for the next round of talks, he said on Monday night.

Air India stopped accepting advance bookings for flights late on Monday evening.

Trouble in the air: Passengers at the Air India counter at IGI Airport in New Delhi. PTI

The pilots began the strike on Saturday, weakening the turnaround plan of the ailing carrier. As more pilots flying wide-bodied planes, protesting against a reduction in productivity-linked incentives (PLIs) up to 50%, are expected to join the strike from Tuesday, international flights too may get disrupted.

“This has forced the airline to contemplate the drastic step of suspending operations," said one of the executives who declined to be named, considering the sensitivity of the issue. He also said there may be a late night media statement by Air India on this.

With accumulated losses of Rs7,200 crore and borrowings of up to Rs15,241 crore at the end of June, up from Rs6,550 crore in November 2007, Air India has asked the government for a loan and equity infusion of around Rs15,000 crore.

Earlier this month, hundreds of pilots at India’s largest private carrier by passengers, Jet Airways (India) Ltd went on mass sick leave for six days to protest against the firing of two pilots instrumental in forming a pilots’ union. Subsequently, two more pilots were sacked. Jet Airways founder chairman Naresh Goyal reinstated all the sacked pilots after first threatening to close the airline.

“The suspension of operations is the only way out for Air India. It can close down and recruit employees on new service conditions and terms. As long as there is no solution to cut cost and increase yields, the cut in PLIs will not do the magic of turnaround," said an aviation expert.

Others disagree with this reading. “It’s a shocking and bizarre decision. Air India is trying to hide the massive mess created in the last five years. The government is running out of ideas," said Kapil Kaul, chief executive officer (Indian subcontinent and Middle East) of Centre for Asia Pacific Aviation, an international aviation consulting firm.

Bhargava said pilots at various other bases such as Mumbai, Chennai and Kolkata are resuming work.

“The management is open to discussion on the composition of the committee of executive pilots referred to in the office order dated 27 September 2009. Orders have been issued that PLI and flying allowance of July 2009 payable in August 2009 be disbursed immediately," Air India said in a statement on Monday.

In other words, the PLI will not be deducted till a fresh circular is issued.

“The schedule for payment of salary and PLI for the coming months will be finalized in consultation with the financial institutions and communicated to all employees shortly," it said.

On Sunday night, the Air India chief met at least 20 Mumbai pilots for 4 hours and agreed to form a committee with representatives of management and executive pilots to discuss modifications in PLI before being finalized.

The Air India board had on 24 September decided to cut incentive payments for officers and top managers by as much as half in a cost-cutting measure covering 7,000 employees out of its total strength of 31,500.

The officers include executive pilots, executive cabin crew and executive engineers. The carrier has not taken a decision on the remaining employees.

Air India in mid-August had proposed slashing the incentive for all employees by 50% as it struggles to come out of its worst crisis. The reductions would have saved at least Rs700 crore a year if carrier out as planned.

Air India said separately on Monday said it was proposing to save up to Rs1,300 crore in the remaining six months of the current fiscal, while a Rs400 crore saving would come by rationalizing manpower costs as a part of operational restructuring.

An aviation expert, requesting anonymity, said Air India will face further difficulties since it has to deal with the executive cabin crew and engineers.

“The current discussions are with pilots and the next turn will be from engineers. Air India was supposed to start its low-cost operations from this month to help the carrier to cut costs. But the carrier was not able to take that proposal forward," he said.