CASE STUDY : INDIAN AIRLINES HR PROBLEMS CASE NOTES

FLYING LOW

Indian Airlines (IA) Indias national carrier is a perfect example 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.

Frequent strikes by IA pilots reflected the adamant attitude of the pilots resulting in increased public resentment towards the airline. 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. Employee unions were rather infamous for resorting to industrial action on the slightest pretext. 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. This shows how poor management, especially in the human resources area, could spell doom even for a Rs 40 billion monopoly.

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BACKGROUND NOTE

IA was formed in May 1953 with the nationalization of the airlines industry through the Air Corporations Act. IA and its subsidiary, Alliance Air, provided domestic air services. IAs network ranged from Kuwait in the west to Singapore in the east, covering 75 destinations (59 within India, 16 abroad). In 1999, the company In 1999, it 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 In 1994, the Air Corporation Act was repealed and air transport was thrown open to private players. 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. Improved its services by strictly adhering to flight schedules and providing better in-flight and ground services. 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. 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 alarmingly during 1994-98. These costs were responsible to a great extent for the companys frequent losses.

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By 1999 the losses touched Rs 7.5 bn. In the next few years, IAs market share, however continued to drop. In 1999, while IAs 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. Interference ranged from deciding on the crews 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 fulfil its social objectives of connecting these regions with the rest of the country. These flights contributed to the IAs losses over the years.

The carriers balance sheet 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 was found grossly deficient in realistic assessment of the manpower needs, need-based recruitment, optimum personnel utilization and abolition of surplus and redundant posts.

FIGHTER PILOTS?

IAs 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. Each had a different reason, but every strike was about pressurizing IA for more money. From November 1989 to June 1992, there were 13 agitations by different unions. 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 companys 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.

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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. Government however rejected his plans. 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.

Sen created 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. Sen.s efforts seemed to have positive effects with an improvement in aircraft utilization figures. IA also managed to cut losses and reported a Rs 140 million 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 were sacked by the government. In 1990s, in yet another effort to appease its employees, IA introduced the productivity-linked scheme. Eventually, the PLI schemes raised an additional annual wage bill of Rs 1.8 bn for IA.

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It was alleged that IA employees did not 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.

In 1998, IA tried to persuade employees to cut down on PLI and overtime to help the airline weather a difficult period; however efforts failed. Over the years, the number of employees at IA increased steadily. IA had the maximum number of employees per aircraft. It was reported that the airlines monthly wage bill was as high as of Rs 680 million, which doubled in the next three years 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.

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. 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 jobrelated qualifications & experience. Illiterate IA employees drew salaries that were on par with senior civil servants. After retirement, several employees were re-employed by the airline in an advisory capacity.

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With each strike/go-slow and subsequent wage negotiations, IAs 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 were not the only problem that IA faced in the area of human resources. There were issues that had been either neglected or mismanaged. Various allowances such as out-of-pocket expenses, experience allowance, simulator allowances etc. were paid to those who were not strictly eligible. 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.

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 was expected to be in a much better position to handle its labour problems. The biggest beneficiaries would be perhaps the passengers, who would get better services from the airline.

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QUESTIONS

Q1. Analyze the developments in the Indian civil aviation industry after the sector was opened up for the private players. Evaluate IAs

performance. Why do you think IA failed to retain its market share against competitors like Jet Airways?

Q2. IAs human resource problems can largely be attributed to its poor human Do you resource agree? Give

management

policies.

reasons to support your stand?

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Q1. Analyze the developments in the Indian civil aviation industry after the sector was opened up for the private players. Evaluate IAs performance. Why do you think IA failed to retain its market share against competitors like Jet Airways? Answer

The Air Corporation Act was repealed in the year 1994, thus throwing the aviation market open to private players. Corporate houses entered the fray to milk the large opportunity available. As a result, Indian Airlines witnessed mass exodus of its pilots to private airlines. Indian Airlines had to face the heat of the open market competitors and consumer expectations. To gain competitive edge Indian Airlines launched a new image building advertisement campaign. Emphasis was put upon the improvement in services both in-flight and onground and flights strictly adhering to schedules. New flights with younger and dynamic crew were also launched to attract consumers. As a result of the above effort Indian Airlines could garner 17% increase in passenger revenues during the same year. Meanwhile the other competitive player provided better services and networks on offer for consumers.

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Indian Airlines Performance.

The airlines response to the emerging competitiveness in the open market in

1999 was eminent with the decision to undertake various initiatives to rebuild its image. It was successful in its initiative and was even rewarded with increase in revenues.
This however couldnt be sustained by the airline and its revenues started

sliding downwards. Unable to match the services and sustain improvements the airline was criticised for its inefficiencies and excessive expenditure on human resource. The organisation started to face frequent losses which amounted to Rs 7.5 billion in 1999. Failures in Competition

The airline failed in its image rebuilding initiatives where in the contributing cost of the human resource spiralled out of tolerance levels. The inefficiencies and expenditures were attributed to the organisations growing losses. Staff cost increased alarmingly to Rs 5.9 bn during 1994-98 period. Although many private companies were vanquished, those which went on to eat up IAs market share. This was evident by the fact that in 1999 IAs share was 47% where as that of private airlines was of 53 %. These failures could also be attributed to the unnecessary interference by the civil aviation ministry which neither had the necessary competence or expertise to take intricate decisions.

The decision making interference ranged from deciding on the crews quality to major technical decisions. More than required beaurcratic involvement in the organisational affairs was responsible for the failures.

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The fulfilment of social objective by the organisation of connecting the northeastern regions with the rest of the country also contributed to the already heaping losses.

Heavy interest outflows and large debts can be attributed as a major contributor to the huge losses. Unorganised and unplanned human resource were also responsible for the ever increasing costs and inefficiencies. Basic human resource management concepts were not followed that led to unplanned manpower. Inefficient Manpower planning can mainly be attributed as the prime reason for the presence of surplus and redundant posts. Inefficient in manpower planning, rocketing cost of human resource, social obligations, too much beaurocrat and political interference, huge interest flows and incapability of maintaining the improvements in combination fuelled the failure of the airline in the open competitive market.

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Q2. IAs human resource problems can largely be attributed to its poor human resource management policies. Do you

agree? Give reasons to support your stand? Answer

It is true that IAs human resources problems were due to its poor human resource management policy. Recurring human resource problems were attributed to its lack of proper manpower planning and underutilization of existing manpower. Employee unions were infamous for resorting to unscrupulous methods on the slightest pretext and arm-twisting tactics to get their demands accepted. In turn, the management of the airline was more interested in making peace with the unions rather than looking at the companys long-term benefits. Mounting wage bills as a result of the many employee wage friendly schemes depicted the simplistic approach of the management. Improper monitoring by management and abuse by employees of the Productivity linked incentive scheme reflects the inefficient functioning. Uncontrolled increase in the number of employees and the number of surplus and redundant posts with maximum number of employees per aircraft. This abnormal increase in staff was attributed to inefficient manpower planning, unproductive deployment of manpower and unwarranted increase in salaries and wages of the employees.

The recruitment and creation of posts were done without proper scientific analysis of the manpower requirements of the organization. In place of 6 directors in departments there were 9 directors. In total there were 30 full time directors, who in turn had their retinue of private secretaries, drivers and orderlies. These were superfluous staff that just added to the organisations bill.

There were no basic educational qualifications or job specification prescribed for senior executive posts.

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A matriculate also could be a manager, by acquiring necessary job-related qualifications & experience. Illiterate employees drew salaries that were on par with senior civil servants. Retired employees were re-employed by the airline in an advisory capacity. Frequent Dissonance between the union and the management made a hostile environment in the organisation. Though, the airline at times held its ground, by and large, it acceded to the demands for wage hikes and other perquisites. Various allowances such as out-of-pocket expenses, experience allowance, simulator allowances etc. were paid to those who were ineligible. Excessive expenditure was incurred on benefits given to senior executives such as retention of company car, and room air-conditioners even after retirement.

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