Article: Flights of Fantasy - Air India-Indian Airlines Merger

C-Suite

Flights of Fantasy - Air India-Indian Airlines Merger

The premature strike called by AI pilots has been hurting brand Air India; but the root cause of the problem is the whimsical AI-IA merger
 

The rivalry between the two wings of the merged has brought embarrassment & harm to brand ‘Air India'

 

In July 2006, the high-level panel consisting of officials from Air India, Indian Airlines, Ministry of Civil Aviation, and ICICI Bank Chairman Emeritus N. Vaghul were zeroing upon a consultant to chalk out a roadmap for the operational mega merger between two state run carriers. The well intentioned overwhelming thought then was to create a competitive national airline on the lines of British Airways and Singapore Airlines. Air India and Indian Airlines were merged on March 1, 2007 to create a new company called National Aviation Company of India Ltd, later changed to Air India Ltd. However, five years post the mega merger, it is apparent that the amalgamation was a marriage of two incompatible individuals. In the lack of oversight and leadership, Air India has literally slipped into an abyss.

In the present context, the agitation called by the Indian Pilots Guild (IPG) started on May 8, 2012 when the pilot members took mass leave protesting the move to provide Boeing 787 Dreamliner training to pilots from the erstwhile Indian Airlines. Now in its twenty first day, the so called agitation has lead to a loss of over Rs.325 crore. The pilots have made four demands which include exclusive flying rights on Boeing 787 aircraft, payment of arrears from 2007 onwards, travel on first class when not working, and the right to be promoted as commanders within six years. The agitation in itself is not new, even last year in March, a group of pilots from the erstwhile Indian Airlines under the banner of Indian Commercial Pilots Association (ICPA) had adopted the same strategy to make their dissenting voices and demands heard. The rivalry between the two wings of the merged entity has not only derailed the operations of the national carrier but has also caused a lot of embarrassment and harm to brand ‘Air India’. As a matter of fact the market share of the once dominant Air India has reduced from over 60 percent to just about 17 percent. Ajit Singh, the Minister for Civil Aviation, has often in his media interactions specifically mentioned that the merger of the two erstwhile airlines in itself is the root cause of the crisis.

It is critical to delve deeper and analyse as to what are the underlying reasons for the agitation – is it merely the exclusivity of flying rights and issues of career progression or are there inherent malaise that has gradually led to the mega merger not working out as planned. Why is it that the benefits as advocated by the consultants, Accenture with Ambit Corporate Finance, in terms of synergy, economies of scale, and profitability, not taken place? Synergy is a far off cry for this merger. To this day, the merger is only 70 percent complete. Significantly, critical human resources functions, which go to the core of the problems over the clash of cultures, haven’t been merged. The truth is that there are several HR issues unresolved among the employees of both the sides. There are differences in their salary structures, work schedule, perks, training & orientation programs, and even promotion schedules. Even today, Indian Airlines employees are given orientation towards domestic operations while Air India employees are trained for international operations. The case is similar for the engineers, cabin crew in-charge, cargo managers, and other functionaries of both entities. They too are voicing the same resentment over the merger.

Talking of profitability, in Air India’s case, the merger was expected to result in a saving up to Rs.1,200 crore from 2010. But the merged entity is neck deep in debt and losses; the net loss for Air India in 2010-11 was Rs. 6,994 crore and the provisional loss figures for 2011-12 stands at Rs.7,853 crores. This wide gap between what was projected and the reality raises the question as to whether it was indeed a merger or a murder; critics, however, prefer terming it a ‘murderous merger’. Interestingly, both AI and IA were making cash profits till fiscal 2006-07 but have been witnessing losses soaring thereafter. As of now, the total debt for Air India is a whopping Rs.44,000 crore while the accumulated losses are Rs.20,000 crore. The truth is that the merger hasn’t spawned the promised benefits mostly because till date, the merger has merely remained on paper.

Justice Dharmadhikari Committee Report

Post the agitation staged by ICPA and the fact that the stop gap solution for pay parity did not find many buyers; the ministry set up the Justice D R Dharmadhikari committee in March 2011, with the task of studying and making recommendations on matters of HR integration, level-mapping and pay parity of the two organizations that were merged to create the 28,500 employee Air India in 2007. The committee submitted its report on January 31, 2012 and reports in the media state that the committee has recommended a voluntary retirement scheme (VRS) to prune the workforce at Air India; implementation of a ‘no work, no pay’ concept; and a comprehensive analysis of the pay structure across the airline to bring it on par with other public sector units. The committee advocates that both sets of pilots should get uniform salaries. It suggests cross-utilisation of pilots, which means IA pilots can fly Dreamliners, and AI pilots can fly Airbus aircraft, after obtaining requisite endorsements and training. IPG would certainly not be happy with this recommendation as they claim that the pilots’ career progression is under threat, and that they alone should fly the new Boeing 787 Dreamliners. With computerization of pilot duties, which until now was done manually at the behest of pilot unions, would mean that erstwhile AI pilots lose their hegemony over lucrative long-haul flights to Europe and USA.

Why now?

It can be reasoned that the strike is an expression of all the prejudices against the merger. The present agitation by IPG and the previous one by ICPA are telling examples of their animosity, reasons enough as to why the merger of the two erstwhile airlines matters little to either of them. Nonetheless, the agitation is untimely and premature. This is so because the recommendation of Justice D R Dharmadhikari committee is with the government and it will soon be implemented. The myopic vision of IPG can be gauged from the fact that at a time when the government has approved a bailout package to the tune of Rs.30,000 crore and with Dreamliners joining the fleet would in effect help reduce operational cost & optimise capacity on routes; the union has opted to agitate.

What next?

The Civil Minister, in a bid to end the stalemate, did lend his ears listening to the grievances of IPG and said that there would be no victimization of the agitating pilots. However, till date the Air India management has sacked 101 of the agitating pilots bringing to open the clear disconnect between what is said and what is done. Thus, it is clear that the ball is in the government’s court. While no union should be allowed to dictate terms, the legitimate demands should be met. Procrastinating the issue will help none. The AI–IA merger should not be allowed to go down in history as a failure.
 

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Topics: C-Suite, #MergersAndAcquisitions

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