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Indian Airlines' HR Problems

"There could scarcely be a more undisciplined bunch of workers than IA's 22,000
employees."
- Business India, January 25, 1999.
Flying Low
Indian Airlines (IA) the name of India's national carrier conjured up an image of a
monopoly gone berserk with the absolute power it had over the market. Continual
losses over the years, frequent human resource problems and gross mismanagement
were just some of the few problems plagued the company. Widespread media
coverage regarding the frequent strikes by IA pilots not only reflected the adamant
attitude of the pilots, but also resulted in increased public resentment towards the
airline.
IA's recurring human resource problems were attributed to its lack of proper
manpower planning and underutilisation of existing manpower. The recruitment and
creation of posts in IA was done without proper scientific analysis of the manpower
requirements of the organization. IA's employee unions were rather infamous for
resorting to industrial action on the slightest pretext and their arm-twisting tactics to
get their demands accepted by the management.
During the 1990s, the Government took various steps to turn around IA and initiated
talks for its disinvestment. Amidst strong opposition by the employees, the
disinvestment plans dragged on endlessly well into mid 2001. The IA story shows how
poor management, especially in the human resources area, could spell doom even for
a Rs 40 bn monopoly.
Background Note
IA was formed in May 1953 with the nationalization of the airlines industry through
the Air Corporations Act. Indian Airlines Corporation and Air India International were
established and the assets of the then existing nine airline companies were
transferred to these two entities. While Air India provided international air services,
IA and its subsidiary, Alliance Air, provided domestic air services. In 1990, Vayudoot,
a low-capacity and short-haul domestic airline with huge long-term liabilities, was
merged with IA. IA's network ranged from Kuwait in the west to Singapore in the
east, covering 75 destinations (59 within India, 16 abroad).
Its international network covered Kuwait, Oman, UAE, Qatar and Bahrain in West
Asia; Thailand, Singapore and Malaysia in South East Asia; and Pakistan, Nepal,
Bangladesh, Myanmar, Sri Lanka and Maldives in the South Asian subcontinent.
Between themselves, IA and Alliance Air carried over 7.5 million passengers annually.
In 1999, the company had a fleet strength of 55 aircraft - 11 Airbus A300s, 30
Airbus A320s, 11 Boeing B737s and 3 Dorniers D0228.
Background Note Contd...
In 1994, the Air Corporation Act was repealed and air transport was thrown open to
private players. Many big corporate houses entered the fray and IA saw a mass
exodus of its pilots to private airlines. To counter increasing competition IA launched
a new image building advertisement campaign. It also improved its services by
strictly adhering to flight schedules and providing better in-flight and ground
services. It also launched several other new aircraft, with a new, younger, and more

dynamic in flight crew. These initiatives were soon rewarded in form of 17% increase
in passenger revenues during the year 1994.
However, IA could not sustain these improvements. Competitors like Sahara and Jet Airways
(Jet) provided better services and network. Unable to match the performance of these
airlines IA faced severe criticism for its inefficiency and excessive expenditure human
resources. Staff cost increased by an alarming Rs 5.9 bn during 1994-98.
These costs were responsible to a great extent for the company's frequent losses. By 1999
the losses touched Rs 7.5 bn. In the next few years, private players such as East West,
NEPC, and Damania had to close shop due to huge losses. Jet was the only player that was
able to sustain itself. IA's market share, however continued to drop. In 1999, while IA's
market share was 47%, the share of private airlines reached 53%.
Unnecessary interference by the Ministry of Civil Aviation was a major cause of
concern for IA. This interference ranged from deciding on the crew's quality to major
technical decisions in which the Ministry did not even have the necessary expertise.
IA had to operate flights in the North-East at highly subsidized fares to fulfill its social
objectives of connecting these regions with the rest of the country. These flights
contributed to the IA's losses over the years. As the carrier's balance sheet was
heavily skewed towards debt with an equity base of Rs 1.05 bn in 1999 as against
long term loans of Rs 28 bn, heavy interest outflows of Rs 1.99 bn further increased
the losses.
IA could blame many of its problems on competitive pressures or political
interference; but it could not deny responsibility for its human resource problems. A
report by the Comptroller and Auditor General of India stated, "Manpower planning in
any organization should depend on the periodic and realistic assessment of the
manpower needs, need-based recruitment, optimum utilization of the recruited
personnel and abolition of surplus and redundant posts. Identification of the
qualifications appropriate to all the posts is a basic requirement of efficient human
resource management. IA was found grossly deficient in all these aspects."
'Fighter' Pilots?
IA's eight unions were notorious for their defiant attitude and their use of
unscrupulous methods to force the management to agree to all their demands.
Strikes, go-slow agitations and wage negotiations were common. For each strike
there was a different reason, but every strike it was about pressurizing IA for more
money. From November 1989 to June 1992, there were 13 agitations by different
unions. During December 1992-January 1993, there was a 46-day strike by the pilots
and yet another one in November 1994. The cavalier attitude of the IA pilots was
particularly evident in the agitation in April 1995.
The pilots began the agitation demanding higher allowances for flying in international
sectors. This demand was turned down. They then refused to fly with people reemployed on a contract basis. Thereafter they went on a strike, saying that the cabin
crew earned higher wages than them and that they would not fly until this issue was
addressed.
Due to adamant behaviour of pilots many of the cabin crew and the airhostesses had
to be off-loaded at the last moment from aircrafts. In 1996, there was another
agitation, with many pilots reporting sick at the same time. Medical examiners, who
were sent to check these pilots, found that most of these were false claims. Some of
the pilots were completely fit; others somehow managed to produce medical
certificates to corroborate their claims.

In January 1997, there was another strike by the pilots, this time asking for
increased foreign allowances, fixed flying hours, free meals and wage parity with
Alliance Air. Though the strike was called off within a week, it again raised questions
regarding IA's vulnerability. April 2000 saw another go-slow agitation by IA's aircraft
engineers who were demanding pay revision and a change in the career progression
pattern.1 The strategies adopted by IA to overcome these problems were severely
criticized by analysts over the years. Analysts noted that the people heading the
airline were more interested in making peace with the unions than looking at the
company's long-term benefits.
'Fighter' Pilots? Contd...
Russy Mody (Mody), who joined IA as chairman in November 1994, made efforts to
appease the unions by proposing to bring their salaries on par with those of Air India
employees. This was strongly opposed by the board of directors, in view of the
mounting losses. Mody also proposed to increase the age of retirement from 58 to 60
to control the exodus of pilots. However, government rejected Mody's plans. 2 When
Probir Sen (Sen) took over as chairman and managing director, he bought the pilot
emoluments on par with emoluments other airlines, thereby successfully controlling
the exodus. In 1994, the IA unions opposed the re-employment of pilots who had left
IA to join private carriers and the employment of superannuated fliers on contract.
Sen averted a crisis by creating Alliance Air, a subsidiary airline company where the
re-employed people were utilized. He was also instrumental in effecting substantial
wage hikes for the employees. The extra financial burden on the airline caused by
these measures was met by resorting to a 10% annual hike in fares. (Refer Table I)
TABLE I
IMPACT OF STAFF COST HIKE IN FARE INCREASE (%)
Date of fare
increase

Impact
(%)

25/07/1994

16.22

01/10/1995

25.00

22/09/1996

36.00

15/10/1997

13.44

01/10/1998

8.80

Source: IATA-World Air Transport Statistics


'Fighter' Pilots? Contd...
Initially, Sen's efforts seemed to have positive effects with an improvement in aircraft
utilization figures. IA also managed to cut losses during 1996-97 and reported a Rs
140 mn profit in 1997-98. But recessionary trends in the economy and its mounting
wage bill pushed IA back into losses by 1999.
Sen and the entire board of directors was sacked by the government. In the late
1990s, in yet another effort to appease its employees, IA introduced the
productivity-linked scheme. The idea of the productivity linked incentive (PLI)
scheme was to persuade pilots to fly more in order to increase aircraft utilization.
But the PLI scheme was grossly misused by large sections of the employees to earn
more cash. For instance, the agreement stated that if the engineering department

made 28 Airbus A320s available for service every day, PLI would be paid. This
number was later reduced to 25 and finally to 23.
There were also reports that flights leaving 30 - 45 minutes late were shown as being
on time for PLI purposes. Pilots were flying 75 hours a month, while they flew only 63
hours.
Eventually, the PLI schemes raised an additional annual wage bill of Rs 1.8 bn for IA.
It was alleged that IA employees did no work during normal office hours; this way
they could not work overtime and earn more money.

Though experts agreed that IA had to cut its operation costs. To survive the airline
continued to add to its costs, by paying more money to its employees. (Refer Table II).
The payment of overtime allowance (OTA) which included holiday pay to staff, increased
by 109% during 1993-99. It was also found that the payment of OTA always exceeded
the budget provisions.
Between 1991-92 and 1995-96, the increase in pay and allowances of the executive pilots
was 842% and that of non-executive pilots was 134%. Even the lowest paid employee in
the airline, either a sweeper or a peon, was paid Rs 8,000 10,000 per month with
overtime included.
'Fighter' Pilots? Contd...
TABLE II
INCREASE IN STAFF COSTS

Year

Staff cost as
Per
Total
percentage Effective
Staff cost No. of
employee
expenditure of total
fleet
(in Rs bn) employees cost (in
(in Rs bn) operational size#
mn)
expenditure

19932.85
94

22182

0.13

20.75

15%

54

1994- 3.74
22683
95
(31.18%)*

0.16

22.59

19%

58

1995- 5.71
96
(52.59%)

22582

0.25

26.00

25%

55

1996- 7.10
97
(24.35%)

22153

0.32

29.29

26%

40

1997- 8.17
98
(15.03%)

21990

0.37

32.21

27%

40

1998- 8.75
99
(7.12%)

21922

0.39

34.31

28%

41

Source: IATA-World Air Transport Statistics


* Figures in brackets indicate increase over the previous year.
# Excludes 4 aircraft grounded from 1993-94 to 1995-96 as well as 12 aircraft
leased to Airline Allied Services Ltd. from 1996-97 to 1998-99.

'Fighter' Pilots? Contd...


It was reported that the airline's monthly wage bill was as high as of Rs 680 mn,
which doubled in the next three years. There were 150 employees earning above Rs
0.3 mn per annum in 1994-95 and the number increased to 2,109 by 1997-98.
The Brar committee attributed this abnormal increase in staff costs to inefficient
manpower planning, unproductive deployment of manpower and unwarranted
increase in salaries and wages of the employees.

TABLE III
A COMPARISON OF VARIOUS AIRLINES
Name of
Airlines

Number of
No. of
ATKm3 (in
aircraft in
employees Million)
fleet

Employees
ATKm per
per
Employee
aircraft

Singapore
Airlines

84

13,549

14418.324

1064161

161

Thai Airways
International

76

24,186

6546.627

270678

318

Indian Airlines 51

21,990

2113.671

398204

431

Gulf Air

30

5,308

1416.235

245831

177

Kuwait
Airways

22

5,761

345.599

92853

261

Jet Airways

19

3,722

1094.132

49756

196

Source: IATA-World Air Transport Statistics


Analysts criticized the way posts were created in IA. In 1999, Six new posts of
directors were created of which three were created by dividing functions of existing
directors. Thus, in place of 6 directors in departments' prior April 1998, there were 9
directors by 1999 overseeing the same functions.

'Fighter' Pilots? Contd...

There were 30 full time directors, who in turn had their retinue of private secretaries,
drivers and orderlies. The posts in non-executive cadres were to be created after the
assessment by the Manpower Assessment committee. But analysts pointed that in
the case of cabin crew, 40 posts were introduced in the Southern Region on an adhoc basis, pending the assessment of their requirement by the Staff Assessment
Committee. Another problem was that no basic educational qualifications prescribed
for senior executive posts.
Troubled Skies
Frequent agitations was not the only problem that IA faced in the area of human
resources. There were issues that had been either neglected or mismanaged. For
instance, the rates of highly subsidized canteen items were not revised even once in
three decades and there was no policy on fixing rates. Various allowances such as
out-of-pocket expenses, experience allowance, simulator allowance etc. were paid to
those who were not strictly eligible for these. Excessive expenditure was incurred on
benefits given to senior executives such as retention of company car, and room airconditioners even after retirement. All these problems had a negative impact on
divestment procedure. This did not augur well for any of the parties involved, as
privatization was expected to give the IA management an opportunity to make the
venture a commercially viable one. Freed from its political and social obligations, the
carrier would be in a much better position to handle its labor problems. The biggest
beneficiaries would be perhaps the passengers, who would get better services from
the airline.