Air India’s bailout: is there light at the end of the tunnel?


Air India’s request for a bailout of Rs. 20,000 crores is making the headlines. Over a decade ago, when Indian Airlines approached the Finance Ministry for a couple of hundred crores, we were told that the government would only consider the request if a detailed study by experts is produced, which shows ‘light at the end of the tunnel.’

We read of heads rolling, retrenchment, downsizing and closures — (strong words, uttered earlier as well, but often not acted upon), but do these alone add up to a solution? Does not retention or capture of markets depend also on sound professional management, superior service and maintenance of employee enthusiasm? Sir Richard Branson of Virgin Airlines, in a lecture delivered in India, remarked that his focus was always on the employee and not the customer, since customers are bound to be better served, if employees are well trained and motivated.

Let us turn to the airlines. Indian Airlines registered profits in 2003-04, 2004-5 and 2005-06, (44.17, 65.61 and 49.5 crores respectively). In 2006-07 it suffered a loss of Rs. 234 crores; and in 2007-08 the loss of the merged airline ‘Air India’ was Rs. 2,226 crores. What is the reason for the almost ten-fold increase in losses?

Two decisions that shook employee morale and therefore may, to a major extent, have been responsible for the losses, are the change of name from ‘Indian Airlines’ to ‘Indian’ and the merger of Air India and Indian Airlines.

In the October 2004 IMRB survey, Indian Airlines (IA) was rated the ‘most preferred airline’; corporate executives showed preference for IA (44% against 42% of Jet); and IA was the most traveled airline, (50% against 38% of Jet).

In the Economic Times- A.C.Nielson Survey in 2003 as well as in 2004, amongst the 50 top brands, IA was ranked no: 7, with Taj Hotels at no: 12 and Jet Airways no: 48.

The name ‘Indian Airlines’ therefore possessed enormous brand equity.

In December 2005 ‘Indian Airlines’ was changed to ‘Indian’ for reasons entirely unknown to both its employees and its customers.

Management studies have concluded that change of a brand should involve a process viz. audit and analysis with key stake holders, holding a workshop, brand design and research, a ‘soft launch’ and finally the ‘roll-out’, all of which takes at least a year and a half.

No one is aware of any such process having been followed, employees sadly remarking ‘ Indian Airlines ka naam o nishaan nahin. (Indian Airlines went without a trace)’ The change of name had therefore a grave adverse effect on morale.

Regarding the merger, whilst a variety of studies from the seventies, and even earlier, were of the view that merger of the two airlines was desirable, all experts were unanimous in advising that the process of merger should not be sudden, but in stages, spread over years.

The N.P. Sen Committee in 1972 stated:

‘…… India, as in Britain, the integration of the two Corporations will have to be implemented gradually, with as little disruption as possible, so as to achieve the desired results without a disastrous collapse of morale….’ (Emphasis added.)

In the mid-80s Prime Minister Rajiv Gandhi was keen on the merger of the two airlines. An expert committee, headed by Shri M.P. Wadhawan, erstwhile chairman, Indian Iron and Steel Company, and consisting of experts from the IIM, the Administrative Staff College of India and deputy managing directors of Air India and Indian Airlines, studied the proposal and submitted a report.

The Committee of Secretaries of the Government of India, considering the recommendations of the Wadhawan Committee, came to the view that, since immediate merger was bound to result in dislocation, due to fitment of personnel, and since neither Air India nor Indian Airlines were strong organisations to withstand this, it was not the appropriate time to consider the merger of the two corporations. (This was in 1986, when both Indian Airlines and Air India were showing profits.) It was therefore decided that, in line with what had been recommended by the Wadhawan Committee, the airlines should go in for ‘organised system collaboration’, by setting up an organisation which has a common balance sheet, or a notionally common balance sheet, and in which the two companies, viz. Air India and Indian Airlines, would continue to function on a day- to-day basis, with maximum autonomy, with the apex board of the larger company only intervening and issuing directions in matters that required synergy between the two organisations and/or optimisation of resources.

A decade later, the common Boards of Indian Airlines and Air India, which had men of eminence such as Russi Modi, Deepak Parekh, Pratap Reddy, Pallam Raju and Inder Sharma, considering the issue of merger in July, 1997, decided to appoint a consultant of repute to prepare a blueprint.

A.F. Ferguson made a presentation to the Board in July, 1998 suggesting, as a first stage, the setting up of a holding company. The managements of the airlines mentioned that since, in 1996-1997 Air India suffered a loss of over Rs.270 crores, and Indian Airlines a loss of Rs.13 crores, both organisations were extremely fragile, and facing competition, and therefore to think of immediate merger would be inviting trouble. It was also recalled that the sudden merger of Vayudoot with Indian Airlines, and of the National Airports Authority with the International Airports Authority, resulted in chronic problems of personnel that persisted over the years.

A decade later, despite the existence of all earlier advice of experts from management institutions, the corporate sector, the public sector and the administration, it was decided in August 2007 to merge the two airlines at one stroke.

As could have been expected, in 2007-08 the combined ‘Air India’ made a loss of Rs.2, 226 crores, and for 2008-09 the losses are reportedly around Rs.5,000 crores.

In short while changing a brand name, or merging organisations, it would have been wiser to ‘hasten slowly’, always taking care to carry your employees with you.

Given the present situation, the search for solutions should be as wide, intense and unorthodox as possible. Among the steps that could considered are, reverting back to the idea of having a holding company; inducting a senior HRD manager of exceptional ability, who should, together with a separate team, concentrate solely on continuous interaction with employees, addressing their fears and apprehensions, and on introducing programmes that focus on attitudinal change and up gradation of management skills; setting up a search committee of experts to select from within, or laterally induct, professionals of the highest calibre for the HRD, Finance, and Marketing Divisions ; and inducting in the Board, persons who combine ability and maturity, who will devote time to the affairs of the organisation, and never hesitate to speak their mind.

It must at all times be remembered that governance, both of countries and of organisations, is an art, and one that respects the human factor.

( Probir Sen is a former Chairman and Managing Director of Indian Airlines.)

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Printable version | Jan 25, 2020 10:21:16 PM |

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