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.

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 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 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
company's long-term benefits.

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 appase 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.

TABLE II
INCREASE IN STAFF COSTS

Staff cost as
Per
Total percentage Effective
Staff costNo. ofemployee
Year expenditure of totalfleet
(in Rs bn) employees cost (in
(in Rs bn) operational size#
mn)
expenditure

1993-94 2.85 22182 0.13 20.75 15% 54

3.74
1994-95 22683 0.16 22.59 19% 58
(31.18%)*

5.71
1995-96 22582 0.25 26.00 25% 55
(52.59%)

7.10
1996-97 22153 0.32 29.29 26% 40
(24.35%)

8.17
1997-98 21990 0.37 32.21 27% 40
(15.03%)

8.75
1998-99 21922 0.39 34.31 28% 41
(7.12%)

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.

TABLE III
A COMPARISON OF VARIOUS AIRLINES

Number of
Name of No. ofATKm3 (inATKm perEmployees
aircraft in
Airlines employees Million) Employee per aircraft
fleet

Singapore
84 13,549 14418.324 1064161 161
Airlines

Thai Airways
76 24,186 6546.627 270678 318
International

Indian Airlines 51 21,990 2113.671 398204 431

Gulf Air 30 5,308 1416.235 245831 177

Kuwait
22 5,761 345.599 92853 261
Airways

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. 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.