AI asks brass to forego July pay

Written by Corporate Bureau | Mumbai | Updated: Jun 20 2009, 08:26am hrs
State-Run carrier Air India has finally decided to bite the bullet in the face of burgeoning losses. Arvind Jadhav, chairman & managing director, has requested the airlines corporate directors, SBU heads, executive directors and general managers to voluntarily forego salary and productivity linked incentive (PLI) for July. This is the first major internal announcement made by Jadhav after his appointment to bail out the sinking carrier.

The National Aviation Company of India Ltd (Nacil ), which owns Air India, had, earlier this month, decided to defer the salary and PLI of all employees for June by 15 days. The companys financial losses for FY 2008-09 are estimated at around Rs 4,000 crore, up from Rs 2,226 crore the previous year.

With Fridays move, over 3,000 top-rung Nacil officials, paid roughly Rs 1.5 lakh a month, including PLI, will be deprived of their July pay. This initiative would translate into savings of over Rs 45 crore for the airline, according to industry sources. Nacil has a staff strength of 35,000.

Jadhav, in his internal communication, told his senior officials that the management needs to indicate to all employees that even a miniscule amount saved by the company will help ease its severe liquidity crunch.

Air India has seen a decline in passenger load factors and yield, as well as a sharp rise in costs, owing to aircraft acquisition and an increasing wage bill. It has also been far behind its competitors, resulting in falling traffic. Doubts have also been raised about Nacils preparation for the integration of Air India and Indian Airlines, especially of its workforce. Experts have said that the merger was badly managed and was driven from the top. Both Air India and Indian Airlines continue to fly under different code numbers. Due to this, Nacil has not been accepted by Star Alliance, experts say.

The national carrier has also been planning to seek Rs 5,000 crore as additional equity, Rs 7,000 crore as a soft loan payable after five years at a 5% interest rate, and a grant of Rs 2,000 crore. However, top Air India officials have denied the figures, although they said they are working on similar lines.

Maintaining that a financial crisis at Air India was imminent, industry sources said the acute situation could have been avoided had Air India delayed the ongoing deliveries of its aircraft, like its competitors Jet Airways and Kingfisher Airlines had done.

Air India has placed orders for 111 new planes worth over Rs 45,000 crore. Also, according to experts, Nacil has to initiate preparations for a strategic disinvestment in order to speed up its recovery.

Overall, the Indian airline sector is projected to lose Rs 8,000 crore for FY09. Jet Airways has posted a net loss of Rs 961 crore for FY09. Kingfisher posted Rs 626 crore losses for Q3 of FY09 and is expected to again post losses for the full financial year. Major carriers have undertaken cost-cutting drives to curtail their employee expenses and improve their monthly operating costs. Jet and Kingfisher have leased their aircraft to international carriers and are consistently restructuring their business model to improve their financial health.