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Our bid for Air-India has real merit, says pilots' guild

Y Siva Sankar in Bombay

The Indian Pilots' Guild has launched an offensive against fellow bidders for Air-India. The union has sought to project itself as the most desirable suitor.

Besides invoking nationalistic fervour against the multinational companies, the IPG has sought to punch holes in the business models of its competitors.

Referring to a Middle East airline that has bid for Air-India, the IPG said the foreign company already has a tie-up in Sri Lanka. "If they gain control of A-I, they might have a monopoly in the region. Within two years, they would be in a position fix fares according to their wishes because they would be outside the purview of the Director General of Civil Aviation. This would be detrimental to the interests of A-I," the IPG said.

The union also feared that the foreign airline's idle, ageing fleet of 14 aircraft would be deployed into A-I on lease terms. "AI would therefore pay for the lease, provide the traffic out of India and be reduced to a feeder airline."

The IPG alleged that foreign airlines are eyeing A-I not for pure business but to take advantage of A-I's engineering complex at Bombay and the bilateral rights.

The pilots' union also attributed motives to a south Asian airline that is jointly bidding with India's pre-eminent corporate house for A-I. "We believe this tie-up has plans to reduce employee numbers by around 6,000 within a two-year period, sell off real estate (estimated receipts around Rs 5 billion) and use A-I as a feeder airline into south Asia with a fleet reduction from the current 22 to around 12. The balance aircraft would be provided by the foreign airline group's leasing companies. A-I would end up paying heavy rentals, providing passenger traffic and helping the foreign company to build up a fleet."

Outlining its own "merits", the guild said it is the only bidder willing to assure that the existing workforce would not be downsized for a five-year period. "The IPG would add around 1,500 employees towards the end of the third year to manage the new profit-centres and the proposed call centre facility. The IPG is also the only bidder to commit to a turnaround plan that would ensure a huge surplus within 24 months and move towards a turnover or Rs 120 billion in 2004."

Citing "discussions with aircraft manufacturers", the guild said innovative finance plans are possible for an employee-managed airline. "These are not available to other bidders, especially to corporate entities. This places corporate bidders and foreign airlines at a huge disadvantage in comparison with the IPG proposal.

"There is no economic case for a foreign airline from the point of view of A-I. Some of the Indian corporate partners have no current knowledge of civil aviation. We do not see them adding any real value to A-I. Their intent seems to be sale of real estate, reduction of employees, lease of old aircraft to AI. This is hardly a business strategy.

"A tie-up, however, with a large employee-owned airline, could add significant value to A-I, especially if there are no route overlaps in the business plan. This thought-process is however at a preliminary stage at present.

"There is a misrepresentation by various sources that A-I's employee numbers are a drain. The fact is that A-I's ratio of employee costs to operating revenue, at just around 23 per cent, is one of the lowest amongst international carriers."

Besides spewing fire at foreign airlines, the IPG blamed A-I's management for the airline's present plight (losses totalling Rs 10 billion and debt of Rs 38 billion).

"A-I today has an operating profit; the net loss is a result of key financial or strategy decisions that are outside the control of employees. These are board-level decisions that have severely impacted the finances of the airline. Most of these decisions cannot be commercially justified and are prima facie illogical and detrimental to the interests of the airline.

"The Caribjet wet lease deal has cost A-I over Rs 5 billion with little or no benefit flowing to the airline. Similarly, the decision not to participate in an e-trade initiative, set off by nine other carriers, meant that A-I was left out in the cold as far as sale of tickets online is concerned. Some of these decisions, such as the elimination of first class seats and picking up poor-yield release fare, are inexplicable.

"The virtual elimination of the marketing department's strategy and budget (only four per cent of operating revenues, as compared with ten per cent for other carriers) is a move designed to reduce marketing to sales-by-discounts -- a disastrous move in terms of the net operating revenues earned.

"Similarly, the decision to ignore the huge cargo market (A-I's share is only ten to 12 per cent of India's cargo traffic) has severely damaged A-I's bottomline. China Airlines, Korean Air, Philippine Airlines are some operators in Southeast Asia who have benefited by focusing on cargo revenues.

"The IPG is confident that, with help from its consultants in the US and UK, managerial skills necessary for turning around A-I can be brought to play. Industry leaders, supporters of the divestment programme and bidders appear unaware of the leading success stories in the aviation industry of employee ownership programmes.

"United Airlines was turned around in the very first year itself and is today the world's largest airline. Why should A-I not benefit from this experience?

"It is a naive belief that an airline is all about a brand name. The value added by an outsider, within the first two years after the takeover, would be minimal.

"The strategy in the case of A-I should be to give the employees the first right of refusal, the right to turn around the airline and then look at divesting to a foreign airline or an Indian corporate at a hefty premium.

"Why give away value that is built up over five decades cheap?" the IPG said.

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