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1. 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 underutilization 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.
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)
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2. 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 re-employed 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
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3. company’s long-term benefits.
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
1/10/1995 25
22/09/1996 36
15/10/1997 13.44
1/10/1998 8.8
Source: IATA-World Air Transport Statistics
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
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4. 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.
TABLE II
INCREASE IN STAFF COSTS
Year
Staff cost
(in Rs bn)
No. of
employees
Per
employee
cost (in
mn)
Total
expenditure
(in Rs bn)
Staff cost as
percentage
of total
operational
expenditure
Effective
fleet size
1993-
94
2.85 22182 0.13 20.75 15% 54
1994-
95
3.74
(31.18%)*
22683 0.16 22.59 19% 58
1995-
96
5.71
(52.59%)
22582 0.25 26 25% 55
1996-
97
7.10
(24.35%)
22153 0.32 29.29 26% 40
1997-
98
8.17
(15.03%)
21990 0.37 32.21 27% 40
1998-
99
8.75
(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.
In 1998, IA tried to persuade employees to cut down on PLI and overtime to help the airline
weather a difficult period; however there efforts failed.
Though IA incurred losses during 1995-96 and 1996-97 and made only marginal
profits during 1997-98 and 1998-99, heavy payments were made on account of
PLI. A net loss of Rs 641.8 mn was registered during the period 1995-99. PLI
payments alone amounted to Rs 6.66 bn, during the same period. According to
unofficial reports, arrears to be paid to employees on account of PLI touched
nearly Rs 7 bn by 1999.
Over the years, the number of employees at IA increased steadily. IA had the
maximum number of employees per aircraft. (Refer Table III). 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.
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5. TABLE III
A COMPARISON OF VARIOUS AIRLINES
Name of
Airlines
Number of
aircraft in
fleet
No. of
employees
ATKm[3]
(in Million)
ATKm per
Employee
Employees
per 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. 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 ad-hoc 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.
Even a matriculate could become a manager, by acquiring the necessary job-related qualifications &
experience. Illiterate IA employees drew salaries that were on par with senior civil servants. After
superannuation, several employees were re-employed by the airline in an advisory capacity.
According to reports, IA employed 132 retired employees as consultants during 1995-96 on contract
basis. With each strike/go-slow and subsequent wage negotiations, IA’s financial woes kept
increasing. Though at times the airline did put its foot down, by and large, it always acceded to the
demands for wage hikes and other perquisites.
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 air-conditioners even after retirement. All these problems had a
negative impact on divestment procedure.
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6. 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.
QUESTIONS FOR DISCUSSION:
1. Analyze the developments in the Indian civil aviation industry after the sector was opened up for
the private players. Evaluate IA’s performance. Why do you think IA failed to retain its market share
against competitors like Jet Airways?
2. IA’s human resource problems can largely be attributed to its poor human resource management
policies. Do you agree? Give reasons to support your stand.
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7. 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.
QUESTIONS FOR DISCUSSION:
1. Analyze the developments in the Indian civil aviation industry after the sector was opened up for
the private players. Evaluate IA’s performance. Why do you think IA failed to retain its market share
against competitors like Jet Airways?
2. IA’s human resource problems can largely be attributed to its poor human resource management
policies. Do you agree? Give reasons to support your stand.
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