ABOUT THE BOOK This is the story of how a dramatic set of events ran aground an airline that once ruled the skies; a behind-the-scenes account of how submissive and indifferent chairmen, self-serving employees and union members, and a step-fatherly government, all led to Air India’s downfall. The Descent of Air India elucidates how the airline failed to adapt and change with the times but preferred, instead, to bask in its past glory. Impractical expansion plans and thoughtless use of the airline’s resources contributed to the company’s financial collapse. Candidly written by Jitender Bhargava, The Descent of Air India is the tragic tale of how one of the country’s finest public sector undertakings was brought down and the people and events that were responsible for its descent.

ABOUT THE AUTHOR

JITENDER BHARGAVA Jitender Bhargava is a respected voice in the aviation sector. Having spent more than two decades with Air India, of which thirteen years were as its executive director, he knows the issues and problems of the airline and the aviation industry better than most. Bhargava since retirement from Air India, has been writing for leading newspapers and commenting on civil aviation issues on electronic media. An alumnus of the University of Delhi, Bhargava often speaks on the subject of corporate communications and other management-related issues.

Copyright © 2013 Jitender Bhargava All rights reserved. No part of this publication may be reproduced or transmitted in any form or by any means, electronic or mechanical, including photocopying, or any Information storage or retrieval system, without prior permissionIn writing from the author.

[email protected] 2302 La View, Jacob Circle, 595 Bapurao Jagtap Road, Mumbai - 400011. India

This book is dedicated to my parents Vidya Prakash Bhargava and Kamla Devi Bhargava

contents

Prologue

10. 11. 12. 13. 14.

1. Take Off 2. Clipped Wings 3. Living in the Past 4. All the Government’s Men 5. A Flicker of Hope 6. Change of Guard 7. A Tale of Lost Opportunities 8. The Politics of Flying 9. A Saga of Financial Mismanagement Flight from Reason Troubled Alliance The Critical Years Murder or Suicide? Looking into the Crystal Ball

The Appendix Acknowledgements

prologue: front row

THE TRAGIC AND rather alarming diminution of a globally cherished brand such as Air India has been the subject of many debates and discussions in the Indian media. And I have often been asked by television anchors and newspaper editors, ‘Air India had been going down for a long time. Why were steps not taken to prevent the decline? You knew what was happening!’ It was not just the media that was doing the questioning. At social gatherings, industry seminars and corporate get-togethers, I found the same issues being raised by friends, colleagues and professional acquaintances, some of whom I had not met in years. Former minister of civil aviation Rajiv Pratap Rudy, who has been a co-panelist on several television debates, questioned the propriety of my pointing fingers at the government and the political and bureaucratic machinery and highlighting systemic shortcomings of Air India when most of the controversial decisions that led to the decline were taken while I was in the airline. Praful Patel, also a former minister of civil aviation, when asked to comment on my criticism of the way Air India was managed, said on national television, ‘A person after retirement can say whatever he wants.’ My answer to all my querulous questioners has always been the same: ‘I was never a silent spectator to the way the airline was being managed. Although I was part of the management, I was never party to the decisions that destroyed the airline and on numerous occasions had drawn the management’s attention to the problems. But being an employee, I had to ensure that I did not transgress the boundaries of the organisation’s code of conduct.’ But questions—right or wrong, good or bad, relevant or irrelevant—force you to think. And this one set me wondering whether it was time to put down the Air India story. It was not only me and my role in Air India, however, that I was concerned about. The airline’s downward drift has few parallels in Indian corporate history and was therefore a story worth telling. People had a right to know—and wanted to know—how the airline that was once the pride of the country had ended up thus. I had, in fact, anticipated the barrage of questions that was coming my way. In August 2009, with a few months to go till my retirement, I wrote to the former chairman, V. Thulasidas, expressing my anguish at the way the airline had plunged into an abyss. He had on several occasions averred that he would make Air India one of the top five airlines in Asia, and yet, the airline had suffered the most under his leadership. My letter said, ‘With my retirement only a few months away, I am bound to be asked by people outside the organisation as to how could Air India sink to such depths even with me around considering that I enjoy a public profile of being a competent officer.’ Mr. Thulasidas did not reply to my letter, but the questions came pouring in.

An organisation as large, as venerated and as loved as Air India deserved a book. But I asked myself —as perhaps would many readers—‘Why should I be the one wielding the pen?’ The more I pondered over the issue, however, the more obvious it was that I had to be the one telling the story. Not just because I had been a part of the senior management as executive director of Air India for 13 years—far longer than had any of my colleagues—but also because I had read the signs of decay in the airline early on. Unlike most of my colleagues, I had refused to hold my silence over managerial indifference and incompetence in Air India, over the way the unions were holding the airline to ransom over petty issues that were harming the airline and about the airline being treated as a pawn in the game of politics. Through letters, personal conversations and at every internal forum, I had raised my concerns. I could never be a part of anything that brought personal rewards and glory but was detrimental to the company. Nor could I turn the other way when others flouted rules. I also never hesitated when it came to taking tough decisions or exploring innovative initiatives to help the airline shore up its revenues or cut costs. This set me apart from most of my colleagues in Air India and also worked against me. It led to numerous unceremonious transfers. Promotions were delayed and even denied on one occasion, and instead of being commended, as would have been the case in a professionally managed company, I was singled out for retribution. Interestingly, even though I was targeted for my outspokenness and the changes that I initiated, my decisions were not overturned by the chairmen. The airline benefited from the innovative methods that I introduced although I was banished from the departments under my charge for the same. Air India had been my karmabhoomi for more than 20 years. When I joined, it was still considered as one of India’s most iconic and revered brands. It was respected globally and was perceived as an airline with impeccable service. It was also a source of great national pride because those who had been associated with the airline, those who flew by it and even those who did not considered Air India to be the unofficial ambassador of the country. By the time I left in January 2010, the airline was a shadow of its former self. The product had lost its shine, and the airline was on the brink of a financial catastrophe. Air India’s fall from grace was not only disheartening but also demanded complete disclosure on behalf of all those who had patronised the airline and had believed in the brand. The sequence of events that led the airline into tailspin needed to be chronicled. ‘What would a book achieve?’—I asked myself. To begin with, it would help apportion responsibility, accountability and blame to its rightful owners. It was not enough to pin the politicians down at every debate and encounter as to the destructive role that they had played in the fall of the airline;it was also critical to bring out the manner in which Air India had been betrayed by its own people. It was important that the entire account be narrated in an impartial voice. I had joined Air India in 1989; young, impressionable and keen to make a mark. My previous employment was with Coal India, where I had spent 12 years, two of which were under the feisty leadership of M. S. Gujral. Mr Gujral was an inspirational chairman and fearless in the way he dealt with the coal mafia and belligerent unions who revelled in striking work in the Bengal and Bihar coalfields. He took on the company’s problems head on and he showed me, early on in my professional life, the value of standing up for what was right. Before Coal India, I had worked with The Hindustan Times Group as a journalist, besides having written frequently for various other

newspapers and publications. By the time I moved to Air India, ideals such as sincerity, thrift, outspokenness and abhorrence for corruption had been deeply embedded in my professional and personal code. Also, having been cast in a journalistic mould, thanks to my exposure to the profession in my early working life, I was an avid observer of events as they unfolded within the organisation and was deeply averse to a culture of silence and sycophancy. I asked questions, raised issues and did not take things at face value or believe something simply because my superiors had said so. My loyalty was to the organisation and not to the incumbent chairman, be it at Air India or Coal India. This was not considered prudent behaviour by my colleagues at Air India. So quite naturally, I was treated as a rank outsider in my initial years, and later, as one who could not blend into the culture of Air India—even more so, because I was not an internal appointee to the position that Air India had been forced to advertise as there had been none suitable to be promoted from within or transferred from another department. My appointment was thus a rare instance of an external candidate being brought in to fill a senior position through an open advertisement. Over the years, there have been some isolated instances of outsiders making it to the senior management—but through the back door, either at the behest of politicians or the incumbent chairman. Being from outside the system gave me a unique overview of the way affairs were managed at the airline. It was an environment vitiated by personal ambitions and interests overriding those of the airline. The reasons publicly articulated for justifying a particular decision were also, more often than not, vastly different from the latent agenda being pursued by the chairmen/managing directors either of their own volition or on behalf of their ministers.Everyone seemed to be working towards their personal goals and missions, while the interests of Air India receded to the background. I was not able to adapt. Apart from raising uncomfortable issues whenever the opportunity arose and wresting the initiative from vested interests, time and again, I also followed a standard practice of expressing my views, making my disagreements known and offering suggestions in writing to the incumbent chairman/managing director. My letters sought transparency and accountability; they also tried to caution the management and drive home the need to bring about a sea change in attitudes and work ethic in the wake of mounting competition. Unfortunately, my letters were not acted upon. The team at the top and my colleagues were uncomfortable breaking their silence on these issues; everyone was more at ease maintaining the status quo. These letters have stood me in good stead, however, as they are the reason I am able to set down the story of Air India and its decline over the years. They are priceless as a documentation of my efforts to do things differently in Air India. They are the reason I can hold my ground when I tell people, ‘I was never a silent spectator in Air India.’ The book, I hope, will do two things: First, it will help people understand how one of India’s finest public sector undertakings was brought down and the people and events that led to its descent. Second, it will answer all questions about my role in the airline because my story was tied with that of the airline. What I have tried to do is recount the sequence of events as I saw it, without bias, fear or favour. While I have no regrets at having aligned my priorities and loyalty with that of the airline and not the people who managed it, I do bemoan the fact that I will always be perceived to be part of the management that took decisions or preferred to do nothing when it should have. I will also never

be able to rid myself of the regret that an illustrious brand such as Air India was allowed to fall upon hard times. The Descent of Air India is the story of how an airline was brought down to satisfy the selfish needs of a few;it explains how, despite the best efforts of some, a larger—at times invisible but always extremely destructive—force was at work to plot its downfall. It is an account of the dramatic set of events that have led to the airline’s current struggle for survival.

CHAPTER ONE

take off

THE BRIGHT RED sign across the Air India office in Kolkata, close to the intersection of Chowringhee Road and Theatre Road, was impossible to miss. It loomed large over the busy Chowringhee Road. I was drawn to it every time I passed the office, which was quite often, given that I lived barely two hundred metres away on Lord Sinha Road. Such was the impression it made on me that even now, over two decades since I have been down that road and long after the office has been vacated, there is little that I do not remember about the place, the sign and the times. Air India was a brand to reckon with in the 1980s. Its iconic stature was unmatched. It was one of the few Indian organisations at that time with a global footprint. Moreover, with some of the best names in the industry, such as J. R. D. Tata and Bobby Kooka, having been associated with it in the past, it wore an aura of glamour and excitement. I was not immune to the appeal of working with such an airline and was therefore tempted to apply for the position of chief public relations manager when it was advertised. In comparison to Coal India, the low-profile monolith where I was working, Air India represented a huge leap into the world of big business. It would be the perfect jump for me, and I was keen to take the chance. I applied, was selected and joined the airline in August 1989. I had been with Coal India for more than a decade, which was quite a record as before that, I had changed jobs quite often—Coal India was my third employer in a span of three years. Between 1974 and 1977, I had moved from Crompton Greaves to Goodyear India and then to Coal India, besides having worked with The Hindustan Times while I was still in college. I had also written extensively for major newspapers and magazines prior to and during the period. In fact, even at Coal India, I was itching to move at first. Within a year of joining the organisation, I had applied for a job with a multinational company in Mumbai. During the interview, the company’s expatriate director asked me why I changed jobs so often. ‘More money, better prospects and pay,’ I replied with the reckless confidence of youth. The director, after leafing through my résumé and the attached set of articles that I had written about the wrongdoings and unfair practices of the government and the corporate world, did not seem convinced. He questioned me some more, and told me that he thought I was probably looking for an ideal organisation, which likely did not exist. And that was why I was changing jobs so often.

It was my turn to disagree now, but he had me thinking. After the interview, as I waited for a bus to take me home, his comments kept resonating in my mind. About two hours later, at a bus stop in Worli, Mumbai, after letting one bus and then another go by, I walked back to his office and withdrew my candidature. I saw merit in his observations and decided that I would stay with Coal India. As I saw it, I would have to either change my attitude, principles and philosophy and become a part of the prevalent system or stick to my beliefs and survive as best as I could in my current organisation. I opted for the latter and for the next 10 years stuck to my resolve. The Air India advertisement changed my mind. It presented a chance for me to work in the aviation sector and move to Mumbai, a city that had charmed me while I was working for Crompton Greaves. It would also mean putting an end to my travels into the coal heartlands. In the 12 years that I had spent with the company, I had made numerous trips to the coal districts in Bengal, Jharkhand (then a part of Bihar), Chhattisgarh (then a part of Madhya Pradesh), Vidarbha in Maharashtra and Odisha. Air India would take me to far more exotic locations and besides, the job promised a larger canvas, global exposure and a better social life. And the clincher was that I would no longer have to undertake rail journeys, which I abhorred. I had been involved in a major train accident in August 1981 and, ever since, had become a nervous and reluctant train traveller. I had even come to dread the sound of the rail coaches clanging down the tracks. Working with Air India would put an end to all of this, and I decided it was time to head out of Kolkata to the city of a million dreams. I was called to Mumbai for an interview, and a month later, I landed up at the Air India building located at Nariman Point, close to the sea front. The managing director’s room, where I was to be interviewed, was on the top floor of the building. As I waited to be called in, the breathtaking view of the sea and the broad streets of Marine Drive swept me off my feet. This made me even more determined to move cities and step into an organisation that not only held out immense promise, but also served up an office with a magnificent view. To the present generation, it may seem odd that an Air India job inspired such awe. The truth is that in the late 1980s, Air India represented the future of India and was regarded as one of the best companies in the country. It had everything one expected from a renowned company—a legendary founder, operations that served the people and the nation and an expansive reach. It offered excitement and stability. By the time I joined, some of the glory had begun to fade, but the company that J. R. D. Tata had set up was still a coveted workplace. Little wonder then that when I joined the airline in August 1989 and relocated to Mumbai, I was literally walking on air. TAKING CHARGE In 1989, Rajan Jetley, allegedly a political appointee and known to wield formidable clout, was the managing director and Ratan Tata was the chairman of Air India. Mr Jetley was engaged in a massive corporate identity change exercise for the airline. He believed that it was time for Air India to wipe off some of the dust and grime that had begun to blur its image. Landor Associates, a San Francisco– headquartered brand consulting firm, had been appointed to create a new identity for the airline. The mandate was to change the logo, aircraft ambience, design for the aircraft exterior, offices and sales

outlets, besides everything serving as a customer interface. Among the many changes that Landor proposed was changing the airline’s ‘Centaur’ logo that had been devised in the late 1940s and the aircraft’s trademark exterior with the jharokha windows that helped Air India aircraft stand out at busy international airports. Landor argued that the Indian public no longer identified with the ‘Centaur’ logo and wanted it to be replaced with something that was both more contemporary and more Indian. The ‘Centaur’, it was felt, had to be consigned to the history books. It was a significant moment in the airline’s history as Air India and the ‘Centaur’ logo went back together a long way. After the formation of Air India International in March 1948, four Lockheed Constellation aircraft were ordered to commence international operations. The management began casting about for a symbol that would denote speed and have universal appeal. Sagittarius, represented as the archer, is the ninth sign of the Zodiac. The Greeks represented this constellation as a centaur—half man and half horse, caught in the act of shooting an arrow. As it symbolised movement and speed, the centaur, a stylised version of Sagittarius, was considered to be the most appropriate representation of Air India and was chosen as the official logo. The Landor team changed this to create a logo that had the sun resting on a wide vermilion sash. This was not the first time that the airline had embarked on a redesigning exercise, though. In the past, the original ‘Centaur’ logo and the aircraft’s exterior design had been tweaked on quite a few occasions, but under Mr Jetley and the Landor Associates, the entire exercise of redefining Air India’s corporate identity was being conducted on a grand scale with pomp and fanfare. As for the liveried jharokha windows that gave the airline its unique identity, Landor’s officials said that it needed to change to help the young Indian connect with Air India. The new look unveiled in October 1989 was an unmitigated disaster. Public reaction was swift and brutal. The airline was flooded with letters and phone calls that clamoured for a rollback to the old logo and aircraft livery. Within a year, Rajan Jetley, the prime architect of the change, quit Air India, after which it took the determined will of the then civil aviation minister Madhavrao Scindia to reverse the entire process. The image change was one of the most prestigious projects that the airline had undertaken. Although Landor was one of the world’s best agencies and had worked very successfully with international airlines such as British Airways, Singapore Airlines and Japan Airlines in the past, it had failed to do the same with Air India. I spoke to several people within the organisation and soon it was clear, even to a newcomer like me, that the problem lay with the way the identity changes were planned and executed. The managing director and the Landor team took all the decisions. Public opinion was not sought and the management team was not consulted. Even the board of directors appeared to have been in the dark about the changes being carried out. Air India was being run as a one-man show, which has been a recurring problem with the airline and, as we shall see in later chapters, was the root of most of its troubles. The managing director interacted with the Landor Associates team and approved or rejected the design changes they proposed without consulting his team. And even if he did take some of his colleagues into confidence, no one had dared publicly oppose him. Yet, everybody felt that the image makeover was ill-conceived. It was merely a cosmetic change while the real problem lay elsewhere. I was surprised that the board of directors had let such a massive overhaul go through without debate and discussion. Over the years, I have seen several such big-ticket changes and decisions being taken

without any consideration for the views of the senior management and for the airline’s welfare and future growth. Decisions were centralised and dissent was ignored and actively discouraged. If one objected to or even questioned a change that was being proposed, he or she would be transferred, denied due promotions or not assigned a foreign posting. As a result, employees never spoke up. They were afraid that they would be victimised or their careers would be finished if they were seen to openly disagree with the chairman and the managing director. The fear and insecurity over their promotions and postings also prevented Air India’s senior employees from uniting to support a colleague or protesting a change. They didn’t trust each other. No two senior executives would present a case together or sign a common petition unless the issue concerned them directly. There were two reasons for the collective indifference or fear that prevented employees from speaking out. First, there was little by way of employment opportunity in the aviation industry during those years. So, for most, Air India was the only option. Moreover, it was a job from which no one was ever sacked. As a public sector undertaking, Air India offered lifetime employment, which made employees beholden to the organisation. Second, seniority within the airline depended on the length of tenure and not merit or professional expertise. As a result, most senior team members had reached their positions not on the basis of the work they did but by virtue of the number of years they had spent in the airline. It was not that the airline had no instances of the seniority condition being bypassed for a promotion, but that was only in special cases, when the managing director decided to bestow it as a favour. And that vitiated the environment even further. It bred a culture of silence and sycophancy, which rewarded subservience and timidity. The airline also did not have a culture of training its management personnel for higher responsibilities or honing their managerial skills. As a result, the senior management was not suitably skilled to meet the rapidly changing requirements of the airline business, which has proved to be its undoing over the years. Even Coal India, a public sector company, made investments in training its officials despite its low profile. But Air India never did. The problem was compounded by the fact that the mid-level and senior positions in the airline were closed to external candidates. All the senior positions, including those of departmental heads, were filled through internal promotions or, at times, by the giving of additional charge to other heads of departments. I was possibly the first individual to be inducted in the decade of the eighties through advertisement of the vacancy, as the public relations department had no officer even three grades below the designated level to fill up the post when the head of the Department of Public Relations retired. The people within the airline did not see any need to upgrade their skills and improve their performance since they knew that promotion would come to them in due course. They were keen, however, to guard against a delay in their promotions or a denial of a lucrative international posting, which could occur if the chairman or the managing director felt that they had spoken out of turn. The emphasis of the human resources policies practiced by the airline was on protecting the seniority of individuals, howsoever inept they may be. And as the years went by, the people who led the various departments found themselves caught in the same trap of promotions and postings and allowed the airline’s long-term prospects to recede into the background. Air India also did not have instances of employees quitting the company mid-way through their careers, ostensibly because of the glamour then attached to Air India—the perquisite of foreign trips and a lifetime of free tickets to destinations outside the country. Their professional lives were thus wholly confined to the airline and they felt that serving the chairmen and the ministers, and not the

organisation, best served their interests. It does not take a management guru to conclude that the weak and flawed recruitment-and-rewards model had caused the airline irreparable damage and would continue to do so unless drastic action was initiated by the people at the top. FIRST IMPRESSIONS My initial months as the head of the Department of Public Relations at Air India were spent getting to know the many departments and the people who ran them. I met the heads of different departments, followed their work and understood the way an airline functioned. I had to keep myself abreast of all the developments in the organisation because I was new and my job entailed responding to media queries about the airline and keeping the chairman informed. There were several patterns that I discerned in the process of familiarising myself with the ways of Air India. One was that the people in the senior and mid-level management cadre were unwilling to resolve issues. They let problems lie unattended. As a result, problems flagged decades ago remained unaddressed. Let me cite an instance. The failure to attract first class passengers was pointed out by J. R. D. Tata in the 1980s when he was a board member as he had been removed from chairmanship a few years earlier. But the problem of poor loads in first class cotinues even three decades later. J. R. D. Tata had exhorted his employees, ‘I beseech you that when I am no more, and those of you who will still be there, always remember this, the airline must never, never be allowed to be anything else but the best. In doing so, we will not only ensure our own development, growth and progress but prosperity of our own people.’ Ideally, the airline ought to have set up a process whereby the changes that were necessary to ensure passenger loyalty were set in motion and followed through. The staff at various customer interface points should have been trained and guided towards becoming more customer-friendly. Instead, his words were destined only to be framed and put up on the office walls! J. R. D. Tata had also noted way back in 1972 that trade union office bearers showed hostility towards the management as proof of their devotion to members’interests. But again, his voice was not heeded. Belligerent and obstructionist leaders hijacked the running of the organisation and set up roadblocks in the way of Air India’s transition into a competitive era. Many of the deemed changes were simply too critical for the airline’s survival in view of the industry having transitioned from a semi-regulated environment where passengers chased seats to an intensely competitive era when seats were chasing passengers. Yet, the management team did little by way of reining in the unions or working out a way to transform the airline. Whenever the issue of Air India’s inability to counter its competitors came up, the management would throw up its hands and blame the unions. There was never any effort to introduce new work practices and systems that would enhance passenger loads in premium classes—all too critical for the airline to be profitable in a scenario where competition was crowding the airspace. In most cases, the management played the role of a meek bystander, while the union leaders took charge of the airline. Over the years, successive chairmen and departmental heads gave up even the token protest that their predecessors would make against irrational demands by union leaders. Demands were either conceded the moment a union served a strike or a non-cooperation notice, or soon after it launched a go-slow and began delaying flights and grounding them. On some occasions, some chairmen and

departmental heads did muster the courage to withstand the pressure, but they were either transferred and replaced by a more pliant person or reprimanded and forced to mend their ways. It was simpler to follow orders and complete one’s term in office than to upset the applecart by taking on the union or implementing requisite changes. While Air India managed to survive despite this for years, it was thrown off course when its days of monopoly came to an end. As the skies opened up, passengers began deserting Air India in droves. The inability of the management to stand up to the unions has definitely cost the airline dearly, which was also incomprehensible to me as a new entrant who had been exposed to a tough and firm managerial approach while working in Coal India. I had seen M. S. Gujral, the then chairman of Coal India, stand up to the notorious coal mafia and belligerent unions at significant risk to his personal safety. In Air India, the senior management seemed to buckle far too easily. Consider, for instance, the identity change exercise. Apart from exposing the one-man rule in Air India, the initiative also brought into the open the enormous clout of the union leaders. In addition to the logo and livery changes, the menu on Air India’s first class was also upgraded at the time and it was decided that Johnnie Walker Blue Label whisky, which had just been launched, would be served to premium class passengers. Passengers, however, complained that they were not being served the whisky even though it was on the menu. The staff would tell them that it was out of stock. When we enquired into this, we found that the whisky meant for the passengers was being pilfered by the cabin crew. Instead of confronting the errant crew members and ensuring that the passengers got their due, the management decided to do away with the change altogether. It withdrew the whisky! Not only was the management unwilling to face up to the unions, it was also composed of a deeply divided set of professionals. Air India had over a dozen departments in all, with five operational departments: Engineering, Operations, In-Flight Services, Commercial and Ground Handling. Each department was aware of the problems that a passenger faced, but never saw them as its own. It was as if things needed to be fixed, but not in their own backyard. The departmental heads, I discovered, were only too ready to pin the blame on their colleagues in the other departments. Officials were more than eager to point out the inefficiencies of the other departments, while maintaining a stoic silence about their own. Aircraft maintenance engineers, for instance, spoke about the absence of aggressive marketing, poor customer care and delays in baggage delivery; the commercial department officers were quick to point fingers at poor aircraft cabin ambience and upkeep, delay in providing aircraft for flights to depart on time, deteriorating standard of in-flight service and lack of grooming of the cabin crew; and the in-flight crew felt that engineers were not doing their bit to maintain seats, toilets, entertainment systems on aircraft and that the airport staff were not tuned in to passenger needs. The weaknesses of the Air India product were, therefore, not unknown. The problem was that no one owned up to his or her own shortcomings. Employees across departments were, however, united in their belief that the media was being unfair to Air India by front-paging reports of flight delays, flight cancellations leading to inconvenience to passengers and of the staff’s rude behaviour, among others. They asked me to restrain the media and ensure that there was no negative reporting. The fact that India had a vibrant free press was ignored. I tried to point out that the profile Air India enjoyed was far bigger than that of most other companies. Hence, every action of Air India made news and the management should consider the media reports as an indicator of public opinion and address the weaknesses in our systems. The media was writing

about Air India’s inefficiencies because it mattered to the people, especially to the elite, who were regular fliers of the airline. I would often meet many of our fliers at several social functions in Mumbai. They would tell me about their pleasant experiences of the past and also the not-so-happy experiences of recent times. Some complained about delayed flights, others about lost baggage and almost everyone commented on the deteriorating attitude of the cabin crew and ground staff. What was, however, remarkable about that era was that the aggrieved passengers narrated their unpleasant experiences with a sense of anguish. These days, however, they do so with intense anger, reflecting the fall of Air India in their esteem. TAKING THE INITIATIVE Within a short period of time, I realised that one of the bigger challenges at Air India would be to reconcile my way of functioning with that of the organisation. I could not bring myself to follow my colleagues in their decision to let personal interests take precedence over those of the airline. I could not bring myself to let the problems persist and remain a mute spectator. I was not ready to let fear get in the way of my work. Also, having switched jobs so often in the past, I was confident that I could move on to better prospects if the need arose. Unlike the rest in the organisation, there was, therefore, no compelling reason for me to be beholden to Air India. Was this the best way to have dealt with the situation? Should I have toed the Air India line? I have asked myself this question several times over the past several years as I faced the ire of some of the chairmen and managing directors besides the unions. But the answer is never different:I could not have or would not have lived my life any other way. That I did not wish to be a mute spectator was clear within a month of joining the organisation. As part of the airlines identity change programme, Hindustan Thompson Associates (HTA), the airline’s advertising agency for nearly six decades, was commissioned to create a multi-projector audio visual presentation that would be shown at all the corporate identity launch functions. HTA sent us a proposal for nearly 16 lakh. My experience of working on similar projects earlier told me that the quote was exceptionally high. I sought to renegotiate the terms and invited a competing bid. I also asked HTA to rethink the figure it had quoted. After some consternation, HTA halved the quote to 8 lakh. B. K. Mangaokar, the commercial director, told me that I should accept the revised quote and continue with the old agency. As a month-old employee, if I tried to bring in a new agency at a lower price, I would be pulled up if the project went off schedule or fell short on quality. His advice was truly useful, but it had become clear to me that the organisation did not curb initiative. If I could bring about a difference, despite being a newcomer to the system, so could those who had served the organisation for decades. At the end of the day, Air India was let down by its people, who let their personal priorities take precedence over the larger organisational interests. It was not an impossible task to initiate change, because I managed it despite ruffling quite a few feathers within years of my joining the airline. Apart from negotiating hard on behalf of the airline, I was also eager to make the most of the emerging opportunities. I had noticed the needless expenditure being incurred by Air India on in-flight entertainment videos. Two one-hour long video magazines

were being produced in London at a prohibitive cost. Adding to that was the additional burden of flying and hosting an Air India employee in London for 8 to 10 days every two months to oversee the video production. I suggested to the managing director, Subhash Gupte, that we should look at a less expensive alternative. Mr Gupte readily agreed. I met several Mumbai-based companies and finally zeroed in on Ronnie Screwvala, whose video production house then was much smaller than the huge empire that he subsequently built with UTV Group. He agreed to take on the project at one-fourth of the expenditure that was then being incurred without any difference in the quality of the programmes, since the video segments were being sourced from the same global companies. A year later, while flying to Los Angeles by Lufthansa for my first international vacation, I saw advertisements being screened in their in-flight entertainment programmes. I was struck by the possibility of doing the same for Air India. On my return, when Marzban Patel of Mediascope Publicitas contacted me for an advertisement for an international newspaper that he represented in India, I broached the subject of his collecting advertisements for our video programmes as well. Mediascope was soon generating advertisement revenue worth 8–10 lakh per month. These two initiatives in my first year and a half made it clear to me that if one wanted to bring about change, the organisation would not come in the way. It was also not difficult, if one was so inclined, to make a difference in areas that were even not directly under one’s purview. Before the reader misconstrues these examples as an exercise in self-gratification, let me clarify that my objective, instead, is to show that if only the employees of Air India had not given up on their responsibilities towards the airline way back in the 1980s and the 1990s, Air India would have had a fate very different from that from which it suffers today. SEEDS OF DECLINE It lacked leadership; training and mentorship were alien to its culture; and there was no structured succession plan. It was soon clear that Air India was not ready for the open skies policy that was soon to become a reality. But I was a minority in the organisation. Most continued to believe, and many still do, that Air India would never crumble, and that worries such as mine were imaginary. As a governmental undertaking, it was mandated to survive. The fact that Air India has been gradually losing market share and respect among its passengers was of little significance to most employees. However, the writing on the wall was clear. It was obvious that with Air India’s work culture of chairman/managing director-centric functioning, its lack of desire to set product weaknesses right and an HR policy that ignored merit and did nothing to hone skills, its future looked bleak. My observations spurred me to advise a few commercial department officers with management degrees who met me in 1992–93 to look for greener pastures. One of them, Debashis Golder, still with the airline, reminded me of this advice in 2008 when I visited him at Air India’s Bangalore office. With a sense of regret he said, ‘Sir, I wish I had heeded your advice.’

CHAPTER TWO

clipped wings

IN THE MID-1980s, the only bright spot—even as Air India found itself buffeted by a host of pressures on several fronts—was its in-flight experience. While the airline resembled a crumbling edifice on almost every front, its in-flight service appeared to hold on to the exemplary standards of the past. Passengers rarely, if ever, found fault with the food, champagnes or the wines on offer on board the flight, or the service of the cabin crew. In fact, it would not be an exaggeration to say that the overall in-flight experience made up for the other shortcomings of the airline. THE LAST BASTION The reason the in-flight service had managed to retain some of its glory was that earlier managements had placed great emphasis on aligning the product features and services with passenger expectations and benchmarking the airline with the best in the business. Whether it was sacrificing premium seats in its B747-200 jumbo aircraft to create an exclusive lounge for its first class passengers or paying attention to the menu for its passengers, the airline’s management had done everything to make passengers feel special and at home. The cabin crew had been deeply committed to the task— especially the air hostesses, who had been concerned about passenger comfort and the image of the airline. The crew had contributed in a large measure to the character of the airline, thanks to their high adherence to ethics in the workplace. It helped that the airline industry had been a profession much sought after and that Air India was an employer of choice for many during those years. Air India had also had a rigorous and exacting training programme that had been drawn up by a team of dedicated air hostesses and pursers under J. R. D. Tata’s discerning tutelage. Moreover, it had been meticulous in the manner in which it had conducted its recruitment for these posts. The airline had thus worked with a double advantage: not only had it attracted the best talent, it had also groomed them in accordance with the best traditions of Indian hospitality. The cabin crew of Air India had thus come to be known as the best in the business. The reputation of Air India’s in-flight service had been such that the airline had helped Singapore Airlines train its cabin crew in the late 1960s. Current celebrities such as Parmeshwar Godrej and Maureen Wadia, among others, had been a part of the Air India crew and had added to the glamorous image of the airline. Air India’s standards of service, although in decline, were still considered to be one of the best

during the 1980s. Film stars, industrialists and the top brass of the corporate world preferred to fly Air India because of the care that distinguished its in-flight experience, especially in the first and business classes. Such was the prestige the airline enjoyed that some passengers even changed their travel schedules to suit those of Air India. Even a single air hostess who had been exposed to the training and grooming of the previous era was enough to ensure that the experience offered on board a flight was exemplary. As a result, by the late 1980s, even as the signs of decay were increasingly evident, the In-flight Services Department was still earning encomiums, though not on the same scale that it had done a decade ago. And a comment commonly aired by its passengers was, ‘Once in the air, Air India is the best.’ FALLING STANDARDS Once Air India’s top management changed in the late 1970s, the organisational work culture underwent a sea change. The new leaders adopted an indifferent attitude towards in-flight services, treating it on par with other functions. The eligibility criteria for aspirants to a job as a crew member were not imposed rigorously, and new recruits were not given adequate and rigorous training. The recruitment process, which had been framed along a set of stringent guidelines, was given the goby and any employee—be it from the clerical cadre of a department—was considered eligible for the post of air hostess or purser. Aptitude became immaterial and so did merit. The airline failed to institutionalise and continue with the strict recruitment norms and training procedures that once gave its service the edge, and thereby lost its advantage over the rest. And as, one by one, the old guard of the In-flight Services Department retired, their absence was reflected in the deteriorating service onboard the flights. In the past, a member of the cabin crew had to have a pleasing personality and meet the minimum requirement with respect to height and a maximum limit on weight. Aspirants holding a degree or a diploma in hotel management had been preferred. Moreover, the superannuation age for air hostesses had been low, unlike the present limit of 58 years. The problem of poor selection criteria, lack of training and indifference towards excellence intensified over the years and by the late 1980s, Air India began reeling under their impact. Political backing and union pressure—and not merit and aptitude— began to play a greater role in recruitment. This had a dual impact. First, there was a flood of applications from within the airline during every recruitment drive. The job was seen as glamorous, better paying and a ticket to exotic destinations. Clerical, secretarial and security staff, irrespective of their age and aptitude, began to find passage as cabin crew. Second, the quality of service began to decline since most of them had no prior exposure to the world of hospitality and service, and the organisation did not offer a rigorous training programme. Thus, while the number of cabin crew, including air hostesses, grew from a few hundred to nearly 2,000 as the airline’s fleet expanded, the charm and grace of the earlier era disappeared. Passengers soon began complaining about the impersonal service and the overall unpleasant ambience on flights. Even as airlines across the world raised their standards of in-flight experience to sublime levels—first, the Asian, then the European and later, the Gulf airlines—Air India steadily slipped down the scale.

Naturally, this had disastrous consequences. The brand suffered and the quality of the product declined. There was yet another damaging outcome: Many of the new appointees who had joined as cabin crew from the clerical cadre only to benefit from the perks of the job had strong political and union links. Some among them began to stir up trouble on almost every front. Negotiations for enhanced allowances, issues of productivity and day-to-day operations became acrimonious affairs resulting in delay or cancellation of flights. The intransigent stand of the unions on the changes that were imperative for the upgradation of the services on board the flights affected passenger comfort and the timely departure of flights. As a result, foreign airlines cashed in to attract the once-loyal Air India clientele. It was as if the seeds of decline of Air India’s in-flight services sown in the late 1970s had begun to sprout shoots. Was it neglect or complacency that hurt the airline? Or was it an inability to stand up to the growing belligerence of the airline’s unions? Or was it all of these? While the real answer is known only to those who helmed the airline during those years, the truth is that by the late 1980s, the Air India Cabin Crew Association (AICCA) had grown all-powerful, and the duo of Sagar Katrekar and P. Murlidhar, backed by boisterous executive committee members, had led several agitations. In fact, to many of us, it seemed that the two were always calling for some strike or registering some protest or the other. The department had worked with the union without too much acrimony in the past, but what had changed was that the predecessors of the current union leaders, led by Mohan Bir Singh, had affiliated the AICCA to a political party and that lent them significant clout. Both Mr Katrekar and Mr Murlidhar had joined as cabin crew after serving in the airline’s clerical cadre. Soon after assuming leadership, they made a string of demands on the airline with respect to concessions in work norms, enhanced allowances and a host of other issues. They, however, refused to discuss employee productivity or cooperate in the introduction of new services. It was clear to everyone that their priorities were not aligned with those of the airline. Most departmental heads and chairmen wanted to keep the union leaders in good humour and gave in to all their demands. But when the bickering between the management and the union began turning into a regular slugfest, and the department became more a management– union fighting arena than a customer-oriented wing of the airline, the management realised that it was important to find a way to focus on the in-flight issues. A person from the HR department was appointed to head In-flight Services. Even this did not yield the desired result as he spent most of his time settling disputes and appeasing the union. He was never really able to focus on the service and the product. Moreover, given the frequency with which the union was clashing with members of the management, the job of the departmental head began to resemble that of a fire fighter—dousing the flames but never really able to prevent them in the first place. And in the battle between the management and the unions, the airline suffered, as neither of the two objectives of ensuring industrial peace and service enhancement was achieved. OLD CHALLENGES IN A NEW ROLE In November 1991, Y. C. Deveshwar was appointed the chairman of Air India by the late Madhavrao Scindia, the then minister for civil aviation. Mr Deveshwar came from the diversified tobacco-andhospitality conglomerate, ITC. He was brought in over the candidature of Subhash Gupte, Director of Finance, who had officiated as the managing director after Mr Jetley’s sudden exit in 1990. Mr Gupte

had conducted himself ably during the interim period, but he was sidelined, and he quit Air India after Mr Deveshwar joined the company. Mr Deveshwar lacked core airline experience but was conversant with the hospitality business, as ITC ran a successful chain of luxury hotels. He was conscious of passengers’ needs and what was required to be done to stem the rot that had set in. He brought in a host of good management practices that infused new life into Air India. For instance, he instituted the practice of succession planning within the airline. He would track positions and make sure that six months before a position fell vacant, a person was identified and trained to occupy it. He sought to ensure a smooth transfer of functions when an incumbent departmental head was due for retirement and understood that not every one, howsoever competent, could be considered as good for all positions. Aptitude mattered and so did attitude. This was a major departure from the past. A few months after he took over, one day, in May 1992, Mr Deveshwar summoned me to his office. He started off the meeting by talking about the impending vacancy in the airline’s In-flight Services Department and the need for an able manager to succeed him. K. A. Sapat, the departmental head, was due to retire in eight months in January 1993. I was frank and said, ‘I don’t think there is anyone within the organisation who can meet the requirement; please get a person from outside.’ ‘Why?’ asked Mr Deveshwar. I said, ‘In-flight has been Air India’s mainstay for years; even passengers who were severely critical of ground services appreciated the experience on flight. We shouldn’t dilute our strength. And we need someone who is innovative, customer-focused, articulate and can be tough with a hostile union. I don’t think we have anyone within the company at the senior management level with the qualities to achieve that.’ He heard me out and responded, ‘ Tell me which of the qualities you have outlined you don’t possess. I have you in mind for the post.’ I had joined Air India as its chief public relations manager and had not expected that my assignment would change and that too, so soon. I asked for some time to think and consulted with a few colleagues. However, most of my peers said that I should refuse, as it was a thankless job. They were comfortable maintaining the status quo and loathe to taking up any challenge or increasing the scope of their responsibilities and wanted me to do the same. After a month, prodded by Mr Deveshwar, I disregarded their warnings and took up the offer. I saw this as an opportunity to demonstrate that if one had the will, one could not only arrest the decline in service standards but, in fact, improve them. From July 1992, I spent six months as an ‘understudy’ to the head of the In-flight Services Department. This was a first in the history of Air India. The general practice was to move people to other departments without any training or guidance on the day the previous head of the department was due to retire. I moved to the department’s office at Sahar, Mumbai, to familiarise myself with its strengths and weaknesses, while concurrently holding my position as the head of the Public Relations Department. My first few months were spent listening to the experiences recounted by the management team and members of the cabin crew. I wanted to get to know the strengths and weaknesses of the department, and spoke to people who had served for close to 30 years with the airline, as well as those who were relatively new. Time and again, my talks with various people in the organisation threw up the same refrain: ‘We were known for immaculate in-flight service and this has been destroyed.’ ‘What was the problem?’ I asked. They replied that everyone was at fault. The management team said the unions were responsible for the state of affairs. Crew members blamed the

management. And the more I spoke to people, the clearer it became: a combination of factors had led to the dilution of the airline’s in-flight service standards. The courts had changed the retirement age of air hostesses, allowing them to work after becoming mothers. While there is nothing wrong with mothers being a part of the crew, as is the case in many international airlines, the problem was with ensuring that the physical standards mandatory for hostesses were adhered to by everyone. Air India lacked the authority to impose discipline as some other airlines, such as some Southeast Asian airlines, were known to do in similar circumstances and it was commonly seen that air hostesses became lax about their appearance as they advanced in years and especially after they came back from their maternity leaves. While the court order had given air hostesses the right to continue work post-motherhood, the hostesses had not been responsible enough and the airline not firm enough to ensure that the standards of weight, grooming and performance were met. In the end, passengers suffered and Air India lost out. The management had also been lax with the selection of the cabin crew, whereby people who had neither the qualifications nor the exposure or aptitude for the job were inducted. The department had allowed external interference in the selection, and more importantly, allowed unions to enjoy a veto right on any changes that the management wanted to introduce to enhance the product. Indiscipline at every level had ruined the department. The employees I spoke with also pointed out the disturbing rise in in-flight pilferage and the management’s inability to check this. Senior members of the in-flight team cited instances of crew members being poorly groomed and overweight. With so many dilutions, the decline in Air India’s service standards was only to be expected. The time I spent as an understudy helped me understand the problems. Listening to people’s grievances, I realised that there was a growing disenchantment within the department over the ways of the union leaders, who had become stronger even as the management had grown weak. Every change in work practice or service procedure, even if it was a minor one, had to be ratified by the union leadership. In most instances, the union would refuse to let the changes go through and if they did, it would be after exacting a hefty price in terms of additional allowances, concessions on the work front for their members or demands that disciplinary actions initiated against their members be rescinded. If the management persisted with any change not sanctioned by the union leadership or opposed their stand, they would promptly launch a flash strike or a long-drawn agitation, which would delay flights or create hurdles in the smooth operation of the flights. What was worse was that the AICCA had been allowed to set up their office in the In-flight Services Department’s new office complex. This allowed their leaders to keep a close watch on the members and identify those that dared go against their diktat. There was also regular interference in the working of the department. The more I heard these accounts and studied the situation, I felt that the unions were not only being unreasonable but were deliberately destroying the airline, corroding its reputation and driving away future passengers. They were bolstered by their belief that passengers would continue to fly Air India because they had no other choice. They were clearly being short-sighted. It was not going to be easy, but as the head of the department, I had to address the issues that were dragging the airline down. I finally took charge on the first day of February 1993 and initiated efforts to bring in a change in the department’s functioning in a calibrated manner. Reclaiming from the union in the shortest possible time the management’s right to manage the department was of top priority.

Action had to be concurrently initiated on improving the product profile. Working on the established dictum that stagnancy was the first sign of decay, I devised a three-pronged strategy to usher in change. The first stage was to work on areas that were not in direct conflict with the union’s priorities. For instance, we introduced new crockery on all flights to replace the 22-year-old sets that were in use at the time, redesigned all customer interfaces to bring in brand uniformity, began screening BBC news on the flights and so on. In the second phase, we decided to venture into spaces where the union would have minor interest—such as upgrading the food and alcohol served on flights, making minor modifications to the duty-free range and upgrading the quality of announcements. The final stage would be where we would steamroll changes that would evoke union outrage but were necessary for the company. The AICCA opposed every move. Even the change of crockery was resisted, because they saw it as an imposition and protested over not being consulted. Not only was the rationale absurd, it amounted to falsehood because members of the cabin crew who had been promoted to the management ranks were the ones who had decided on Royal Doulton crockery to best reflect the airline’s image. Besides, what difference did the shape, size or brand of crockery make to the crew members? Magnifying the issue was the fact that the union did not allow disciplinary action against errant crew members. They asked all members to refuse being subjected to various mandatory programmes and checks that were part of the organisation’s way of maintaining the airline’s standards. For instance, if a crew member failed the breathalyser check, the union wanted him to be pardoned;if a passenger complained about rude crew behaviour, they always blamed the passenger and would not let the management act against the accused crew member. If the crew members were overweight and we tried to enforce a fitness regimen for the cabin crew, the AICCA protested. When, consequently, overweight crew members began to be grounded, the union asked its members to boycott weight checks, even though they had signed an agreement that allowed for it. Their reasoning was bizarre— they blamed the management for not providing gym facilities close to the crew member’s place of stay. When crew members failed the refresher courses that were conducted regularly to upgrade skills, the AICCA asked its members to stop going for them. The union would not even allow the pilots to check the crew’s knowledge of safety features on board an aircraft. In addition, while the crew of all airlines, including the Indian Airlines, wore name tags, the AICCA opposed this on the specious plea that passengers would contact and harass air hostesses at hotels abroad if they knew their names. In the first year, I faced the brunt of this irresponsible and wilfully destructive behaviour of the union leaders. The AICCA tied up the airline in an endless series of knots by issuing directives that hindered the routine working of the airline and destroyed the morale of the people involved. The union’s directives were like commands that could not be ignored or overruled by the crew or the management. The slightest deviation could mean a flight being grounded or the launch of an indefinite non-cooperation with the management. And if a crew member dared disobey the orders, he or she would be harassed till they either toed the line or apologised. The union refused to see reason or face the reality of a market that was moving away from Air India. Consider some of the directives to see how unreasonable they were. The one issued on 21 December 1993, for instance, said that crew members could go on leave at any time. They would not have to

give advance notice and, by implication, could walk out of a flight at the very last minute. This directive, when seen in the context of an earlier agreement, which said that a flight was not allowed to take off without a full crew complement, ensured that the unions had the power to ground a flight if their demands were not met or if they wanted to hold the management to ransom. All they had to do was ask one of their members to opt out of a flight just before take-off, which they did quite frequently, and the management would have to come scrambling to their doorstep. On several occasions, the in-flight service officers posted at the airport had to call me up in the dead of night to report that the crew complement rule was leading to a flight delay and I would have to speak to the union leaders for a waiver or convince an air hostess who had been promoted to the officer grade— and was therefore not a member of the union—to fly instead. In another directive, the union leaders stipulated that the crew would not proceed towards the aircraft until the entire crew had assembled in the Cabin Crew Movement Control Office that was located in the airport terminal. This inevitably led to fight delays, because if even one member was late due to traffic or heavy rains or for any other reason, the entire crew had to wait in the office. They could not get on the aircraft or initiate the pre-departure formalities or begin boarding the passengers. The union gained nothing from such directives, which were not just arbitrary but also resulted in great inconvenience to passengers. The unions were strengthened by the weakness of previous departmental heads and the ineptness of the HR department. The issues they raised were trivial and seemed to be nothing more than attempts to achieve personal gain at the airline’s cost. There was a time when the AICCA had clashed with the pilots’ union over its demand for a common colour and fabric for the uniforms of cabin crew and pilots. The pilots said that this would cause identity problems, because the security teams and the general public were not always aware that the difference in cadre was shown by the number of epaulets on the shoulders of the uniforms. Colours helped establish the distinction and ensured smooth functioning, according to the Indian Pilots’ Guild, but the AICCA refused to budge from its stand which led to a delay in the allocation of new uniforms. Notwithstanding the role that they had played in the delay, the union leaders then asked the cabin crew to operate flights in civilian clothes! Increasingly, the AICCA was not just hampering the smooth running of the airline but endangering its very existence. For instance, the union had laid down a condition that only senior air hostesses should be allowed to serve fliers in the first and business classes. This took away the management’s privilege of assigning the best person to the job. Seniority did not always ensure better service, but the management caved in to the union’s demand and the passengers suffered. In another instance, the union stipulated that the cabin crew would not be allowed to deviate from the flight roster. They had to fly only those flights that had been assigned to them as part of the published schedule, further diminishing the flexibility that the management had with respect to flight schedules and duty rosters. Why was this critical for Air India? It denied the management the flexibility needed to ensure the smooth operation of flights. There were times when due to operational exigencies, the management would ask the crew to operate a flight other than the one assigned. Care was also taken to reassign the crew to similar flights. For instance, if they were on the roster for a same-day return flight, the exchange would be for another with same-day return and climatic conditions would also be matched accordingly. Thus, if the crew members had not carried woollen clothing as they had to fly to a warm destination, the management would not send them on a flight to a cold place. The AICCA stipulation

prevented the crew from changing flights should the need arise, and they were told to stick to the roster. All of this affected passengers, who were growing increasingly tired of the indifferent service on board Air India’s flights. With the advent of foreign airlines, they found that they had a choice and began to abandon Air India. Not only did the union not care about the operational problems that such behaviour caused, they were also not concerned with the declining work ethic of the department. Air India was gradually being pushed to a situation where every day in the life of its managers began to resemble the theatre of the absurd. The union, to portray itself as all-powerful to the members, made it impossible for the department to function. Management attention was continually focused on routine and employee-related problems instead of on creating an effective plan for piloting the airline in the increasingly competitive airspace. The union, however, did not have the support of all the cabin crew members. There were many who were keen to serve the airline’s best interests but were afraid of being targeted by the leaders if they fell out of line. Those who stood up to the union would be harassed by being denied flights to better and more remunerative destinations, when the practice of paying the cabin crew a daily allowance was prevalent. Or the union would punish them by rejecting their requests for a change of duty for personal convenience and such other measures. This began affecting employee morale and made them believe that the union leaders, rather than the department or the airline, were controlling their lives and careers. My predecessors in the department had, unfortunately, ceded control over flight scheduling as ‘a measure of goodwill’ to the union leaders. What was a legitimate management role had been usurped by the union, much like what was happening in the rest of the organisation. Union activists would routinely use screaming and shouting as a protest tool and the final assault would be to storm the office of the departmental head to seek the immediate reversal of disciplinary orders against a crew member. If their wishes were not met, they would hinder the smooth operation of flights. Time and again, the management and the crew had to succumb to their blackmailing tactics. Every attempt at change was resisted vociferously and vehemently. Clearly, if Air India’s in flight service is not what it used to be, the self-serving union leaders have played a huge role. I decided to take the unions on, with full support from Mr Deveshwar, who had approved the threephased action plan. Initially, we tried to persuade the union leaders to see reason by engaging with them and explaining the consequences of their actions, the market realities and the need for Air India to set its house in order. But they responded with threats and strikes. The next step, inspired by my experience with Mr Gujral’s handling of the coal mafia and the unions in Coal India, was to brook no protest. Mr Gujral would often tell us that unions were never strong; it was the managements that were weak and I decided not to be weak. Crew members were suspended for not reporting on time for a flight, for missing flights without notice and for any of the numerous such transgressions. The union leaders made several attempts to reverse the disciplinary actions that we initiated; they cajoled and pleaded and threatened, but their efforts came to naught. One of the cases that led to a direct confrontation between the union and me involved an air hostess and a purser. It attracted a lot of attention and showed just how malevolent the unions could be at Air India. The air hostess and the purser were on a flight together; the overnight halt was at Rome. The air hostess complained that she had been harassed by the purser during their stay at the hotel. I suspended the purser on receipt of a written complaint. True to their style, a group

of union members stormed into my office and asked for the suspension to be revoked. They termed the complaint false and said that the purser was not guilty and that I had been unfair in taking the air hostess’s word against her colleague’s. When I told them that the purser had repeatedly called the air hostess all through the evening, they refused to believe me. I then showed them the call records that I had obtained from the hotel, which clearly indicated the number of times the calls were made and the room they was made from. They retreated sheepishly. But the battle lines were clearly drawn. I refused to let the union have a free run of the department. Fortunately, there were a few people in the management, such as former pursers Prem Sahu, Aubrey Pinto, Mohan Brito, Blair Rego, Samuel Watson and Homi Rabadi and a former air hostess P. Burby, who had all been promoted to the management ranks and were equally disgusted with the union’s behaviour. They were part of the department’s core team and had demonstrated unflinching loyalty to the management. My tough line against the union emboldened the crew members to complain about harassment by union activists, which they had rarely done earlier, and that helped everyone understand just how unreasonable the union’s attitude had become. Yet another example of union high-handedness was in evidence when Air India decided to introduce B747-400s, effective August 1993. As the deadline for aircraft induction approached, the union demanded that 10,000 per crew member per month be paid if the management wanted their ‘cooperation’ in flying the aircraft. Instead of taking pride in the fact that the airline was bringing in new aircraft, they had yet again decided to place impediments in its smooth operations. Anyway, I refused to play ball, and we operated the flights to USA with B747-400 aircraft, despite the AICCA boycott for eight months, with the support of the executive and unconfirmed new cabin crew. Mr Deveshwar supported me and periodically checked if we could keep the flights operational in this fashion. My reply was always in the affirmative. However, no sooner did he quit his post at Air India to go back to ITC than his successor, Captain D. S. Mathur, negotiated a face-saver for the union by way of a payment of 750 per crew member per month as duty-free sales allowance. By doing this, Captain Mathur, perhaps in a bid to appear amenable to the AICCA, played his part in pushing Air India further towards its fall. THE GAME OF TRANSFERS It had become impossible for the management to work without worrying about how the unions would perceive the changes, and whether their obstructive measures would derail the changes being proposed. This was the background against which we began recruiting the additional crew for the newly inducted B747-400 aircraft. In a strange—but not surprising—move, the Human Resources Department said that the In-flight Services Department should conduct the recruitment exercise. People-induction, management and planning are the business of Human Resources, but the department was washing its hands off the responsibility. As the chairman of the selection panel, I launched a countrywide recruitment drive. When the interviews were to be held in Mumbai, I suddenly found 50–60 people storming my office. The Sthaniya Lokadhikar Samiti of the Shiv Sena political party had come to gherao me. They wanted 80 per cent of the cabin crew to be Maharashtrians. I tried to explain that my job was to select the

best cabin crew and that for any policy-level decision, the leaders should meet the managing director of Air India at his office. But the group, led by Gajanand Kirtikar, insisted that a decision be conveyed instantly. They continued to raise slogans and create a ruckus in my room. I finally asked them: ‘Why do you want 80 per cent Maharashtrians when we can take 100 per cent, provided they are all suitable for the job?’I explained that I wanted the right crew, irrespective of where they came from or whose recommendation powered their CVs. The group of slogan raisers had another demand. They wanted existing employees to be given preference over other candidates. I rejected that demand because experience had shown that internal candidates acted as a de-motivating force as most of them lacked passion for the job and spent their time working with the union. The union perceived my actions to be an attack on its powers, and used every opportunity thereafter to oppose my decisions. I refused to bow to its diktats, which vitiated the environment in the In-flight Services Department even further and created a potentially explosive situation. Matters came to a head when, in October 1994, the union forced the crew to abandon a flight from New York to Mumbai, with a stopover at London. The crew went missing from their hotel shortly before call time, when the crew is alerted about the flight. The airline had to accommodate the passengers in hotels and ferry the empty aircraft to London, so that the London–Mumbai segment could be operated. We decided to suspend the entire crew complement and subsequently even those who protested the suspension orders by staying away from their flights. Almost 200 members of the cabin crew were suspended at the time, but there was no disruption of flights as the rest of the cabin crew put their weight behind the department. Significantly, the union’s ability to bail out errant crew members had been blunted, and the management’s right to manage restored to a large extent. The AICCA, worried about its waning clout and a backlash from the existing members, started canvassing support from the officers in the department. Some in-flight supervisors from the officers’ cadre, led by Mohan Bir Singh, a former union activist, began lobbying for union membership, against the existing rules of the organisation. This was a dangerous idea;it could spell doom for the airline, as it would make it difficult to operate even a few key flights during a strike or even a token protest. Mr Singh was suspended and an enquiry was instituted under D. S. Kohli of the human resources department. Mr Kohli found him guilty. I recommended that his services be terminated. However, another member of the two-person enquiry team, a former air-hostess, differed in her assessment, not unexpectedly, since many cabin crew members remained loyal to the union even after being promoted to the officer ranks. Mr Singh was given the benefit of the split recommendation by the managing director and allowed to opt for the Voluntary Retirement Scheme (VRS). It was at this stage that the airline started considering a partial lockout. But just as we were mulling over the decision and finished the first round of discussions with the legal team, the managing director changed again. Captain D. S. Mathur was replaced by Brijesh Kumar, an IAS officer. Mr Kumar was looking for a quick way out of the imbroglio. His first act was to revoke the suspension orders and as punishment, order a mere one day’s pay cut. This endeared him to the union and it later turned out that they had extracted another promise from him—that of my transfer. I was not party to any of his decisions, nor was I summoned to explain my stand or reasons for refusing to bow down to the arbitrary whims of the union. He was not even interested in probing further, though had he done that, it would have been clear to him that I had had the management’s sanction for my tough stance against the

union. He only wanted to buy peace. All this came as a huge disappointment. My aggressive posture against the union had begun yielding very positive results. In the few weeks before my transfer, I had managed to restart the refresher courses for the crew, had introduced credit card payments for duty-free purchases, introduced serving of free liquor to economy class passengers and forced the union to annul the clause pertaining to ‘no take-off of flight till crew complement was complete’ without any monetary compensation. The crew had also been forced to undergo weight checks and other grooming-related measures that the union had opposed earlier. The airline was also able to introduce the meal cart service in the economy class, besides extending the range of duty-free items for sale on board the flights. My unceremonious transfer, being the first of many in subsequent years, did upset me, but I drew a good deal of satisfaction from the fact that even a powerful union like the AICCA could be tamed, if one had the will and determination. Brijesh Kumar terminated my tenure without any discussion. And perhaps failed to realise how the unions were eroding the airline’s brand values. Alas, if only the management team had had the far-sightedness to understand the consequences of their actions! I returned to the In-flight Services Department in May 1999 as there was possibly no one inclined to take up the assignment. It was supposed to be a short stint but eventually lasted 18 months and was abruptly terminated once again. I still do not know the real reason that led to my second stint being cut short, because two things happened concurrently. One incident was related to a security check conducted at the Bangkok airport to prevent pilferage of liquor by cabin crew in pursuance of a management decision taken in a meeting chaired by the minister of civil aviation, Sharad Yadav. The other was my refusal to follow directions on awarding the catering contract at London to a party that had established contacts with the Ministry of Civil Aviation and Secretary A. H. Jung. Mr Jung had wanted the tendering process reversed, though the airline was saving a substantial 10 crore in the 3-year contract period, and the rates quoted by the selected party were even lower than what we were paying the existing caterer. Pilferage of liquor has been a common practice rampant across many airlines. What matters is the extent of pilferage. In Air India, it had acquired alarming proportions, and this phenomenon had reached such a state that some crew members had begun to skip or delay the liquor service to passengers in first and business classes, so that the booty for pilferage after a flight was larger. We were conducting random security checks, but this was more of a perfunctory exercise and hardly ever yielded much, because the crew were invariably warned in advance about the impending check. Inevitably, complaints from passengers about poor service followed. In one review meeting undertaken by Sharad Yadav on 14 August 2000, the minister asked the airline what was being done about the pilferage of liquor. As the concerned departmental head, I replied, ‘Yes, there is pilferage, but to take action, support of the ministry and management would be needed.’ My previous transfer under union pressure was playing at the back of my mind. The minister assured me of his backing and also suggested (as recorded in the minutes of the meeting) that ‘the staff resorting to pilferages, etc., should be dismissed from service.’ Sanat Kaul, the then joint secretary in the ministry said that ‘apart from termination, criminal cases may also be registered against the erring crew.’ Armed with this, and in conjunction with the security department, we checked the crew’s hand

baggage at Bangkok airport and—lo and behold!— found that 70 per cent of the crew had company liquor ranging from whisky and wine to vodka and beer, all pilfered from the flight. Many among the crew members caught in the security check were office bearers of the union. The impact of the successful security check was huge. The liquor consumption on subsequent days fell by 75–80 per cent of the average consumption reported earlier which should give us an idea of the quantum of liquor being pilfered by the crew. The present civil aviation minister Ajit Singh’s recent reference to instances of large-scale pilferage in the Lok Sabha in May 2012—a good 12 years after the decision to dismiss cabin crew indulging in pilferage was taken—only shows that the menace is still rampant. Like all undesirable practices, this too has passed on into the DNA of Air India. The crew involved was suspended but, while they eventually got back their jobs, I got transferred. I must say, though, that this unceremonious transfer ordered by the Secretary, Civil Aviation, A. H. Jung, concurrently holding the position of Chairman, Air India, could also have been because of the catering contract, as I had ignored all directives on the matter, acting in the interests of the company and not the individual. In both my stints in the In-flight Services Department, the primary focus was on improving the quality of our product, which was regarded as critical for retaining passengers—the environment of extreme hostility created by the union notwithstanding. This should appear to be normal in any organisation, but not in Air India, because the management personnel, while doing precious little to stem the rot, in fact, often contributed to it by taking bizarre decisions. If one predecessor had signed the absurd treaty that a flight will not take off unless the crew complement was complete, a successor agreed to pay flying allowance compensation to a specified number of AICCA office bearers even if they did not fly, thus allowing them to engage themselves in union work on a full-time basis and obviating the need for them to fly to earn their livelihood. Such a proviso would have been acceptable if it had been introduced with the objective of easing the union’s involvement in management– employee meetings. But that wasn’t the case. Union leaders wanted Air India to pay them their flying allowance (over and above the salary) even when they were not on a flight, effectively asking the airline to pay them even when they were busy conducting activities inimical to the organisations interests. To me, it seemed that fate had decreed that nothing and no one would have the power to stop the airline from its inevitable fall.

CHAPTER THREE

living in the past

‘AIR INDIANS HAD the maximum experience in flying when the skies were opened up, but instead of giving sleepless nights to other airlines, they found themselves in deep slumber.’—this is what I would tell my colleagues when Air India found itself under siege even from fledgling airlines. For an airline that had amassed years of flying time and knew the Indian passenger better than other international carriers, it was a mystery why Air India never managed to build on its strengths or ward off the challenges that emerged with the changing times. Towards the beginning of the decade of the 1990s, the aviation sector in India was in a state of flux. On the one hand, the government was veering towards an open skies policy, and on the other hand, the Indian passenger was getting more and more demanding. It was also a time when Air India was under pressure on various fronts—people, operations, product and revenues. The going was getting rough, but instead of focusing on the challenges, Air India put its blinkers on. It paid no heed to the growing disenchantment among its fliers; nor did it prepare for the changes in the aviation business. The unions got stronger; the management got weaker; and the airline became hostage to petty self-interests and fell into a state of disrepair. Surprisingly, the leadership and senior management played the role of passive spectators, seemingly oblivious to the storm that was gathering on the horizon. Hubris appeared to have dulled Air India into a state of complacent apathy. WRITING ON THE WALL In the 1980s and the early 1990s, it would have been difficult to find an Indian who had travelled abroad and not flown Air India. It was the first and often the only choice for Indians travelling to foreign lands. Aviation was controlled by the government at the time and only a few international airlines were allowed to operate their flights in and out of India. Moreover, international flights were infrequent; unlike today, when there are hundreds of arrivals and departures every week from different parts of India to all parts of the globe, there were only a few flights every week from Mumbai and Delhi to select international destinations during those days. The hub-and-spoke concept hadn’t yet been perfected, which meant that passengers patronised the carriers of either the originating or destination country. For example, if a person travelled to the USA, it could be presumed that he

had travelled by either an American airline or with Air India, and if his destination was London, he either flew British Airways or Air India and similarly for other countries. The government also restricted the number of seats that the foreign airlines could offer. After taking into consideration the passenger traffic between two countries, the ministry of civil aviation would allocate seats to the foreign airline making sure that there was enough business for both Air India and the foreign airline. Besides, foreign airlines could operate only out of the cities of Delhi and Mumbai, with a few being allowed to fly in and out of Kolkata. The government thus controlled the choice of airlines, destinations and travel schedules of international travellers to and from India. Fliers today, who have the choicest of airlines and routes at their disposal, may find this scenario impossible to imagine. But the truth was that in the 1980s and before, aviation was a sellers’ market. Air India had flourished under—or perhaps because of—these conditions in the post J. R. D. Tata era. Some are likely to disagree with this interpretation because, Air India they say, had to compete with the national carriers of other countries. True, but the competition was more notional than real. How did that affect the way the airline functioned? For one, Air India never had to aggressively market itself. It was also slow to see merit in introducing amenities on its flights such as flatbeds in premium classes, dedicated in-flight entertainment systems or even the practice of serving free liquor to its economy class passengers. Buoyed by a near monopolistic market, and the fact that Indians across the world preferred Air India because they felt comfortable with ethnic Indian co-passengers, Hindi speaking crew, vegetarian meals and such other services Air India came to believe in its own invincibility. Soon, however, times changed. In 1991, the juggernaut of economic reforms rolled into the aviation sector. Foreign airlines were first allowed to considerably enhance frequencies and later permitted to extend their reach to other Indian cities. Services were first extended to Chennai, Bangalore and Hyderabad, and later to Pune, Mangalore, Amritsar and Jaipur and other cities. As the number of airlines flying in and out of India went up, so did the number of seats and routes they offered. Also, airlines began carrying passengers not just to and from their countries, but also to other destinations with a brief stopover in the country of origin. Indian passengers could finally exercise a choice and they began to fly the other airlines instead of Air India. Gradually, the US and Gulf bound Indian traffic, among the most lucrative sectors for Air India, also began to move out of its grasp. And Air India’s market share plummeted. SLOW AND INDIFFERENT The airline was felled by a multitude of problems. To start with, it failed to keep pace with market trends. The overall emphasis, industry-wide, was on providing customer-friendly and customised services on ground and in the air. But Air India did nothing at all. It failed to understand the changing needs of the customer and keep pace with the times. For instance, Air India introduced flatbed seats in First and Business class and a personal TV monitor in each seat across the aircraft long after the other international airlines. The overall experience of flying Air India too declined while other airlines laid out the red carpet for passengers. To add to the problem, Air India’s service standards took a dip. Flights were delayed and its on-

board experience fell short of expectations. Many industrialists who had once sworn by the airline began shying away. Instead of rallying to strengthen its customer relations at all interface points Air India slackened its efforts which marketing alienated the fliers further. One example of how things changed was the way the Commercial Department (in charge of sales, marketing and promotion) stopped the practice of mandatory visits to large corporate houses. Previously, the Air India sales officer with his ready smile, a flight timetable and a small gift, even if it was a clay model of the Maharajah or the grey coloured overnight bag which was quite the rage among premium class passengers, would visit the offices of large companies as part of the airline’s promotion and sales effort. The Air India sales team took great pride in these visits which, as any old timer will tell you, soon became a part of industry folklore. It was also common for senior officers, including the Commercial Director, to make sales calls or organise social events like a golf tournament or a theme party to promote the Air India brand. The personal touch was important and that was something that Air India’s sales team had honed to perfection. But all of this went missing when its need was perhaps most critical. Despite flying state-of-the-art B747-400 aircraft on the India-Europe/US sectors, in the mid-1990s, while other international airlines were still deploying flying machines of the 1970s vintage, Air India failed to reap the advantage because the airline was so used to passengers queuing up for tickets, it expected the same to continue even when the market had changed. It did nothing to win new customers or retain its old ones. I was flummoxed by this attitude. And in early 2009, when I was on an interview panel looking at candidates for the post of General Manager, I could not help but bring it up. We were interviewing a handful of internal candidates and one, who had just come back from a posting in Los Angeles, when asked as to how he was settling down said he had been meeting travel agents in his office. When I remarked that the market had changed so dramatically in recent years, it might have been more appropriate to meet the travel agents in their offices instead, he was unperturbed and replied ‘I could have’. He was not the only one who behaved thus. Travel agents, in fact, would often complain about the high-handed behaviour of Air India’s sales team. Once at a dinner that I had organised for a group of agents on the occasion of the festival of Onam, since many of the biggest agents in Mumbai are from the state of Kerala, I was shocked to hear that this was the first time they had been invited to an informal interaction by a director. ‘No director has ever called us over to his home’, they said. They also spoke about how some bureaucrats-turned-chairmen would keep their distance from travel agents even at industry meets or functions hosted by Air India, where they would position themselves in one corner of the room and expect the travel agents to walk over and pay their respects. This was in sharp contrast to the behaviour of the chairmen of private Indian airlines, who would walk up to the agents and talk to them. Air India behaved like an emperor even after its empire had been infiltrated and carved up between its competitors. LEADERS AND MEN In the decade of 1990s, the government was gradually loosening its control on the airline sector and at Air India, many of the advantages that came with being India’s international carrier were being withdrawn.

The changes in the aviation business and in the government’s relationship with Air India came at a time when the airline was facing a leadership crisis. The airline did not have a strong and stable team at the top, nor did it have a visionary chairman who could bind the numerous departments together under a unifying vision. A firm leadership could have helped the airline redefine its product, improve its service and create an environment that nurtured innovation and initiative. However, in the absence of such leaders, Air India became a messy congregation of departments, each run as the fiefdom of one man or a few union leaders. The way I see it, the problem was not that the departments were asked to function as distinct power centres but that most departmental heads were not able leaders. They could not motivate their people and work towards the larger interests of the organisation. This was primarily because the airline had not spent time training and mentoring them for the role and also because there was no system that held the departments accountable for their decisions. Performance was neither measured nor made to count in the scheme of career progression within the airline. The departments, therefore, did not work as a cohesive unit, and there were times when they worked at cross-purposes with each other, allowing personal rivalries or pressure from the unions to come in the way of organisational cooperation. For instance, if on-board service was excellent at times, baggage delivery would be delayed or passenger check-in would be clumsily handled, or else the aircraft upkeep and on-time departure would leave much to be desired. There was one instance of a UK resident who had flown Air India but whose baggage had been misplaced in transit. Despite her letters and repeated calls to the Hong Kong, Delhi and London offices of Air India for more than a week, her luggage had not been located. Frustrated, she wrote to the airline’s executive directors to complain about her lost baggage. As one of the recipients of the letter, I asked the officer in charge of baggage services at Mumbai’s Sahar Airport to coordinate with his counterpart at the Delhi airport; they checked with the baggage handling team, who reported that the bags were indeed lying at the Delhi airport. Without any further delay, we sent them to the passenger by the next flight to London. Although the airline’s complaint redress system was not inefficient, the people in charge were indifferent to the plight of the passengers. Having served as the head of In-Flight Services during 1993–1995 and therefore aware of the prevailing attitude to customer needs, I suggested in a letter to M P Mascarenhas, managing director in May 1999 that we institute a ‘Department of the Year’ award to prod everyone to perform. The award would go to the department that had excelled in customer service through changed policies, superior service, a significant increase in compliments and a drastic decrease in complaints. I suggested that the parameters for determining the claimant for the award be finalised by a committee and that the exercise also identify those who were failing the company. The letter, however, was consigned to the files and forgotten. Ministers changed; chairmen were moved around; and the unions sprang one demand after another. The departments continued to cave in to the growing power of the union leaders, but the airline authorities refused to pay heed. It was the practice at Air India for ministers of civil aviation to periodically hold review meetings with the executive directors. However, instead of being used to discuss the airline’s achievements and debacles, as they should have been, the meetings became an occasion for lofty utterances through which ministers exhorted departmental heads to uphold the airline’s past glory. And when asked to speak about the departments under their charge, executive directors would bring up matters that did not really warrant a minister’s

intervention. In a meeting of departmental heads held on 30 August 2003 and chaired by the then civil aviation minister, Rajiv Pratap Rudy, to review the performances of the departments, I decided to talk about the problems. I outlined the structural changes that Air India needed and these were recorded in the minutes of the meeting. With respect to the departmental heads and their work ethic, I reiterated, ‘There is also an urgent need to bring about a change in work culture. At present, decisions are perceived to be taken by individuals, and not by the management as a whole, with the result that these individuals become targets of unions after an agitation gets over. A decision taken at the department level after due deliberations must be deemed to be that of the company, and there should be no subsequent retraction from the stand taken. This is essential to encourage executives to take bold decisions in the company’s interests.’ I was speaking out of personal experience. Call for change (Excerpts from the record note of the meeting between senior management and Rajiv Pratap Rudy, dated 30 August 2003) 1. If Air India has to be made into a premier airline, and not allowed to become only a surviving airline, there is an urgent need to look at the structure of the Air India Board. There is a need to give representation to functional directors on the Board. This is essential to ensure that the decisions taken after due deliberations at the Board level with participation of functional directors are implemented, and there is continuity. The present structure of the Board is too individualistic, which allows change in company policies, with the change of one individual at the helm. 2. The present management structure was devised several decades ago when market conditions and requirements were vastly different. To ensure that the company operates in a more innovative and determined manner, there is a need to restructure the departments and management set up. 3. The present competitive environment requires constant upgrading of managerial skills. In the total absence of training for management personnel at all levels, including those holding senior management positions, proper leadership in management ranks is unlikely to emerge to beat competition. 4. There is also an urgent need to bring about a change in work culture. At present, decisions are perceived to be taken by individuals, and not by the management as a whole, with the result [that] these individuals become targets of unions after an agitation gets over.

LOSING THE PLOT The departments were unable to pull themselves together, and despite the airline’s growing problems, none was willing to stand up and stem the rot. The airline’s leadership was indifferent and passengers began to abandon the airline. Just as the fliers’ interests were ignored, so too were those of the

airline. The way the Commercial Department operated even as the market dynamics were changing is a case in point. It should have focused on revenue generation and identifying potential business opportunities. It should also have led from the front in introducing new and global marketing practices. Instead, the departmental officials displayed a strangely cavalier attitude towards new business, which had a direct and critical impact on the airline’s load factors, market share and profitability. The impact of their actions is perhaps best reflected in the way revenues failed to pick up, even after Air India inducted new aircraft and introduced non-stop flights on the India–US sector, effective August 2007. The new product failed to command even a modest premium and fares had to be pitched at or below market fares and far below costs. The irony was that although Air India’s first and business class product on the non-stop India–USA route was as good as the best in the industry, it had the lowest flight load factors. Even today, it stands at a dismal 12 per cent for first class, which is lower than the figures that Air India managed to garner with its older 747-400 aircraft. In addition, the seats are being sold primarily under the ‘fly a companion free’ scheme. As a result, Air India is still losing a huge amount of money almost 1 crore, on every return flight to the USA. The problem of poor load factors in the premium classes has dogged Air India for several decades. In fact, it was first identified by J. R. D. Tata in 1981 in a letter to the then chairman, Raghu Raj, in which he wrote, ‘I have consistently pointed out the importance of changing the policy we had wrongly followed in recent years of concentrating all our sales efforts on excursion and other promotional fare traffic, the yield from which is less than one-fifth of that of first class traffic… I am satisfied that our first class service has always been, and is today, as good as, if not better than, that of other airlines. In fact, a flight in first class on Air India, with its outstandingly comfortable slumberette seats, is far superior to one on Swissair, and yet Swissair’s 22-seated first class cabin is always full. I could not get a seat on Swissair recently, even as a paying passenger.’ (See Appendix 1.) The note was preserved, but its contents forgotten. Load factors continued to drop year after year, but the officials in the Commercial Department responsible for sales and promotion were indifferent to the need for change. I asked a former commercial director, who had held the position in Air India’s heydays, why the department had let the company down. He said that the department had stopped attracting the best talent for a while. But the situation had worsened in recent years because, he said, unlike in the past, critical positions were being assigned in an arbitrary manner. In the 1970s and the early 1980s, he said, ‘The better lot of officers went to prime overseas stations like New York, Paris, London, Tokyo, etc., and the not-so-competent officers were posted to Kuwait, Dares Salaam, Nairobi, etc.’In the later years, the prime posts started being offered to those who lobbied the hardest. Thus, the department found greater benefit in focusing on how to secure a prime overseas post, and not on increasing the airline’s passenger load factor. In fact, as early as in 1992, Y. C. Deveshwar, perhaps drawing on his own experience of never having been contacted by Air India’s sales team, had pointed out that the Commercial Department was neglecting its constituency by not visiting the corporate offices to seek business and asked for action on the matter. But his comments were ignored. I was forced to raise it with K. Roy Paul, the chairman, in a letter dated 22 October 2002 after a meeting convened to discuss the marketing of Air India’s first class offering in Delhi. This meeting was held after it was decided to instal flatbed seats in the first class, and I said that we needed a ‘dedicated core team’ for ‘approaching passengers who travel

to westbound destinations in first and executive class, to inform them about our revamped product’. I also asked that ‘a survey be undertaken at airports in metro cities to build a data bank of personnel who are presently patronising First and Executive classes of British Airways, Lufthansa, North West, Delhi for their travel to western destinations.’It is well known that in the aviation business, it takes years to erase memories of a failed product, and I thought it best to take an aggressive stand. Also, to get the Indian industrialists back on our list of fliers, I suggested that the senior directors and general managers of the company who are articulate be drafted for individually meeting senior-level people like Ratan Tata, the Ambanis, the Birlas, the Mahindras, and the Godrejs since the existing sales team was unequal to the task. I again raised the issue of inter-departmental cooperation and said, ‘The existing setup—wherein the Commercial Department looks after sales, the In-flight Services Department looks after the menus, champagne and wines served to first class passengers, the General Manager of the Airport decides the system of check-in and the Ground Services Department sets parameters for baggage delivery—should be replaced by a single unit, so that the ‘first class’ product is looked at in its totality and follows global benchmarks, which should be set for the product. Integration of various departmental functions is imperative to evolve a top-grade product and ensure implementation, so that no department blames the other for any deficiency in the product. The unit should be fully accountable for enhancing the revenue.’ (see Appendix 2) A single unit taking responsibility for the product was critical for bringing about uniformity in the quality of the product, but this suggestion, too, was ignored. Not only did the Commercial Department come a cropper on revenue realisation in the 1990s, it was also negligent of its role in marketing the airline. For instance, in the early 1980s, when colour TV was first introduced in India, Air India had run a special scheme for its flights from Oman—‘Take your TV with you at no cost when you travel Air India’—signifying a waiver of excess baggage charges. Several passengers switched airlines to avail of this scheme. No such initiatives are in evidence today. The airline also used to be a smart advertiser and in spite of a low advertising budget, its campaigns were the talk of the town in its heydays. The legendary Bobby Kooka, who had been a commercial director at Air India, was as popular as the Maharajah—the mascot he had created. But over time, the airline’s management team either failed to see the rationale of marketing spends and advertising campaigns or they were simply unable to come up with anything that was as effective. I was disillusioned as there were no meaningful measures being taken to halt the slide in the airline’s fortunes. As the head of In-flight Services Department, I wrote to the managing director, M. P. Mascarenhas, asking for an enhancement of services for the first class passengers. I said that we were ignoring the first class passengers and that ‘we need to be conscious of the fact that we will lose even the ones who patronise Air India, if we can’t maintain our product’ (see Appendix 3). It was important, I had mentioned in the same note, that we ‘analyse the First Class load; percentage of those travelling on full fare and those travelling under the companion scheme. The analysis will hopefully tell us whether we can afford to ignore the interests of full fare paying passengers by cutting down costs on first class service.’ I had suggested that we offer the best and try to increase the first class load ‘through innovative and more aggressive marketing, and not through companion scheme only.’ But nothing was done about my suggestion.

WEAK AND INEFFECTIVE HR J. R. D. Tata had exhorted: ‘I want to establish that there is no airline which is better liked by passengers; that is safer and more punctual, where the food and the service is better and which sets a better image than Air India.’ His words did not just inspire but set a clear goal for all employees. Air India had to be the best in the business, not just in terms of safety and punctuality, but in every aspect in which it touched passengers’ lives. His vision led the airline, which had some of the best talent in the airline business at the time. Subsequent years saw JRD’s words lose their import. The chairmen/managing directors who followed either lacked knowledge of the aviation business or had no experience in managing a commercial entity. None had a vision for the airline and if they did, they failed to articulate it as clearly and as plainly as JRD had done. And that led to a steady dilution of the standards and values of the airline. At the core was the problem of a weak HR department. It was led and managed by a team of people who were ill-equipped for the role, with very little interest in building a strong airline. For instance, Air India had no training culture and the HR department did not institute one, not even when the airline was facing a rapidly changing market and being threatened by competition when it should have had the best skills on-board. The HR department should have also ensured that leadership roles at the departmental level were clearly defined and tracked. It should have set up a smooth succession line for the airline, whereby potential candidates could have been groomed to take over key positions in the airline. The HR department did not do that, and as a result, the organisation has always had a skewed promotion policy based on seniority, not merit. Most professional companies with a desire to ensure continued leadership in business have elaborate succession plans. In Air India, seniority was the determining factor and hence, we knew who would take charge once an incumbent departmental head retired, but there was no attempt to assess his capabilities in the new job or train him for the position. Also, there were several instances when the chosen successor had barely a few months of service left, and hence his appointment was a stopgap arrangement, with the candidate being chosen simply because he was the most senior in the department. The newly appointed chief would thus neither have the time nor the inclination to get to know the role of the department, understand its problems and study emerging market trends. The question of suitably changing the product or service offering and/or the work practices, as the need be, thus never arose at all. Apart from impacting the airline’s prospects, the ad hoc nature of promotions also affected the work ethic. The departmental heads, who were themselves unaware of the changing business, were unable to motivate employees to give their best or inspire them to upgrade their skills. I am, in fact, prompted to quote Mr Kazua Isamori, the founder of Kyocera Corporation, Japan, who was appointed the CEO of Japan Airlines in 2011, when the airline’s survival was at stake. After interacting with his senior managers and evaluating them, he observed to the Japanese media that ‘an extremely low number’ of his senior managers had business sense and that they ‘would not be able to run a green grocery [business] with their ideas’. The scenario at Air India has not been very different. The HR department has been unable to provide the airline with the right people for the right jobs. 1

What should the HR department have done? To begin with, given the exigency of the situation, it should have instituted a robust selection process, especially for senior roles, where, if an internal candidate did not fit the bill, the airline could consider external applicants. It should also have alerted the board, considering how critical it was for the airline to have a strong leadership. It should have also assumed the responsibility of setting up a framework for employee–management negotiations and created an atmosphere in which the airline’s interests would be the guiding force for any decision. But Air India was faced with a paucity of talent across its departments, and the HR department was no exception. As promotion to the top job came about for the wrong reasons, the departmental heads failed to show initiative in their roles; they were beholden to those who had given them the opportunity and went about doing their bidding. I used to often tell my colleagues that we in Air India had managed to turn Mahatma Gandhi’s adage on its head. Mahatma Gandhi had preached that work is worship, but some Air Indians had interpreted the worship of the chairman/managing director to mean work. In fact, during several interactions and official interrogations, when the HR department’s officials were asked about their lack of action on critical issues, they had just one reply: ‘What could we do? The CMD did not ask us to.’ The HR function was also never given its due importance within the airline. As a result, in the past 25 years, the department has mostly been managed on an ‘additional charge’ basis, which meant that the HR function was always a shared responsibility and the department never got the focused attention that it needed. For instance, Rajan Jetley, when he was the managing director of the airline in the late 1980s, entrusted the HR portfolio to S. R. Gupte, whose strength lay in managing the finance function. Chairman Y. C. Deveshwar appointed Madhavan Kutty, who was an external appointee, and when he quit in under a year, entrusted the department to J. J. Rindani, who was from the Department of Finance. The HR portfolio was also briefly managed by P. B. Kumar, the head of the Engine Overhaul Department. In August 2003, for instance, even though Air India had five ‘qualified’ HR executives who had been in the general manager grade for over six years, the then managing director, J. N. Gogoi, brought in A. N. K. Kaimal, the head of Civil Works Department, to run HR. On his retirement, I was given the portfolio by Sunil Arora. A weak management had seeded a weak HRD, and that, in turn, had strengthened the unions. Also, my experience showed that the HR department officials and the union leadership in Air India shared a symbiotic relationship. They used each other to oust non-pliant departmental heads. Also, in the case of an employee–management dispute, the HR Department would wash its hands off the matter and ask the relevant departmental head to negotiate a settlement. This had disastrous consequences because, firstly, most department heads were overburdened with their operational duties, and secondly, they were not adequately trained to negotiate with trade unions. By giving in to irrational demands for pay hikes, they were, in fact, reducing passenger amenities and weakening the product through decisions such as withdrawal of Dom Perignon champagne from the menu for first class passengers, exclusion of pickle sachets and chocolate bars from the menu and, when the financial position worsened, carrying food from India for return flights instead of picking up fresh meals from foreign destinations because the latter was more expensive. Economy measures also led to a freeze on hiring even though it meant that flight operations were hampered, there being a need for trained staff due to the introduction of new flights and the retirement of employees. The airline also resorted to curtailment of expenses for travel for seminars and conferences, training programmes and other such requirements.

The result was a slow but steady erosion of the quality of the product. The weaknesses of the HR department affected the entire organisation and left it unprotected against the onslaught of its competitors. The problem had been long brewing and J. R. D. Tata had mentioned it in a letter way back in 1972 in which he had noted, ‘We must face the facts that our efforts at establishing good relations with our employees in Air India have not met with full success up to now, at least in India.’He had pointed out that the problem was that unions in Air India believed that they owed it to their members to be hostile towards the management and that the HR department ought not to be weak in handling issues of indiscipline from the unions but should be more humane in the way it dealt with other employees (see Appendix 4). Why did the HR department play such a role? Besides the fact that there was no one in the HR department and in the rest of the leadership team capable enough to put up a strong counter-attack, there was also another reason. Many in the HR department helped the union leaders for personal gain. Since the promotion process in the airline was not transparent and the union leaders had begun playing an important role in the choice of departmental heads, some employees would appease a section of the union leadership in return for a recommendation or support for promotion. As a consequence, even when Brijesh Kumar and V. Thulasidas, as chairmen, gave HR professionals N. S. Rajan, S. Mukherjee (for a couple of months) and V. Ferreira the leadership of the department, they could neither dent the union’s increasing influence over the airline nor address the erosion of a professional work culture in the airline. And some of the decisions taken under the leadership of HR professionals have done long-term damage to the airline. An example of how the department suffered under their leadership can be seen in the signing of the agreements with the Indian Pilots Guild (IPG) under the then managing director Captain D. S. Mathur, when V. Ferreira, as the HR official posted in Operations Department, facilitated this patently wrong agreement. And it was during the tenure of N. S. Rajan that the productivity-linked agreements with the other unions were signed. While the agreement with IPG was castigated by the CAG, the ministry frowned on the productivity-linked incentive (PLI) agreements as it was in violation of the Bureau of Public Enterprises norms. Both these ill-conceived agreements ensured higher payments with no enhancement in productivity, which was the stated objective. The productivity-linked incentives have mercifully been replaced, effective 1 July 2012—16 years after it was introduced—and the system of paying flying allowances to pilots is in the process of being restructured in 2013—19 years after it was signed in 1994. Both agreements have caused immeasurable damage to the airline. The lack of understanding of the company’s needs was again evident in 2004–06 when Mr Ferreira, as the HR head this time, signed wage agreements imposing an additional financial liability far in excess of what the airline could afford. Moreover it was in violation of the commitment that the airline had made to the ministry that there would be no additional outgo on wages and if there was any increase, it would be balanced out through commensurate enhanced productivity and cost cutting measures. But the airline’s wage bill was allowed to rise without instituting work practices that were more productive. Such behaviour on the part of a few HR officials indicates that there was perhaps either collusion between them and a section of the employees or a negligence of the airline’s interests. SERVING SECTORAL INTERESTS Captain D. S. Mathur, officiating as managing director after the sudden exit of Y. C. Deveshwar from

the post in February 1994, signed an agreement with the IPG in 1994 that replaced the then existing practice of paying pilots a fixed daily allowance when on duty abroad with a payment system that was based on the number of hours flown. A professional pilot, Captain Mathur had led the IPG in a prolonged strike in the early 1970s, for which he had been dismissed from Air India and subsequently reinstated. The HR Department went along with his proposal for incentive-based payouts to pilots without considering its fallout on other categories of employees, and the Finance Department neglected to evaluate the financial impact. Consider the implications of the change. Every pilot’s salary comprises two elements: a monthly wage and a variable allowance. The allowance is a consolidated amount that is meant to compensate pilots for meals and other daily needs while overseas. Traditionally, the allowance was calculated on the basis of the number of days spent away from the base station. Pilots were paid a fixed amount for every night of stay at an overseas destination. The new scheme brought in the concept of ‘the more you fly, the more you earn’, whereby pilots’ allowances were determined according to the number of hours flown and not the days spent at a foreign destination. The rate at which the allowance was calculated varied according to the seniority of the pilot. The new compensation system increased the amount that would be paid out by increasing the base of the calculation, and stated that the earnings of a senior pilot could not fall below that of a junior pilot. Thus, if a junior pilot earned more because he had flown longer hours, the difference would be made up for—provided the senior pilot was available for flight duties—through a ‘shortfall allowance’. If a junior pilot flew 70 hours a month, for instance, and a senior pilot 55 hours, the senior pilot would be paid a shortfall allowance for the difference of 15 hours at the applicable rate. The scheme led to an increased expenditure of 307.20 crore as shortfall allowances during the period 1995–1999, and much more in subsequent years. It also had a negative impact on employee morale. The CAG, which used to regularly evaluate the various functions of the airline, said in a report on the expenditure incurred on pilot agreements: ‘The shortfall scheme formulated as a part of the hourly payment scheme defeats the very objective of the hourly payment scheme. According to the management, the hourly payment scheme sought to encourage the productivity of the pilots, and yet it provided for payment of shortfall to a senior pilot when he flew lesser hours than his junior. As the senior pilot was paid shortfall at hourly rates applicable to his grade, a senior pilot earned more for not flying, than the junior pilot did for flying.’ The Air India management replied that in order to be eligible for this shortfall payment, a pilot had to be available to the company for flying duties for 25 days a month, which ensured better utilisation of the pilots. The CAG was not convinced and said in its report, ‘This reply has to be viewed in the light of the fact that the availability for flying duties does not tantamount to actual flying and consequently cannot be construed as leading to higher utilisation and increased productivity.’The CAG also criticised the way the agreement was drawn up. No approval was sought from the board of directors, and the team negotiating with the board/ministry on behalf of the management had two executives who stood to directly gain from the agreement. Moreover, the managing director’s approval was not available on record—the report said. More importantly, how could one man—even if he was the managing director and had given his sanction to the scheme—push through a change that would impose such a huge burden on the airline without approval from the board? Why did the Finance Department officials not alert the management about the financial implications of such a move? Why was the HR department silent on the impact that this would have on the morale of the rest of the organisation? How can one explain the situation except by

terming it as a complete breakdown at every level of management? Captain Mathur’s agreement with the IPG was annulled a year later, when a new managing director took over, but it continued to play havoc because labour laws stipulate that a bilateral agreement signed with a union, even if terminated, will continue as long as a new agreement replaces it. When the time came in 2005–2006 to sign a new agreement, the HR department faltered again. Though there was no union at that time—the IPG having been derecognised in 2003—the management, instead of abolishing the shortfall payment altogether, tinkered with it. Instead of a variable incentive-based payout, the airline committed to pay pilots an allowance for 80 hours of flying every month. The wage bill ballooned once again beyond Air India’s means to meet the increased payout. THE CURSE OF PLI The Productivity-Linked Incentive (PLI) scheme, introduced as a consequence of the agreement for pilots, played a huge part in the decline of Air India’s fortunes. Under the scheme, employees were offered incentives on the basis of key performance indicators, which varied according to the grade of the employees and the job profile of the department. The indicators were passenger load factor, ontime performance, availability of aircraft and such others, as listed in the agreements signed with the different sections of employees. The earnings under the 1996 PLI agreement were over and above the payments effected under the earlier wage agreement signed by the airline. Even though the objective of the PLI scheme was noble, it lent itself to misuse because it was weakly structured and poorly administered. Employees managed to generate a favourable reading of their performance without actually improving it. For instance, aircraft were forced out of the base station with ‘go snags’, so that the despatch availability was high, resulting in no loss of PLI for the officers in the Engineering Department. As a result, Air India aircraft had to be often grounded in foreign stations due to technical difficulties. This resulted in huge losses incurred in transferring passengers to other airlines and providing them with overnight accommodation in hotels, apart from the loss in reputation and flier loyalty that such incidents inevitably led to. Similarly, since on-time performance was a consideration for PLI for the Ground Services Division, they would compromise on the loading and tagging of baggage on connecting flights. The airline ended up paying huge amounts as ex gratia payments to passengers for misplaced baggage. There are instances when the all passengers on a flight have had to be compensated for erroneous baggage tagging procedures. The Cargo Department was no different. In order to fulfil the on-time performance criteria, officials would leave cargo behind so that the flight could keep to its schedule. On occasion, the cargo meant for a particular station would not be offloaded so that the on-time criterion was met—it did not concern the employees or the senior management that such actions resulted in enhanced consumption of fuel and loss of revenue. Besides, the PLI concept was poorly implemented. The original agreement with unions had a provision for review of performance parameters. No such review was conducted by the HR Department. In fact, there was a stage during which even as losses were mounting and Air India’s performance continued to be way below the mark on key indicators, the quantum of PLI being doled out was going up.

It wasn’t just the Commercial and HR departments that had let down the company during this critical period. The engineers failed to provide the level of aircraft utilisation that other rookie airlines were able to manage; the Operations Department failed to look beyond the usual and its officials resigned themselves to a scarcity of pilots that hampered the airline’s expansion. Other Indian carriers were inducting expatriate pilots for steady growth, but Air India had failed to consider the option. The Finance Department did not deem it necessary to exercise its authority, allowing expenditure to rise even when revenues were under threat. The In-flight Services Department kept basking in past glory even as new service standards were set by the South-East Asian and Gulf carriers and the Information Technology Department stuck to antiquated technologies and failed to innovate to make systems customer-friendly. As I spent more time understanding the airline and the people who ran it, I realised that every department of Air India was being put in the dock by its own employees. Air India’s weak spot lay in the people who were in charge of running it. And thus, as the environment got tougher and the competition more aggressive, the airline was brought down by those who were entrusted with its care. NOTES 1. http://www.orientaviation.com/storage/PDF/OA_May10/OAMag_V17N04_p10_Cover Story.pdf

CHAPTER FOUR

all the government’s men

IN JULY 1932, more than a decade before India won its independence from the British, J. R. D. Tata floated the country’s first aviation company and called it Tata Airlines. The same year, on 15 October 1932, Mr Tata, a passionate flier himself, flew a single-engine de Havilland Puss Moth carrying airmail from Karachi’s Drigh Road Aerodrome to Bombay’s Juhu Airstrip via Ahmedabad. The division grew under Mr Tata’s care and Tata Airlines became a public limited company in July 1946; it was renamed ‘Air-India’. Two years later in 1948 (a year after India became a free nation), the Government of India acquired a 49 per cent equity stake—with an option to purchase an additional two per cent—in Air-India, rebranded it as ‘Air India International’ and gave it the status of India’s designated national carrier for international travel. In 1953, it was nationalised and the government acquired a 100 per cent equity stake in the airline. J. R. D. Tata was apprehensive about the change in ownership. He feared that Air India would lose its independence and end up as a department under the Ministry of Communications (there was no ministry for civil aviation at that time). However, Pandit Jawaharlal Nehru, India’s first prime minister, allayed Mr Tata’s fears and assured him that Air India would function as it always had. He also asked Mr Tata to continue to steer the airline as its chairman. Pandit Nehru kept his promise and J. R. D. Tata stayed on. On 8 June 1962 the airline changed its name from Air India International to Air India and that is how we know it even today. Air India went on to earn an enviable reputation among fliers and the rest of the industry. As an institution that straddled two periods—pre-and post-independence and pre- and post-J. R. D. Tata— Air India carried forward a legacy that few other airline companies across the world could boast of. Led by a professional team of executives who were handpicked by Mr Tata and schooled under his guidance, the airline created a perfect mix of private enterprise and social commitment to develop a management style that was both inspirational and committed to customer delight. For instance, Air India, in order to ensure that its first class passengers were treated in the true traditions of Indian hospitality, created a lounge in the upper deck of its 747-200 aircraft when they were inducted in early 1970s—something that no airline had ever done. It cared for the passengers and that was reflected in the quality of its service. The airline’s subsequent years, however, have been rather a series of unfortunate events. After J. R.

D. Tata was unceremoniously removed from chairmanship in 1978, the government steadily increased its involvement in the airline’s management. Air India, just as J. R. D. Tata had feared, became an extension of the Ministry of Civil Aviation, with bureaucrats and ministers interfering in the airline’s day-to-day operations and in the appointment of its chairmen and managing directors, constitution of the board and other such affairs. In pursuit of political goals, the government failed to recognise all that had gone into making Air India a great airline. It discarded many of the management practices and traditions that had given it an edge in the past. As a result, its reputation among fliers suffered, as did its financial health. At the organisational level, the biggest casualty was the quality of the airline’s leadership. In the initial years, visionary leadership played a huge role in defining the character of the airline and benchmarking it against the best in the business. But with the government dictating who would be the chairman or the managing director or both and for how long, the airline was left at the mercy of people who cared little for the airline and more for their political connections. In Air India, increasing governmental control has meant that chairmen have been appointed by and have been accountable to the Ministry of Civil Aviation, which also decides on the structure of the leadership team, their tenures and the composition of the board. The government has also shown a remarkable propensity to experiment with the positions and tenures of the people appointed to various senior positions. The posts of chairman and managing director have, for instance, been combined and split as and when convenient. Time spent in the chairman’s chair has been cut and lengthened at will, and many a time the government has imposed policy decisions on the airline without taking its stakeholders into confidence. All of this has had a profound impact on the way the airline has been run and managed. AN INSECURE PERCH Over the years Air India has had numerous chairmen and managing directors. It has been led by as many as 13 people in a span of just over two decades, with each chairman or managing director getting an average of less than two years in the position since 1989, the year I joined. Among those who have helmed the airline in this period are: Rajan Jetley and Y. C. Deveshwar from the corporate sector; Brijesh Kumar, Sunil Arora, V. Thulasidas, Raghu Menon, E. K. Bharat Bhushan, Arvind Jadhav and the current incumbent Rohit Nandan from the bureaucracy; and people such as Subhash Gupte, Captain D. S. Mathur, M. P. Mascarenhas and J. N. Gogoi from within Air India. Some of the appointees to the post were either stop-gap arrangements (some were allowed to stay for barely a week) or appointed by default when there was no one else to fill the post. Interestingly, even though all the CEOs were appointed by the government, few were allowed to last their full term. It was as if every chairman had fallen short or fallen afoul of the ministry’s expectations. One can understand that the government erred in some of its appointments, but how could they have gone wrong each time? In any company, private or public, repeated failure to select the right leader would have led to a change in the way chairmen were appointed, or the people entrusted with the task would have been

asked for an explanation. In the case of Air India, nothing happened. No action was taken against the people responsible for the appointment of chairmen since they were—and still are—chosen by a faceless ministry. Nor did the airline go for an alternative recruitment process. It could have, for instance, entrusted the task to a selection committee of professionals, but that never quite happened. As a result, a pall of uncertainty was cast over the post of chairman in Air India as few wanted to take on the responsibility. This has led to a situation where there are no takers for what once used to be a coveted management position. Who would want to join an airline that could deflagrate any day? It is alleged by those in the airline that even the current incumbent, Rohit Nandan, was reluctant to take on the assignment. This insecurity of tenure has also led to indecisive and weak chairmen. People feared retribution and most chairmen, even if they had the requisite competence, preferred to be subservient to the government’s demands. None was willing to stand up to the politicians and bureaucrats. Thus, Air India’s interests were, more often than not, ignored and individual priorities took precedence over the organisation’s requirements. The game of musical chairs that the government has played with the chairman’s post has had another fallout. The balance of power in Air India has shifted away from Mumbai, where it was once headquartered, to New Delhi. This has been more than a geographical shift—the airline’s operation centre is Mumbai and yet, its chairmen began spending more and more time in the capital city, away from the organisation but close to the political power centres. This, in turn, slowed down the airline, impacted efficiency and allowed the ministry to wield a greater and more direct control over the airline. In the beginning, the chairmen were based in Mumbai and would travel to the capital for occasional meetings. Gradually, the trend changed, and the first to make the shift was V. Thulasidas. Other chairmen followed suit, and finally, in February 2013 it seemed that the airline gave up the charade of maintaining Mumbai as its headquarters and announced a formal shift to New Delhi. How this will impact the airline will be clear to us in the years to come. The government could also never make up its mind on whether the posts of chairman and managing director should be rolled into one or should be assigned to two separate individuals. As a result, in addition to the those named earlier, Air India also had corporate stalwarts, such as Ratan Tata and Russi Modi, and senior bureaucrats like K. Padmanabiah, P. C. Sen, P. V. Jayakrishnan, Ravindra Gupta, A. H. Jung and K. Roy Paul functioning as chairmen. Barring P. C. Sen, who held the position of chairman because he was the chairman and managing director of Indian Airlines, the other bureaucrats assigned to the position were secretaries in the Ministry of Civil Aviation and held concurrent charge of the airline. In fact, the appointment of A. H. Jung as Secretary of the Ministry of Civil Aviation and his consequent appointment as the chairman of Air India were unusual because he did not belong to the IAS cadre but was an officer in the Indian Accounts and Audit Service. One could ignore these anomalies in the appointment process if the ministry had extended a rationale for its behaviour, but there was none forthcoming. Also, while some chairmen worked well with their managing directors, others were in perpetual conflict, adding another layer to the beleaguered airline’s troubled leadership history.

FLAWED CHOICES The government was also inconsistent in the way it appointed its bureaucrats to the position of chairman. The position of chairman of Air India was on par with that of an additional secretary in the Ministry of Civil Aviation. But this was only on paper. The selectors made no distinction between an additional secretary and a joint secretary as part of the candidate’s eligibility criteria. The choice depended more on who the minister was comfortable with or wanted to keep away. This impacted the relationship that the airline had with its owner because it was found that seniority levels of the bureaucrats chosen for the post determined the authority they wielded and the influence they had on policy decisions that affected the airline. While most bureaucrats who have occupied the chair have been joint secretaries, in the case of Mr Thulasidas, the eligibility criterion for the position was changed to that of additional secretary. It was a one-off instance because since then, joint secretaries have been routinely appointed to the position. A similar flip-flop on eligibility criteria was visible with respect to the Air India board. The government was, in its initial years, represented by the Secretary in the Ministry of Civil Aviation, who was expected to have a wider understanding of the aviation sector, but in the later years, the representatives have been from various levels within the bureaucracy, with not everyone being familiar with the business or with Air India. It is important to understand that the government had the right to appoint a bureaucrat to the position and that the problem was not that a bureaucrat was being chosen for the task at hand. In fact, the airline has had some of the best bureaucrats working on its behalf in the early years. Air India had an ICS officer, B. R. Patel, as its chief executive from September 1955 to November 1966. He not only provided stability to the airline but also gave his deputies great latitude, and under his leadership, both S. K. Kooka, commercial director, and A. F. Dubash, planning director, built two great teams that helped them to guide the airline in its most formative years. It was an era in which the bureaucrats deputed to Air India displayed total commitment to the airline and could make an impact because they were a class apart and were not moved around at short notice as they were in the later years. It is also difficult to comprehend, however, why the government, despite the disastrous turn of events at Air India has not exercised greater caution in the selection of the incumbent. The airline business was changing. Policies were being amended to create a more competitive environment and it should have been obvious to the owners of Air India that the set of core competences needed to lead the organisation was different from that required earlier. Additionally, within the bureaucracy, the government continued to repose its faith on officers whose exposure to the airline industry and to Air India was minimal but who were known to be loyal to the establishment. Thus, even if a few bureaucrats who were made managing directors did try and make a difference, they were prematurely transferred. The severity of the situation is all the more glaring if one looks at the way the last five chairmen and managing directors were appointed. It shows how the process was subverted to bring in people at the whims of the political establishment. Rajiv Pratap Rudy, the minister for civil aviation in 2003, appointed V. Thulasidas, who was then Chief Secretary, Tripura, as the chairman in December 2003. Mr Thulasidas’s candidature was said

to have been recommended by R. K. Singh, then a director in the Ministry of Civil Aviation and allegedly a friend of the minister and a cadre-mate of Mr Thulasidas. Likewise, in May 2009 Praful Patel appointed Arvind Jadhav, an IAS officer from the Karnataka cadre, as the chairman of Air India. Mr Jadhav had applied in 2008, but his candidature had been rejected by the Appointments Committee of the Cabinet on the grounds that he lacked domain knowledge since he had never worked in the Ministry of Civil Aviation. Mr Patel, however, paid no heed to the observations of the Appointments Committee and brought in Mr Jadhav to replace Raghu Menon. Speaking to the media after Mr Menon was moved, Mr Patel said that action was necessitated because of non-performance. The real story was that Mr Menon, despite toeing the ministry’s line on several controversial decisions such as aircraft acquisition, had fallen out of favour. In its bid to replace Mr Menon expeditiously, the government first appointed E. K. Bharat Bhushan for a week, and then brought in Arvind Jadhav, overlooking his lack of knowledge of the sector. It was only after Rajiv Pratap Rudy, in his capacity as an opposition party MP, sought all the documents relating to Mr Jadhav’s appointment under the Right to Information Act that the flaws in his appointment came to light. And the government hastily replaced Mr Jadhav with Rohit Nandan, who was then a joint secretary in the ministry, without going through the Public Enterprises Selection Board. What are we to conclude from these instances but that the selection process is nothing but a farce? Interestingly, if we apply the condition of domain knowledge as an eligibility requirement for the post of chairman, the appointment of V. Thulasidas too comes into question. Mr Thulasidas had worked in the Civil Aviation Ministry as an under-secretary nearly three decades before he was appointed chairman. At that time, Air India enjoyed a semi-monopolistic status and the aviation sector worked according to a very different set of rules. Before he was made the chairman, his last assignment was as chief secretary in the state of Tripura. How could this have been considered to be sufficient experience for running an airline? Running the administrative machinery in a state and managing a commercial entity such as Air India call for vastly different skill sets! Given that the ministers appropriated the right to appoint and remove the chairmen at will in a manner that was neither transparent nor consistent, the people who came to the post were generally more beholden to the appointing individual than the organisation. Thus, they would tailor their tenure to suit the needs of the minister rather than those of Air India. The appointment of IAS officers with no serious or permanent stake in the airline has led to the abandonment of the airline’s interests. They offered little resistance when the minister either subtly or openly advised the withdrawal of flights from certain sectors to facilitate private airlines or when the issue of vantage position for lounges and check-in counters at airports came in and airlines close to the minister got preference and Air India was relegated to the less visible areas. None protested but many employees privately complained that they felt disillusioned at the way the airline was being given step-motherly treatment. This discrimination was also evident when it came to allocating slots and landing bays at major airports. The best bay locations were reserved for private airlines, and foreign airlines were given access to key cities. There was none to place Air India’s point of view to the people concerned. Most IAS incumbents have preferred to work with a small coterie of officers who did not allow the chairman to meet others while letting the chairman believe that he was doing a great job. This was

disastrous from the airline’s perspective because the CEOs believed that they had functioned admirably while the true state of the airline that emerged only after they had left presented a different reality. Every chairman left Air India a little worse than he had found it when he had joined, but when in office, they were made to believe that the airline was at its peak level of performance. Intriguingly, most CEOs relied on the same set of qualities in their trusted people: unflinching loyalty, no outspokenness, obedience without discussion or dissent and the ability to work without questioning the merits of their decisions. The constitution of the Air India board, too, became an arena for constant experimentation. It was routinely filled with luminaries from the corporate sector and political heavyweights, but few managed to make an impact. The fault perhaps lay with the manner in which the appointments were made—some were bestowed the position as a favour while some were brought in to give the board some respectability. Thus, the members were never really chosen for their ability to steer the organisation out of turbulent weather but rather as a matter of political expediency. Numerous well known individuals from the private sector were inducted into the board from time to time—Ratan Tata, Deepak Parekh, Sanjiv Goenka, Suresh Keswani, n. Vaghul, Anand Mahindra and Harsh Neotia from the corporate world; Ajit Kerkar and Inder Sharma from the hospitality industry; Pallam Raju, R. P. Panika and Vidya Stokes from the political world; Jaya Bachchan from Bollywood; Air Chief Marshal I. H. Latif and Air Chief Marshal F. H. Major from the Indian Air Force being among them. While some had little or no experience of the airline industry, those who had corporate sector experience did not—or were not allowed to—play the role expected of them. The buck stopped with the chairmen and the managing directors who, as we have seen, were subject to pulls and pressures from the political and bureaucratic establishments. I have often wondered what made proficient and highly regarded professionals take on an assignment where they would have little or no impact, but I have yet to find a clear answer. Perhaps many were attracted to the position on account of the glamour attached to Air India or perhaps they were unable to refuse a political patron. I was aware that it was a highly coveted position among some members of the industry and knew of a few senior executives from the private sector having approached politicians for an appointment to the board of Air India. Whatever the real reason, the result was that the airline suffered on account of their complicity by silence or active connivance. If the government’s intention was ever to infuse professionalism through the induction of these individuals, it was not fulfilled. There was no attempt to change or bring about greater accountability in the board members even when it was apparent to all concerned that they could not contribute or guide the destiny of the company, ensure good corporate governance or prevent the mala fide decisions being forced through. I have always maintained that Air India would have to look more innovatively for professional expertise rather than rely on failed experiments. And when Praful Patel, as the minister of civil aviation, once again appointed private sector stalwarts such as Anand Mahindra, Amit Mitra, Harsh Neotia and Air Chief Marshal F. H. Major in March 2010 to the Board, I had no hesitation in sticking my neck out to forecast that the experiment would not succeed. Writing in the DNA newspaper on 18 March 2010, I had said that ‘As the new members have been appointed at a time when Air India’s ability to survive is being questioned, it is only to be hoped that they will play a role, notwithstanding the infirmities in the system, which can help save the national carrier.’ Further, ‘the Board cannot have members with little or no understanding of the airline industry’s functioning and the ground

realities that exist in Air India. It is one thing to take decisions that are deemed critical and imperative and another thing to ensure the implementation of such decisions.’ My apprehensions were borne out when some members quit within a year of their appointment while others played a role of virtually no significance. The loser, in the end, was Air India, as yet another opportunity was frittered away by the people who had been entrusted with its future. Praful Patel, during his tenure, also brought in an expatriate as the airline’s chief operating officer (COO). This was soon after Arvind Jadhav, then chairman and managing director, exposed the horrific financial situation of Air India in June 2009. He showed that the airline was deep in the red and that it had overshot its credit limit and had no funds with which to pay its employees and vendors. The Prime Minister’s Office took note and Praful Patel announced the appointment of Gustav Baldauf after the selection process, which had taken almost a year. But that experiment too failed because of the farce that surrounded the appointment and his subsequent tenure in the airline. The problem lay with the choice of Mr Baldauf. While he was a pilot of some repute and had worked with Jet Airways for a couple of years, he had never held a key management post overseeing the many aspects of an airline’s functioning. Besides, he had never operated in a government environment and thus had little or no idea of the way things worked, especially within the government. I was prompted yet again to stick my neck out. In an article in the Hindustan Times, 12 May 2010, I said that the experiment would not succeed because Mr Baldauf neither had the experience of turning around a company nor the ability to deal with the Indian bureaucracy, which revels in backseat driving. Even more depressing was the fact that most of the selection committee members who had chosen the incumbent from the short-listed five candidates had little or no understanding of Air India’s mammoth and multifarious problems. Those who had chosen him to lead the airline should have known that the airline’s labyrinthine structure would pose a big hurdle for a person not well versed with the ways of the industry and the country. Mr Baldauf lasted all of eight months; he was removed from the post within a month after Praful Patel was moved from the ministry. Speaking to the media after his removal, he complained that he had been unable to work because of government interference. If we take Mr Baldauf’s comment at face value, the question we are forced to ask is whether these stalwarts failed Air India or whether Air India failed them. I would plump for the latter because in my experience, the bureaucracy has time and again stifled initiative and encouraged mediocrity. Also, as part of the board of Air India, the bureaucrat-members have dominated the proceedings, placing impediments in the way of professional members and frustrating all attempts to bring about change. I had pointedly asked Amit Mitra—then a board member and now the finance minister in West Bengal —in January 2011, when I accidentally bumped into him at the Delhi airport, why the Board of Directors of Air India was letting down the airline in its critical phase. His response was: ‘We are not given any information by the airline, even when asked.’ He, along with a team of other professionals on the Air India Board, had in fact met T. K. A. Nair in the Prime Minister’s Office on 1 November 2010 to highlight that things weren’t moving according to plan within Air India and about the ‘lackadaisical attitude’ of the top management to the slow progress of a turnaround plan for the loss-making airline. But their protest did not change anything. Why, I often wondered, did none of the board members protest in public? Or oppose decisions in the board meetings? Each individual must have had his or her reasons. However, the finest example of a veteran professional who was an independent board member was N. Vaghul, former chairman of

ICICI Bank. But he, too, was unable to make a difference. Acknowledged as a financial wizard, he was on the board for more than a decade and part of several major decisions. He was also a signatory to the annual accounts, which, as we later discovered, declared losses for several years to be lower than the actual amount. We shall go into the financial mismanagement at Air India in greater detail in the following chapters where the extent of damage will be more evident. Why did the board and the experts not protest against the patently unfair and wrong decisions? Unlike the bureaucracy, the corporate representatives were not under obligation to do the government’s bidding and it may be an interesting case study to see how the Air India Board, despite having eminent professionals, failed to function in a government set-up. There were some exceptions and a few IAS members on the board did raise questions about the flagrant flouting of rules. V. Subramanian, an additional secretary and financial advisor in the Ministry of Civil Aviation, protested, but he was moved out within 24 hours of his views being made public. Mr Subramanian had questioned the fleet acquisition proposal when it was being discussed in October 2004. He asked where the business plan and route profitability was to justify the purchase of aircraft in the proposed numbers since the decision would have severe financial implications for the airline. Sunil Arora, when he was the chairman of Indian Airlines, and, thereby, a member of the Air India Board, also asked relevant questions on aircraft acquisition. He drew the attention of the cabinet secretary to the pressure being exerted on the board. But his voice was ignored and he has had to face the ire of his seniors for the stand he had taken. E. K. Bharat Bhushan was another IAS member on the board who raised valid points to prevent mala fide decisions from being taken or sought details of issues where loss had been caused to the airline. His request for a vigilance enquiry on leasing of aircraft was not pursued once he moved out because he was entrusted with the additional charge of Director General of Civil Aviation (DGCA). Was the additional responsibility assigned with the intention of silencing him? Even though the issue of enquiring into the leasing of aircraft, which caused a loss of several thousand crore rupees, was a decision taken by the Air India Board, no other member ever asked as to what happened to the vigilance enquiry once Mr Bhushan quit. Lack of corporate experience was also reflected in the way some IAS chairmen conducted board meetings. V. Subramanian, who had questioned the decisions taken on fleet acquisition, when asked as to what distinguished the board meetings of the Indian Airlines from those of Air India, said that while Sunil Arora, also an IAS officer but not cast in the typical bureaucratic mould, conducted the meetings of the Indian Airlines board professionally, V. Thulasidas of Air India acted as ‘His Master’s Voice’. He chose to invoke the ministry’s and the minister’s name often instead of explaining the proposals in the meetings. In October 2004, when Mr Subramanian had asked about the business plan that detailed the type of aircraft, route deployment and route-wise profitability during discussions on the revised fleet plan in the board, Mr Thulasidas is said to have responded by stating, ‘The minister wants it.’ Mr Subramanian countered by asking why the board should not question this since its allegiance was to Air India and not to the minister. He had taken the stand that acquisition proposals should be backed by a proper business plan and could not be considered to be based on an agenda note only. He was supported by Sunil Arora, who was on the board as the CMD of Indian Airlines. The other ministry representative, Raghu Menon, had absented himself. Other members, including Mr Vaghul, who should have raised the red flag from the financial point of view, were silent. As soon as the meeting ended and Mr Subramanian left for the airport to take the flight back to Delhi, Mr Thulasidas, as a matter of routine, briefed Praful Patel about the deliberations. And the

government system, better known for its lethargic pace, moved at lightning speed to remove Mr Subramanian. The media was abuzz with talk of his transfer from the civil aviation ministry even before he boarded the flight. He received his order transferring him to the Ministry of Rural Development the following day. As far as the minutes of the meeting were concerned, Mr Thulasidas chose only to record that the matter of fleet acquisition should be referred to the ministry. The views expressed by Mr Subramanian found no mention in the recording of the proceedings. Mr Subramanian, on his part, saw no point in sending a rejoinder or amendment since he had, by then, been removed from the directorship of Air India as well as transferred out of the ministry. The abruptness with which he was transferred—and for doing what seemed to be the right thing to do—was naturally a huge blow to the man. Many say that he ought to have protested, but in the environment that prevailed at the time, where the government was keen to keep its allies together and, thus, not willing to anger any partner, Mr Subramanian perhaps felt that it would have been difficult to obtain justice. I could appreciate his plight because every time I was unceremoniously transferred, I had given up the intent to complain since the bureaucrats in charge of the ministry at the time did not show the will or the gumption to act on behalf of the airline and its victimised officials. This was symptomatic of the times when the decay in the Indian bureaucracy was becoming more and more visible to all of us. Logically, the officials who have functioned as secretaries in the Ministry of Civil Aviation should be the ones held accountable for the mess created in Air India through wrongful selection of candidates. However, instead of being taken to task for dereliction of duty and performing their functions to the detriment of Air India, the ministry, with Mr Praful Patel at the helm, introduced a new postretirement perquisite in February 2010 entitling all past secretaries at the Ministry of Civil Aviation to get lifetime upgrades for themselves and family members. It defies logic to justify the benefit of free upgrades with no ceiling for all bureaucrats who have been Secretary, Civil Aviation, and their family members. Compounding the problem of leadership has been the centralised functioning of the airline, which has allowed the incumbent chairman/managing director to take decisions that they deemed to be in the best interests of the airline without seeking the sanction of colleagues. After seeing Rajan Jetley take the decision on corporate identity change in 1989, Captain D. S. Mathur’s agreement with the pilots’ union in 1994 and Brijesh Kumar’s decision on time-bound promotion policy in 1996, all of which have had disastrous consequences on the airline, I wrote to M. P. Mascarhenhas on 14 October 1997. I was keen to bring about greater transparency in decision-making and suggested to Mr Mascarenhas, as he was a managing director from within Air India, that we needed to refine our system so that no CMD could play havoc with the airline. I wrote that there was a need to encourage ‘free and frank participation in meetings’ and ‘a policy should be laid down clearly stipulating that all major decisions which have long term repercussions, impose substantial financial liabilities and are irreversible in character should be first discussed threadbare in the Departmental Heads meetings and only then be presented to the Board for approval’. I further stated that criticism of any such decision should be appended with ‘papers presented to the Board members so that they are aware of various apprehensions and points expressed by the Departmental Heads’ (see Appendix 5). Alas, nothing changed and I feel only the deepest regret at the recent turn of events because if only the

management had paid heed and changed their ways, Air India would have been a different organisation. Major decisions on aircraft purchase and the merger would have been better if debated and planned, and instances of unwarranted expenditures which have pushed Air India to the brink of bankruptcy could have been brought under control if moderated or stymied by the senior management. Interestingly, while the whistle-blower policy has today become a buzzword, I had, through this letter, advocated quite the same to embolden officers to speak on policy matters and be assured of protection. I had stated: ‘The draft policy should also provide for a redressal system so that no departmental head has any fear of being penalized for airing views, which, though not to the liking of the incumbent managing director, may be in the Company’s interests’ (see Appendix 5). The way in which the airline was being dragged into a morass by the people who ran it made me question the propriety of governmental control of Air India’s affairs. While the government, as owner, had every right to have a say in the airline’s management, was it prudent to do so? Internationally, governments have moved away from the day-to-day control of their national airlines. Most national carriers start out with a fair share of or complete governmental involvement, which diminishes as the airline expands its network. Also, the airline’s management is entrusted to a professional team of aviation and management experts. In China, the government does assume a large role in management, but it ensures a separation of duties by appointing one chairman for political and governmental affairs and another with commercial responsibility. Air India, on the other hand, has never made such a distinction. Also, many national carriers started out as government enterprises but switched to a private–public partnership model or completely privatised their operations in the 1980s and thereafter. Air India, in contrast, journeyed in reverse from the private to the public sector. Among the early national carriers of Air India’s vintage to go private were: British Airways in 1987, Qantas Airways in 1993 and Air France in 1999. Successful airlines like Emirates, Qatar Airways and Etihad Airways are still government-owned airlines, while a majority stake in Singapore Airlines is held by a government investment vehicle. Governments also hold majority stakes in carriers such as Garuda Indonesia, Malaysia Airlines, Air New Zealand, Thai Airways and Vietnam Airlines and a minority holding (49 per cent) in Turkish Airlines. In all these airlines, the management has, however, been left to professionals. With Air India repeatedly denied competent leadership by the government at the board and CEO level and the senior management being unequal to its tasks, it became the standard operating procedure for flawed decision-making processes and persistent problems that directly impacted performance to remain unattended. It should come as no surprise therefore to anyone that Air India has been spinning out of control for years now. But the question that we need to ask is whether an airline that started out with promise and achieved the heights of excellence that it did in its initial years should not be considered a national treasure. If so, the people who have driven Air India to the ground should be answerable for the roles they have played in its destruction.

CHAPTER FIVE

a flicker of hope

THROUGH THE DECADE of the 1980s and the 1990s, Air India was grappling with a multitude of problems. It faced a shortage of quality leaders, frequent changes in leadership, declining standards of service and aircraft ambience and restive and unreasonable unions. Passengers were beginning to get disillusioned with the airline, and at a time when the contours of the aviation business were changing, the airline was stuck with weak, ineffective and apathetic leadership. Over time, the state of the airline’s leadership and the quality of its service has worsened and the airline has fallen to newer depths every year. In the midst of all this gloom, 2003 stands out as a refreshingly different year in the airline’s history. It ignited a flicker of hope among all of us who had begun to despair at the state of affairs. The year marked a shift in the airline’s managerial stance as the team that had taken over was assertive, firm and ensured greater cooperation between the departments. It recognised the need for Air India to develop an armoury of responses to the challenges it faced on account of increasing competition and changing consumer behaviour. The management’s ‘ chalta hai’ attitude appeared to be on its way out. To be fair, the period 1997–2000 had seen some positive developments too. But the measures initiated by the team during those years were primarily meant to arrest the airline’s downward slide. M. P. Mascarenhas succeeded Brijesh Kumar as managing director on 27 July 1997 and found the airline had run up a loss of almost 400 crore (before adjusting foreign exchange reserves of 94 crore) in the previous fiscal, the highest till then in Air India’s annals. To stem the losses, Mr Mascarenhas took a slew of bold steps such as withdrawal of flights from Frankfurt and Rome, which were heavy loss making sectors; redeployment of the freed aircraft capacity on high revenue and profit generating routes using the airline’s existing bilateral rights, introduction of cost saving measures, reduction in retirement age of employees from 60 to 58 years and so on. By 1999, Air India was back on track making operational profit. He led from the front and was lucky to have had the backing of the board. This was also the time when the government appeared to be earnest in its attempts to help the airline survive. The Disinvestment Commission to which Air India was one of the first public sector companies to be referred to in 1987 submitted its report in August 1998. The commission after an exhaustive study considered four options for the revival of Air India which were as follows:

1. The government should immediately provide 1,000 crore as equity for the financial restructuring of the airline, which would raise its paid-up share capital to 1,154 crore. 2. Simultaneously, the process of inducting a strategic partner was to be initiated, on the basis of global competitive bids, through an issue of fresh equity shares of the face value of 770 crore. This would enhance the airline’s paid-up equity capital to 1,924 crore and reduce the government’s holding to 60 per cent. The strategic partner should be a consortium of airlines and investors, with at least 25 per cent of the equity brought in by the consortium being held by Indian investors. The selection of the strategic partner should be through global competitive bidding among pre-qualified bidders. The pre-qualification of bidders should be based on their financial, technical, marketing and managerial capabilities and commitment to Air-India’s fleet expansion. A shareholder agreement providing for an appropriate share in the management to the strategic partner would also be necessary. 3. The government should thereafter divest 20 per cent of the total paid-up equity capital by offering 10 per cent to domestic institutional investors at the price paid by the highest bidder for Air-India shares and the remaining 10 per cent to retail investors and employees at a discount. Any shares not taken up by retail investors and employees may be offered to domestic institutional investors. This would eventually bring the government shareholding in Air-India down to 40 per cent. Following the implementation of these steps, the government and the strategic partner would each hold 40 per cent of the equity capital of Air-India and the remaining would be dispersed among the domestic institutional investors, employees and the public. The Disinvestment Commission suggested appointing global advisors to help conduct the strategic sale and the offer of sale. It also recommended the following measures: ‘1. The maintenance, engineering and ground support operations of Air-India, which are its inherent strengths, could be hived off as separate companies. In line with the current global trend, this would enable the airline to benefit from outsourcing these services and reduce its overheads. 2. Currently, Air-India connects major international destinations with all major international airports in India. A well-knit and effective hub-and-spoke arrangement with Indian Airlines would enable Air-India to provide direct and convenient connectivity with all Indian airports to its customers. For this purpose, there should be a clear demarcation of roles that these two airlines have to play in providing better customer service and jointly competing with other international airlines. 3. A voluntary retirement scheme should be immediately introduced to reduce manpower. 4. And finally, since the airline is a highly service-oriented industry, Air-India should initiate steps to improve the quality of its service to enhance its market share.’ Though the recommendations were meaningful and timely, they were not followed up. The irony: what was recommended in 1998 is the course being considered even today for Air India’s revival, except the key issue of equity disinvestment, which the government while allowing FDI by foreign airlines in private airlines has specifically barred the same in the case of Air India. Interestingly when the government was considering offloading 40 per cent equity stake in the airline, one of the key companies that had evinced interest was the Tata group, the original owner of Air India in alliance with Singapore Airlines (SIA) as their foreign joint venture partner. Ratan Tata, the then group chairman had in fact gone on record to say that the group had an emotional attachment to Air

India, as the national carrier was founded by the late J. R. D. Tata. Many of us who knew that not only disinvestment but allowing a professional group to manage the airline was imperative for Air India’s survival supported the move. However, there were others who felt that their careers would be threatened if the government lost control over the airline and engaged in political manoeuvring to oppose the move. By the time the due-diligence exercise, which was a precursor to the sale of equity stake was completed in April 2001 by the potential bidders, the environment in Air India had become vitiated. Those opposed to the disinvestment found supporters in the ministry. There were rumours too that a private sector airline owner who saw a threat to his airline from a strong Air India had thrown his weight behind those opposing the disinvestment. Soon, as was to be expected, the Tata-Singapore Airlines bid was withdrawn and Air India was left in the lurch. An unfortunate fallout of the management infighting was that M. P. Mascarenhas who had supported disinvestment and opposed doling out of bilateral rights to foreign airlines had to face the ignominy of being suspended on trumped up charges on 22 May 2001. If proof was indeed needed of complicity of some Air India personnel and ministry bigwigs in his suspension, it came soon thereafter. When a group of employees decided to wear black bands to protest at the suspension of Mr Mascarenhas, the Secretary, Civil Aviation, Mr Jung, gave written directions to the then Air India managing director, J. N. Gogoi that ‘wide publicity should be given to rejoicing in AI on hearing the news of the suspension’. As one who had always maintained a distinction in loyalty towards Air India and the chairman or managing director, I refused to publicise Mr Mascarenhas’ suspension. In an unprecedented move, the ministry then began to use the Press Information Bureau for issuing press releases on behalf of Air India. Mr Mascarenhas was reinstated a couple of days before his superannuation on 30 November 2001 after being exonerated of all charges. But the damage had already been done. DIFFERENT MEN, DIFFERENT STYLES In 2003, the airline was led by two very different individuals. They were poles apart but delivered on their promises. Most importantly, they had a plan for Air India and were committed to its fruition. One was J. N. Gogoi, an engineer who had worked with Air India his entire life but who was known more for his implementation and execution rather than managerial skills; and the other was Sunil Arora, an IAS officer who had turned Indian Airlines around in his three years as chairman. Mr Arora was appointed as the managing director on 1 August 2003 after Mr Gogoi retired. K. Roy Paul, as secretary of the Ministry of Civil Aviation, held concurrent charge as the chairman of Air India during that period. Mr Gogoi knew the airline, and having risen through its ranks, had a first-hand experience of the problems that it faced. He was also aware of the damage that had been done by a few past chairmen and managing directors who had run the corporation like their own fiefdoms with no concern for the consequences of their actions. Several chairmen/managing directors had functioned as one-point power centres, rarely allowing their colleagues a say in the running of the airline. This had been detrimental for the airline and Mr Gogoi, perhaps keen to bring about an improvement in its

performance or compelled by the nature of his character, ensured a refreshing transparency in decision making. I remember being part of several meetings during this time where decisions were taken by consensus —a sharp departure from such gatherings in the past where the diktat of the chairman or managing director was treated as gospel. Mr Gogoi did not hesitate to seek the opinions of others. He had no compunctions about admitting failure or even his lack of knowledge on certain issues. He was willing to hear us out and, at the same time, was comfortable being led by K. Roy Paul on major decisions. Mr Gogoi demonstrated his mettle during the Indian Pilots’ Guild (IPG)–led agitation during April– May 2003 over the issue of flying to countries affected by Severe Acute Respiratory Syndrome (SARS). The union was used to pliant chairmen who would give in to their demands at the mere mention of an agitation. But Mr Gogoi, unlike most of his predecessors, did not buckle under pressure. He set up a core team to tackle the protests and ensuing negotiations and at meetings, after ascertaining the views of each member, respected them and acted upon them. Such an attitude was not only novel but also motivated all of us in the senior management to give our best. He made it easy for people to voice their opinion. Mr Gogoi’s genial approach was different from the no-nonsense temperament of his successor, Sunil Arora. Mr Arora was intolerant of flatterers and was blunt and direct with his team. He was a man in a hurry. He focused on the airline’s problems and worked towards its interests. He encouraged initiative and was open to suggestions, but he abhorred being drawn into irrelevant issues. During his tenure, the organisational emphasis was on revenue generation and cost control. Mr Gogoi and Mr Arora took several decisions that could have been game changers if only they had been followed through to their logical ends. Under their regime, for the first time in several years, there was an attempt to instil greater discipline into the unions. The management was not afraid to propose and push through changes, and the airline’s work ethic improved. In addition, several revenue-enhancing schemes were introduced and the expenditure bill was reduced. The two also consulted the rest of the senior management team for major strategy decisions. Finally, it seemed as if Air India was ready to scrape off the thick crust of indifference and stupor that had become its second skin. DEALING WITH THE UNIONS FIRMLY AND ABLY In April 2003, the IPG issued a directive asking pilots to stop operating flights to all SARS-affected Asian countries. Pilots were also asked not to fly to any destination if there was even a single passenger or cabin crew member on board who had travelled to SARS-affected countries in the previous 10 days. Thus, if Air India flights to non–SARS-affected countries happened to have a passenger or crew member who had flown to Hong Kong or Bangkok or Singapore or any other epidemic-hit country, the planes would be grounded. This was unreasonable. No other country—not even those that had been affected by SARS—had such stringent conditions imposed by its pilots. And Air India had taken the necessary steps to ensure that the aircraft were sanitised and SARS-free. Not only was the IPG imposing impossible conditions on the airline, it was actually crippling its business.

Mr Gogoi had spent a lifetime working in Air India and was familiar with the tactics that unions usually deployed in such a situation. Besides, he had been a union man himself and had led the aircraft maintenance engineers’ union during his early years in the airline. He refused to bow to the IPG’s demands. The IPG was adamant. Emboldened by past experience when weak and indifferent managements would give in easily, the union refused to back down. The usual practice was to issue the threat of a strike, and the management would come around to the unions’ point of view. Mr Gogoi, however, did not play by these rules. The IPG was called in and handed out a stern warning: call off the strike or face disciplinary action. On 26 April 2003, the IPG members, led by their president Captain Kenneth Khan and general secretary Captain Vikrant Sansare, met the management. This was just a few days after they had launched the agitation. At the meeting, K. Roy Paul asked the leaders to withdraw the protest by 5 p.m. The IPG refused. Air India decided to suspend about two dozen pilots who had not reported for flight duty in the past one week. K. Roy Paul and his team made their intentions known to all of us in the senior management, and having conveyed the recommended course of action, they left for New Delhi. The signal being sent out was that the airline was not going to be held hostage yet again to irrational demands by the unions. The meeting was being closely followed, and a fleet of Outdoor Broadcasting (OB) vans were parked inside the Air India complex in Santa Cruz, Mumbai. Many new television news channels were just about setting themselves up in India around the time, and almost every channel had sent its representative. After the meeting, I addressed the media and conveyed the management’s decision, which, naturally, hit the headlines in every channel and newspaper. Over the next few days, as the drama unfolded, we ensured that the airline’s position was clearly understood by all. Fortunately, the management stood firmly by its decision all through the imbroglio. Not only were the suspension orders served to pilots on the first day not revoked, several others suffered the same fate in the following days. The management also derecognised the IPG and sealed its office. The IPG was forced to seek help from other quarters. It approached Sahib Singh Verma, the then labour minister, who, without consulting the management or Shahnawaz Hussain, the then civil aviation minister, appealed to the pilots to withdraw the agitation. This was used by the IPG as a way out of the deadlock without having to lose face with its constituency. They withdrew the strike, citing the minister’s request as their reason for doing so. In Air India’s history of employee relations, the strike and the way it was handled stands out as a rare example of managerial strength and resolve. Mr Gogoi was firm with the unions, and he was backed by the chairman Mr Paul and a committed leadership team, all of whom worked together towards a common objective. Credit was due to K. Roy Paul as he had, in fact, brought about a huge change in the airline’s dealings with the ministry. He understood the need of the hour and was able to convey it effectively to the minister. In fact, as a pre-emptive measure, Mr Paul and Mr Hussain had taken the requisite precaution of meeting L. K. Advani, who was then deputy prime minister, before taking the tough stand against the agitating pilots. This was done to ensure that no pressure was mounted on the management to renege on its stated position. He knew how to hold his people together and consulted them at every stage. In fact, when a parliamentary committee visited the airline soon afterwards, Mr

Gogoi deputed the then head of the HR department, A. N. K. Kaimal, and me to brief its prominent members at the hotel prior to the meeting. The result—the parliamentary committee members formally complimented the management for its tough stance in the meeting that followed. The management’s firm stand thus not only paid off but also had a salutary effect; for some time after the SARS agitation, neither the pilots nor any union dared to go on strike. With industrial peace, an environment in which to move forward was created. INNOVATION, INITIATIVE AND A STEP FORWARD Sunil Arora took over from Mr Gogoi. He followed through with some of the decisions taken during the Gogoi–Paul years and took several steps to help Air India deal with the changing marketplace. Consider, for example, the setting up of the Air India Airport Transport Services Limited (AIATSL), a subsidiary of Air India, in 2003. It was meant to provide ground handling services to foreign airlines at various Indian airports, which form an integral and lucrative part of the business of most airline operators. It was the same for Air India, especially because in the early years, there had been no other airline or company authorised to provide the ground handling services in India. However, when the sector was opened up, the government decided to allow at least three service providers at each airport. The new players were more aggressive with rates and the service offered, and faced with competition Air India had to change. The first step was to offer competitive rates; the private ground handling companies were offering the same service at a lower rate to the foreign airlines. It was difficult for Air India to do the same because its operational expenses were higher. The private companies also had an edge in terms of the service being offered and employed younger and more efficient ground handling staff. In contrast, Air India was saddled with a huge workforce and inefficient work practices. The ground staff were unionised, belonged to an older age group, and drew a hefty salary as a result of wage agreements that were heavily in their favour. The members of Air India’s ground handling staff were also extremely rigid when it came to the number of hours that they worked for in a week and were unwilling to consider improving the productivity parameters. On paper, there was nothing to stop us from hiring fresh recruits exclusively for the ground handling business, but the government had imposed a recruitment freeze at Air India. The airline was not even filling up positions that had fallen vacant due to retirement. As a result, whenever there was a need to augment manpower at the airport, surplus staff from non-operational departments, like medical, finance and commercial, were redeployed and assigned airport duties. It did not matter whether they had the requisite aptitude. Naturally, this impacted the quality of service offered. Soon, Air India began losing out to the private ground handling companies and faced the threat of a lucrative business opportunity drying up. Air India tried to appease the foreign airlines by diverting staff from its own flights. This meant compromising on the service offered to its own passengers. And the airline ended up with disgruntled fliers on the one hand and irate foreign airlines on the other. It was a lose–lose situation all around, and Air India was struggling to find a way out. AIATSL presented itself as a solution. The idea was conceived during the Paul–Gogoi regime and

executed when Sunil Arora was at the helm. The big difference from the way things had been conducted in the past was that Mr Arora did not turn down the suggestion simply because it had come from his predecessor. He saw merit in the idea and took it forward. And he moved with great speed, which was a welcome change from the way things were run at Air India, where decisions took interminably long to move from the stage of ideation to that of proposal and finally to that of execution. Unfortunately, after Mr Arora was moved out of Air India, a AIATSL was not allowed to function in Mumbai by the Air India Employees’ Guild. The new hires were not allowed into the airport premises. And as a consequence, the airline lost several contracts, which caused immense damage in terms of revenues and reputation. Mr Arora also took a series of decisions that helped the airline cut costs and improve its efficiency. But what proved to be his biggest contribution was the change he brought about in the airline’s work ethic. He discouraged the sycophantic culture that had been the hallmark of the regimens of a few former chairmen and managing directors, encouraged participation in the decision-making process and motivated his team to work towards a speedy abolition of Air India’s problems. Aware of the airline’s rapidly dwindling resources, Mr Arora focused keenly on revenue generation. He tapped into new and unexplored avenues and exploited those that the airline had hitherto neglected to shore up its earnings. The following example illustrates the hawk eye he kept on the issue: In 2002, Air India introduced new flights to New Jersey. Even though route profitability, assessed to justify the flight introduction, had taken into consideration revenue from the carriage of cargo, the airline had earned nothing from it for nearly a year after the service was launched. None had looked into the problem. Sunil Arora sought an explanation. The question was: ‘Why was zero revenue being generated from a route that held out the promise of significant earnings?’This led to a chain of enquiries; the commercial director asked the regional director, who, in turn, asked the regional manager, but there was no answer. Finally, Gure Benegal, the cargo manager, pointed to the real reason. A team of security officers from Mumbai had visited New Jersey’s Newark Liberty International Airport and, after surveying the area, said that Air India required a separate cargohandling facility at the warehouse under the airline’s security rules. Instead of bringing this to the notice of the agent (Signature Flight Support Corporation), the cargo manager and the security manager decided to put the cargo carriage on hold. Even though the regional director, regional manager and cargo manager visited the New Jersey airport several times thereafter, and even though the system provided for a monthly analysis of performance, with an appalling lack of concern for the resultant loss of business, they ignored the problem. Mr Arora was livid; to resolve the issue, he set up a team, which met the handling agents and apprised them of the security requirements. The representatives of Signature were amused. They asked what had kept the airline silent for a year after the problem had been identified. It did not take them long to provide a separate enclosure for Air India’s cargo and in no time at all, the cargo business began generating revenue. The tragedy was that without Mr Arora’s intervention, the problem would have festered and the airline would have continued to lose out on potential revenue. In the five months that he spent with Air India, Mr Arora brought costs under control, appointed people to positions that had lain vacant for months, and set in place—for the first time in the airline’s history— parameters to assess employees’ performance. For instance, when the Commercial Department approached him for the appointment of a dedicated person in charge of the sale of first

class seats in Frankfurt, he obliged without any delay, but laid down stringent sale targets to ensure that the incumbent generated enough revenue to at least cover the compensation paid to him. In the end, the appointment did not take place because while the commercial director in Mumbai wanted to appoint a person of his choice, the manager at Frankfurt had shortlisted someone else! Mr Arora was also resistant to political pressure. This was evident from the way he handled the demand for the reinstatement of Captain Vikrant Sansare, the dismissed general secretary of the IPG. Captain Sansare had been dismissed for his role in the SARS agitation, but he had approached the Shiv Sena to help him get back his job. Sanjay Nirupam, then a Shiv Sena leader but now an MP from the Indian National Congress, called Mr Arora to plead Captain Sansare’s case. I happened to be with him at the time and, as the director of the HR department, volunteered to meet Mr Nirupam on behalf of the airline. Mr Arora agreed, and I met him for about an hour, taking him through the facts of the case in detail. Mr Nirupam asked me to come back and restate the position in Captain Sansare’s presence. When I landed up the next day at Mr Nirupam’s office, Captain Sansare was asked to give his side of the story. I pointed out several discrepancies and Mr Nirupam was convinced with my version. He asked me what it would take to give Captain Sansare his job back. I said that all he had to do was offer an unqualified apology to the airline. But he refused. To Mr Nirupam’s and the Shiv Sena’s credit, we never heard from them after that. Conscious of the fact that the aviation market was expanding and Air India had to expand its fleet to protect its market share, Mr Arora fast-tracked Air India’s fleet expansion. He asked the TechnoEconomic-cum-Negotiating Committee to go ahead with the selection of new aircraft. The board, with Mr Paul still as chairman, approved the proposal for the purchase of 28 aircraft—10 long-haul A340 aircraft and 18 short-haul B 737-800 aircraft. In retrospect, I am convinced that if the order had been maintained at this level instead of being increased manifold as was subsequently done, Air India would have steered clear of the financial mess it is in today. DASHED HOPES AND EXPECTATIONS I was appointed as the head of the HR department, effective 1 October 2003, by Mr Arora. Even though I had acquired a reputation for not yielding ground to the unions and had earlier been transferred at least once at the behest of the cabin crew union, Mr Arora did not let these issues come in the way of his trust in my abilities. I was thus able to view him from extremely close quarters and was impressed with the speed and clarity with which he took decisions. For instance, we were faced with an acute shortage of ground handling staff at Delhi’s Indira Gandhi International Airport and when Mr Arora was told about the problem, he summoned the Delhi airport general manager D. S. Kohli to Mumbai. We heard him out and at the end of the day, after quick back-of-the-envelope calculations on the costs and revenue implications of our decision, sent him back with a sanction for 400 new recruits for ground handling services. Soon after I took over the portfolio, I discussed the possibility of setting up a new wage-andemolument package for new crew members. This was approved even though the department was halfway through the induction process. The new package had clauses that benchmarked employee productivity against that of other airlines and set down a set of basic eligibility standards for cabin crew. In addition, employees’ performances were to be reviewed every five years. The terms of

appointment had been made as rigid as those of private airlines. I was convinced that this was the way forward and if only this had also been done for the new pilots being recruited at the time, the story of Air India would have been a different one altogether. Air India was also short of talent and was struggling to find the right people to head its senior and mid-level positions, a problem made even more acute by the burgeoning competition. Having spent more than three years at Indian Airlines, Mr Arora understood how this could hurt the company’s future. He approved setting up a corporate cadre scheme. This effectively created a special channel for recruitment and career progression, to be governed by a separate pay structure. The new scheme yielded results and quite a few MBAs from the Indian Institutes of Management and other premier management institutions did join Air India. But many candidates left within a few months of joining the airline, unable to deal with the stifling work environment and the frequently changing leadership. A few years after it was introduced, the corporate cadre scheme was abandoned. It was around this time that I broached the possibility of bringing expatriate pilots into Air India. We had been in the business of flying for over six decades and had traditionally recruited co-pilots who were put through an extremely effective in-house training facility and gradually trained to become commanders. The airline was well served by the system when it was expanding its fleet at an average pace of no more than one or two aircraft a year. But when it began to grow more rapidly and induct leased aircraft, the need for trained pilots became acute. We were facing a situation where the Commercial Department wanted to introduce new flights and routes but the Operations Department regretted its inability to service the flights for want of adequate pilots. Accepting the plea of the Operations Department that it could not service the flights due to a lack of adequate pilots would have been suicidal because the Ministry of Civil Aviation was, at that time, liberally granting bilateral rights to foreign carriers. The rulebook says that a co-pilot can be inducted and deployed on an aircraft six months after the training programme. However, a commander must have a minimum of 2,500 flying hours on that particular aircraft. Since we were inducting B777s for the first time and no Indian carrier had this aircraft, this was another reason for our need to look at expatriate commanders. We initiated the process while simultaneously launching a recruitment drive for co-pilots within the country. Fortunately, the union had no objection as long as their members’ emoluments were protected. It is important for me to clarify my position on the hiring of expatriate pilots because people have questioned this in subsequent years. Air India was not the only airline hiring expatriate pilots; other private Indian airlines were doing the same. Besides, there was no alternative. The airline was expanding its network to new destinations and inducting new aircraft such as the B777s and B737800s. As Air India was the only carrier in the country flying this type of aircraft, Indian pilots for B777s were not available. Air India would have paid a huge price if it had lost out on growth opportunities by not bringing in expatriate pilots at that stage. There was also a lot written at the time about expatriate pilots being paid almost two to three times as much as an Indian pilot. This statement is as absurd as it can get. Expatriate pilots were initially being paid USD8,000–USD9,000, which later went up to USD14,000 per month, which, at the dollar rate of the time, matched an Indian commander’s salary. With respect to other pilots, their pay was no more than 10–15 per cent higher. Besides, there was no logic in comparing the salaries of commanders of

B777 aircraft with a minimum of 25 years of experience with those of pilots of an A310 aircraft with five years of experience. Oranges have to be compared with oranges and apples with apples. The system was allegedly misused by people later. For example, we were told that it was being manipulated to favour a few pilot recruitment agencies. But to use that to denounce the recruitment of expatriate pilots per se would be erroneous and negligent of the fact that Air India could not have flown its new aircraft or operated new routes without them. For that one year, when all these decisions were taken and supported despite protests from various quarters, it seemed as if the airline’s interests were for once being given their due importance. Everything that was required to put Air India on the growth track was considered and acted upon—the order for fleet expansion was approved;AIATSL was set up to protect the ground handling business;foreign pilots were brought on board to ensure that network expansion plans were not hindered; unions were dealt with, with a firm hand; and an overall environment was created in which the management could exercise its authority without pressure and fear. The organisation was seen to be bigger than its people, but not for too long. Unfortunately, many of the decisions taken by Mr Gogoi and Mr Arora were either abandoned midway or changed in such a manner that Air India never reaped the benefits that could have accrued if these had been followed through to the end. Besides, Mr Arora was moved out too soon after being appointed to the task, and that pushed the airline back to its downward slide because the new incumbent ran the airline with a different set of priorities.

CHAPTER SIX

change of guard

AIR INDIA HAD begun to set its house in order in 2003 when J. N. Gogoi and Sunil Arora were at the helm. The two had demonstrated a willingness to take tough decisions and tackled the seemingly intractable problems of employee agitation and rising costs. They reined in the airline’s expenditure bill. The airline had a high bar for travel allowances, which was reduced, and the ex-gratia payment that Air India paid to a section of its employees every Diwali, irrespective of whether the airline was making a profit or not, was done away with. The unions too were dealt with in a firm manner. The Indian Pilots’ Guild (IPG) had been derecognised and there was a greater acceptance of the management’s point of view by the unions. Under Mr Arora, the Air India Airport Transport Services Limited was operationalised, which was a big step forward as it would allow the airline to hire younger people, pay at market rates, enforce productive norms and ensure that its 600 crore worth of annual business with the foreign airlines was protected. By the time Mr Arora left, in December 2003, the establishment of AIATSL had been approved by the board, and the Ministry of Civil Aviation was processing the final papers. However, once Mr Gogoi and Mr Arora were moved out, Air India crept back to its old ways and the hopes that the events of the year had generated burst like a bubble. On a personal front, even though the year had renewed hopes for the airline, I wasn’t sufficiently convinced. I had become increasingly disillusioned with the apathy that had seeped into the organisation and had applied for voluntary retirement in November 2003. I was pessimistic about its future for a number of reasons. The aviation sector had become more competitive but the management was not doing enough to help Air India meet the challenges of the emerging environment. Sunil Arora was the managing director at the time, but by the time my application was cleared by all the departments and had made its way to his table, his transfer had been announced and a successor named. In the rightness of things, Mr Arora said that the decision regarding my application should be taken by the new chairman, V. Thulasidas. Mr Thulasidas refused to consider my application. He rejected all the reasons that I had put forward for leaving the airline. I had said in my personal interactions that I was convinced that Air India faced a survival threat, given the way its future was being played around with by the ministry, the lack of

any desire on the part of the management to improve the quality of its service and the stranglehold that the unions had on every aspect of its operations. Mr Thulasidas, however, assured me that he would take the necessary steps to remedy the situation. He convinced me that he would make Air India a great airline. It was on the basis of his persuasive arguments that I agreed to withdraw my application. I soon began to regret my decision when I realised that I had placed my faith in false promises. Mr Thulasidas was made chairman and managing director by Rajiv Pratap Rudy, the then civil aviation minister. He took over at a time when the aviation sector was undergoing a series of changes and it was thus critical for Air India to be led by a professional who knew the business as well as understood the airline. But Mr Thulasidas was a rank outsider: the last post he had held before he joined the airline was that of the chief secretary of the state of Tripura. He was new to the aviation business and had never worked with Air India. Except for a brief period in the 1970s, when he had served as an undersecretary in the Ministry of Civil Aviation, he had not had any exposure to the sector. I am convinced that if only the ministry had paid heed to the airline’s need at the time, we would have had a different man in charge and the story of Air India would have been very different. Without casting any aspersions on Mr Thulasidas’s capability as a bureaucrat, I may say that it was quite clear within a few months that he did not quite fit the role. His experience lay in managing a state administration, about which he would often regale us with interesting tales of how he kept the peace in a troubled state or organised a robust bandobast for senior ministers and politicians visiting the state. Managing an airline called for a different set of skills, especially at a time as turbulent as the one he had walked into. He never really understood the significance of what his predecessors had achieved; nor did he fully grasp the challenges that the airline faced. He was also blasé about the revenue implications of his decisions and did not pursue the setting up of the AIATSL. I was director of the HR department during that period and found myself fighting a losing battle trying to convince him otherwise. He gave in to the Air India Employees’ Guild, which refused to allow the new recruits signed on with a six-month contract with AIATSL to enter into the airport premises. Not a day’s work was conducted at the subsidiary and at the end of their term, the employees left with their pay. Thus, what was meant to be a solution to help Air India save its ground handling business died a premature death. If the chairman and the minister had intervened at this point, we may have been able to stave off the crisis that followed. But they didn’t, and it is rather ironic that the government, in 2012, as part of the turnaround plan, directed the airline to hive off its ground handling services! AIATSL was meant to do just that. If only the subsidiary had been allowed to function, foreign airlines may not have pulled out business worth crores of rupees from Air India. The AIATSL is but one example of how things were being run. There was no acknowledgement of the problems that had begun to corrode the airline from the inside, nor did the management focus on market realities. It was as if Air India was being forced into a dark tunnel with all its lights off. AIRCRAFT ACQUISITION Air India had long felt the need to expand its fleet of aircraft. Under Sunil Arora, the purchase of 28 aircraft comprising ten long-haul and 18 short-haul planes was approved. He recognised the compulsions of the market and was convinced that despite the burden that the acquisition would place

on the airline’s finances, the expenditure was necessary. When Mr Thulasidas took over as chairman, he more than doubled the order to 68, with 50 long-haul and 18 short-haul aircraft. The price that Air India would have to pay for the expansion was an astronomical 40, 000 crore. Why was the order increased? And was Air India ready to bear such a huge burden? There were no answers forthcoming at the time, and even today, despite the scrutiny that the decision has been put through, it is hard to find a rationale for this change in the size of the order. An order of this magnitude would have been justified had Air India had the requisite financial muscle, which was not the case. It would also have been acceptable if the airline had been confident that it could generate sufficient revenue from the deployment of the new aircraft. Going by past experience, this, however, seemed unlikely. Air India had, during the period 1993–96, inducted six B747-400 planes at a cost of 3,500 crore, which resulted in huge losses in subsequent years. The order that was being proposed in 2005 was of a much larger magnitude, and there was nothing to indicate that the airline had learnt its lessons. Not only was the budgeted expenditure several times larger than the previous one, but Air India was also operating in a different environment. It had to deal with increasing competition from the private airlines, in addition to the foreign airlines which were rapidly inceasing capacity on India routes. None of the above considerations played a role in determining the size of the aircraft order. It was clear that little thought was being given to the airline’s ability to service the debt that was to be incurred for the new purchases. There was also no debate or discussion within the airline on how the purchases would impact the airline’s financial health. The management went into a cover-up mode. As a result, the aircraft acquisition deal became the proverbial elephant in the room. We knew the problem existed but didn’t bring it up at our meetings. Thus, there was no clarity on the extent of damage this would inflict on the airline, or how one could remedy the situation. Even so, I believed that if the management had worked towards shoring up its revenues from the new acquisitions, the financial repercussions could have been contained to an extent. To ensure that the new aircraft paid for themselves, Air India should have focused on improving its product and backed this up with aggressive marketing. This would have brought passengers back and allowed tickets to be priced at a premium. The new leadership team, however, did nothing in this direction. The chairman, who should have led the charge, was more interested in departmental matters. For instance, instead of working out ways in which the airline could provide better service, he involved himself in minutiae, such as choosing seats for the new aircraft, the in-flight entertainment system, and buying Pierre Cardin nightwear for passengers. He would visit Air India’s vendors, who were spread out all over the world, in his search for the best deal for seats or a better entertainment system. While this was undoubtedly necessary and an important part of an airline’s service offering, it was not a part of the chairman’s list of things to do. Even within Air India, there was no precedent to such behavior. Mr Thulasidas’s actions surprised everyone and they did come under scrutiny, although not directly, because no one dared complain against him while he held the top post. The Central Vigilance Commission (CVC) took note of the ad hoc manner in which procurement orders were being placed by the airline and ordered the removal of

V. Srikrishnan, the director of the Department of Materials Management, who had executed most of Mr Thulasidas’s orders. The CVC’s action cast a cloud of suspicion over all the contracts entered into during Mr Thulasidas’s tenure. A WEB OF FALSE HOPES The first few months of Mr Thulasidas’s tenure did show promise. He announced to all of us within the company and in the media that he wanted to change the work culture and make Air India a premier airline. A general circular issued to employees advised them to desist from bringing pressure from external agencies—politicians and bureaucrats—for transfers and promotions, and warned that in the event of their doing so, disciplinary action would be taken as per the organisation’s rules of conduct. Unfortunately his words were not matched by action. During his tenure, political interference increased manifold and employees began seeking political patronage quite openly. Unions were allowed to slip back to their belligerent and disruptive ways. And the focus on the customer was lost once again. Air India did undergo a transformation under Mr Thulasidas, but it wasn’t what he had said it would be. Far from getting into the club of the top five airlines, it hit almost rock bottom in the league tables. It also inculcated work practices that were a far cry from those considered to be the norm in professional organisations. And as investigations by the CAG and parliamentary committees have indicated, the airline was cornered into a financial snake pit on account of some of the decisions taken during this time. The finance department tried to put out the red flags about Air India’s dire state. They would bring it to his notice every time more loans had to be taken to meet working capital needs, but in vain. Officials from the finance department would express their concern and helplessness at informal interactions with the rest of the senior executives, but their hands were tied. With the airline’s fortunes in disarray and its reputation under pressure, I felt that it was necessary to challenge the decisions being taken. However, to avoid a direct confrontation with him so soon after he had transferred me out of the HR department at the behest of the unions, I adopted an ingenious method. At Air India, there was a practice of chairmen occasionally writing to the employees about the state of the airline. I decided to draft a letter for him, voicing all the issues that I wished to communicate to him. I hoped that by putting my fears into his words, I would be able to elicit a response from him and possibly influence his actions. In February 2005, I drafted a letter to be sent from the chairman to the employees in which I set down a list of challenges that Air India faced. The letter discussed how finances would be adversely impacted under the new environment and explored the need to control costs, improve productivity standards and generate more revenues. An underlying message of caution, lest Air India’s survival be threatened, was also incorporated. The letter was sent to Mr Thualsidas for approval and subsequently published in the house magazine, Magic Carpet (February–March 2005). It said, ‘If losses mount beyond our control, we would be compelled to curtail our services, as was done in 1997–98, when we withdrew from several international destinations. However, this time, other Indian carriers will be waiting in the wings to fill in the void…There is, therefore, an urgent need for

all of us to enhance our product quality to enhance revenue earnings and manpower productivity so that the cost disadvantage that we suffer is neutralised to the extent possible’ (see Appendix 6). I had thought that the letter would provoke a comment and some reaction from Mr Thulasidas. But although he approved the draft and signed its release for publication, he did not change his attitude or approach towards the airline’s problems. RUNNING ON WHIMS AND FANCIES As the airline’s performance careened to new lows year after year, none could stay immune to the impending catastrophe. Even Mr Thulasidas was perturbed. Instead of tackling the problems at hand with research and rationale, however, he decided to invoke the power of the ancient science of ‘vaastu’. An expert, Raj Shekhar Chawla from Hyderabad was appointed to guide the chairman on which angle to place his desk, where to conduct his meetings with colleagues and which doors to the conference room to keep shut or open. The changes suggested by the experts were duly carried out at substantial expense to the airline. Another example of how Mr Thulasidas prioritised his personal preferences was his insistence on being escorted to and back from work every day of his tenure. An Air India employee would pick him up from his house every morning and drop him back at his house every evening. And in the mornings, as Mr Thulasidas’s car approached the Air India building, the aide would call a peon at the office and ask him to hold the elevator door open. Mr Thulasidas wanted to walk out of his car straight into the lift and ride up to his office alone! This was something that even the legendary J. R. D. Tata had never done. Different people viewed his behaviour differently, but it definitely built a distance between him and the rest of the employees of the airline. It also made many of us believe that personal interests were beginning to take precedence over that of the organisation. While there is no reason to castigate a person for personal beliefs, it does become a problem when the line between personal and professional behaviour is blurred. The fact was that the airline was rapidly turning into the playground of politicians; the government’s approach towards the airline was muddled and political interference the norm. The management team was reduced to being a bystander in its own organisation. Also, it seemed to be business as usual, when we should have been worried about the way Air India was being led, especially as the deadline for the induction of new aircraft drew close. Two incidents stand out from that period as symbolic of the decay that had seeped into the airline. The first incident concerned Captain N. Beri. He was considered to be close to several politicians and the senior management. One day, after he got off a flight operated for the prime minister, a random check by the custom authorities at the Delhi airport found foreign electronic goods in his baggage. The media rushed to get the true story, and the airline came in for tremendous flak. I told the media, on being asked, that Air India would enquire into the case of purchases and take appropriate action. The next incident that sullied the airline’s image was the leveling of sexual harassment charges against our regional director in London. The British newspaper Evening Standard wrote about it

based on the details provided by a woman staffer of a company that had been contracted by Air India. The regional director happened to be transferred to Mumbai during this time, triggering speculation that the airline had acted on the accusations and forced him out of his London posting. When the media asked whether the move was a consequence of the newspaper article, as head of the corporate communications department, I told them that there was no connection as the transfer order predated the complaint by several weeks. I was moved out of the Corporate Communications Department soon after these incidents. I have come to believe that the chairman was unhappy with the way the media reported on the matter, because he felt that he had been targeted. Although he never revealed the true reasons for his disapproval, my decision to go ahead with the media briefings without his approval may have angered him. NEW ROLE, NEW CHALLENGES Mr Thulasidas not only moved me out of my post but also sent me away from the airline’s headquarters. I was posted at the Old Airport Complex of Air India at Kalina, Santa Cruz. In one swoop, I lost my portfolio and the office space that I had occupied since the time I had joined the airline. (I continued to maintain my token presence at the Nariman Point office to perform my other function as the appellate authority for appeals received under the Right to Information Act). I was disappointed with my transfer, but the deadline for aircraft induction was drawing close. I decided to put my personal grievances aside and focus on the challenges that the new aircraft would pose in terms of interdepartmental coordination as I had been named Director, Co-ordination. The post was looked upon as a sinecure assignment, but I was not willing to treat it as one. It was important more than ever at that time to ensure that interdepartmental channels of cooperation were functioning at their very best. I sent out several e-mails and letters to various departmental heads, asking them for reports on the extent of their readiness and to Mr Thulasidas setting out recommendations for changes in the work culture prior to the induction of aircraft and for other areas that I believed would be pivotal for success with the new aircraft. The letters were well received and the chairman even remarked that some suggestions were ‘good ideas’, but little was done by way of follow-up or for actual implementation. Some recommendations were accepted only to be scrapped later. My first missive in my new capacity, on 26 September 2006, was to the heads of the operational departments, viz. Operations, Engineering, Ground Services, In-flight Services; support departments like Materials Management and Finance; and, of course, the Commercial Department, which was responsible for enhancing revenues. My letter offered a roadmap for the induction of new aircraft. It set out the issues that had to be tackled and also asked the concerned departmental heads to formulate a time-bound plan that would list all the activities necessary for the smooth induction of aircraft (see Appendix 7). As we have seen earlier, the departments were not used to working together as a cohesive unit and the senior leadership had little control over them. Moreover, since the chairman did not personally induce them to act on my recommendations, they simply ignored the letter. That we eventually faltered

at every stage, on every count—whether it was the maintenance of aircraft, providing ground support services, enhancing revenues, having enough pilots or exercising cost control when the aircraft were inducted—shows just how important it was to have set out an agenda at that stage. In a subsequent letter to Mr Thulasidas titled ‘Our State of Preparedness’, which I wrote on 21 November 2006, eight months before the first aircraft actually arrived, I drew his attention to the flawed work practices that were driving customers away and hence needed attention. My letter insisted that these ‘historical factors in our systems and work culture which haven’t allowed Air India to become a favourite airline of most passengers, particularly those who travel by first and business class’ would come in the way of our becoming a premier airline. And, I wrote, ‘As we are only a few months away from inducting the first of the 50 state-of-the-art aircraft in our fleet, it may be worthwhile to conduct a self-evaluation exercise with regard to progress in relation to these “historical factors” and what needs to be done in the remaining months lest they eventually act as impediments in our efforts to make Air India a premium carrier.’ Mr Thulasidas’s response was: ‘I agree. What do you suggest by way of getting this initiated?’Having suffered at the hands of the unions twice in the past three years—first being removed from the HR department as director and subsequently being denied the board position of the HR director because I wasn’t acceptable to the unions—I was hesitant to put my suggestions down in writing. My views, however, were well known, as I had stated time and again that the airline had to exercise greater control over the unions and its work practices to deliver the best product and service to its fliers. As the issue was not being addressed by the HR department and the time for the induction of new aircraft was approaching, I drew the attention of the chairman once again to it in January 2007, when I wrote to him, ‘Most of the operational departments have in recent years been attributing cause of passenger complaints, arising out of deficiency in services, to shortage of manpower. Augmentation of fleet through induction of new aircraft, coupled with our desire to provide upgraded service, will only make the problem more acute. As new aircraft will begin joining the fleet effective March 2007, Chairman may like to seek a status report from the operational departments, viz. Operations, Engineering, Inflight Services, Ground Services, Commercial (airport) with regard to recruitment of manpower, training being imparted to new employees and steps being taken to make our existing work practices more productive and customer friendly. This is considered imperative as shortage of adequately trained manpower prior to induction of new aircraft will most certainly hamper efforts to transform Air India as a premium carrier.’ Later, in February 2007, I repeated my concerns to Mr Thulasidas in a letter, where I said, ‘Air India is investing nearly 35,000 crore for acquiring new aircraft. Induction of aircraft in phases will help Air India in significantly improving its product profile. However, if the improved product has to be sustained, deployment of new aircraft will have to be backed by efficient and customer friendly service by employees on ground and on-board the aircraft. There is, therefore, an urgent need for EDHRD and other qualified HR personnel in the company to take a hard look at the existing working environment to assess whether it is good enough to help us attain excellence;if not what all is required to be done. Corrective action, if needed, will have to be taken now lest the opportunity that is being provided to Air India for being transformed into a premier carrier by the induction of new fleet is frittered away.’ The letter led to a few meetings, but yielded little by way of concrete results. The HR

department did nothing, and Mr Thulasidas neither pushed them to change nor penalised them for their lack of action. As a result, when the new aircraft finally joined the fleet in July 2007, the airline was still not ready. Today, Air India is paying a huge price for the dereliction of duty by a select few. Another area of concern that had been ignored by the airline’s senior management for the maximum time was our failure to present a good cabin ambience. Passengers would complain about seats not reclining, seat arm entertainment monitors not functioning, and such other issues that affected their overall flying experience. The Engineering Department, which should have worked on these issues, did virtually nothing. Several heads of the Engineering Department had openly said in the past that their job was essentially to keep the aircraft airworthy, and that aircraft interiors were not their priority. The airline seemed content to let things carry on in the belief that the low fares offered by the airline would keep attracting passengers, despite the poor ambience and on-board amenities and the lack-lustre service on the aircraft. The induction of new aircraft provided a golden opportunity to tackle the problem. I wrote a letter to Mr Thulasidas saying that we should appoint a dedicated aircraft maintenance engineer as the aircraft manager for each aircraft. The manager would be responsible for ensuring the functionality of all passenger-related amenities on-board and for keeping the aircraft in good and presentable shape. I suggested that we should appoint our engineers, who had the requisite aptitude and motivation, for a minimum period of two years as managers and that an interdepartmental committee should be set up to oversee their operations. Aircraft managers were duly appointed for the first dozen or so aircraft. But as was the case with any initiative that was not directly sought or backed by politicians, this one was treated half-heartedly and abandoned at the first opportunity. I recently asked the executive director of the Engineering Department whether the practice of appointing a dedicated manager had paid off. He replied that the airline had done away with the aircraft manager’s functions as some of the B777 aircraft were now being stationed in Delhi. Since the managers worked in Mumbai, the system had become impractical. This is an example of how the airline has thwarted every decision that could have helped improve both its image and revenues and usher in accountability. It is also common knowledge that the staff dealing with passengers at airports and on-board the flights have been failing to deliver the standard of service which other airlines routinely deliver. As airport staff and cabin crew are at the cutting edge of the business, we decided to hand-pick a few employees and train and deploy them for the new non-stop flights to enable passengers to experience an upgraded service that was distinct from what they had, in recent years, got accustomed to. With the support of the concerned departments, we succeeded in shortlisting a young, vibrant and experienced team of 32 employees at the Mumbai airport, who were then given a special round of training. Likewise, 25 of the best commercial assistants—baggage handlers and wheel chair attendants—were selected. For on-board services, young cabin crew with the right aptitude were shortlisted and made to undergo a refresher course in service etiquette. The result was heartening, and in the months following the launch of the non-stop service on 1 August 2007, several accolades came Air India’s way. Passengers, including senior executives and industrialists like Ratan Tata, Anand Mahindra, S. Ramadorai (of Tata Consultancy Services Ltd) and Anil Ambani, to name a few, were unanimous in appreciating the high quality of the product that matched the best in the industry. But, as had happened many a time in the past, we failed to retain the momentum. The airport experience was not consistent in quality and the cabin crew on non-stop flights lost their exclusivity as the management buckled

under pressure from the concerned union and allowed all crew members to operate these flights. If the revenues are lower and the load in first class is a dismal 12 per cent, for the year 2009–10 as per the CAG report in 2011 and continues to be so even six years after the induction of new aircraft in spite of committed government business (ministers, members of parliament and bureaucrats travelling at government expense have to necessarily fly Air India), and if Air India’s market share and yield, which is measured in terms of rupees earned per kilometre flown per passenger, has seen a perceptible decline in these years, the blame must be apportioned equally between the employees and the unions. If senior management personnel have been guilty, the middle and lower sections of employees are at fault too for not delivering their best at all customer interface points. Even though employees of Air India have sought to blame the political leadership for their woes, it would do well for everyone to introspect and consider whether some of the blame lies at their own door. There was never any direct order from the political or bureaucratic leadership to deliver substandard service to passengers. The marketing team was never under pressure to go slow on its efforts to woo customers. The aircraft engineers and technicians were never directed to not maintain aircraft ambience meticulously. The failure on these counts has been entirely due to the employees. Deeply distressed at the pathetic fate of Air India when we were denied our salaries on time in 2009, I wrote to Mr Thulasidas while still employed with the airline, asking why he had gone back on his assurances. Why—I asked—did he hold me back when I had decided to take voluntary retirement? I questioned him on his silence regarding his self-declared intention of taking Air India into the league of the top airlines. I asked him if he would like to share the reasons for this change and specify as to when he gave up on the objective of making Air India one of the top five airlines in Asia. And I sought an explanation for reneging on the commitment made to the Ministry of Civil Aviation that the wage agreements would not impose additional financial liability on the organisation (see Appendix 8). But there was no reply and I was left to draw my own conclusions about his behaviour. The hope that had been generated by a handful of people in 2003, soon evaporated. Air India had frittered away the opportunity to create a disciplined and efficient workforce and a product that its fliers would have been proud to patronise. The changes that had been initiated to steer the airline away from disaster were either overturned or buried under a pile of obscure bureaucratese. It was disappointing because unlike what we read about in the books or see in the movies, the system had been allowed to get the better of the change makers.

CHAPTER SEVEN

a tale of lost opportunities

ON THE EVENING of 30 September 2003, I was presented with a fait accompli. Sunil Arora, then holding concurrent charge as the managing director of Air India and the Indian Airlines, called me up from New Delhi to say that I had been appointed as the head of the HR department, effective the following day. It came as a surprise because I had not been a part of the HR department in the past and also because as the head of the In-flight Services Department, I had often been in the line of fire of the airline’s wayward trade unions for my attempts to bring about greater efficiency and cost efficacy in the airline’s operations. Besides, in the past, I had often appeared in the media denouncing the strikes and agitations, which I said were crippling Air India. I had been taking up cudgels on behalf of the management, but the perception was that I was anti-union. Given that heading the HR department would bring me back to direct interaction with the union representatives, the decision was a bold one, and it caught me unawares. But Mr Arora was known for his unconventional methods, and while another man in his position may have preferred to keep me out to avoid controversy and friction, he was more concerned with performance and commitment. I had led the In-flight Services Department with over 2,500 employees and managed to hold my own against the strong-arm tactics of the union representatives, which may have prompted Mr Arora’s decision. I thanked him for reposing faith in me and, frankly, was glad for the chance this would give me to tackle some of the problems that Air India faced on account of a weak and ineffective HR department. NO TIME TO LOSE The year 2003 was a critical one for reasons that bear emphasising. Air India was under attack from several fronts and unless the management took stock of the problems and realigned itself to the changing environment—both political and commercial—the airline’s survival was at stake. Here are a few challenges that Air India faced during this time: • Competition was on the rise, with the government liberally allowing foreign carriers to expand operations in India. Air India was, as a consequence, losing market share, and its load factor (i.e., the number of seats filled on a flight) was dipping. According to the airline’s annual reports, load factor had dropped from 73.1 per cent in 2000–01 to 71.6 per cent in 2002–03 and to 70.5 per cent in 2003–04.

• The policy on bilateral agreements was changing. Previously, bilateral agreements between India and other countries had meant that Air India, as the solitary global airline from India, had reaped the bonanza that accrued by way of cash or free or discounted seats on foreign airlines that were offered by the airlines. This income had amounted to about 400 crore annually but was under threat as the government had decided to alter the policy on bilateral agreements. The airline’s operational profit in recent years had been less than the income from such arrangements, and its absence was sure to plunge the airline into losses. The management thus could not afford to ignore the impending blow to its finances once income from this source was discontinued. • The management was actively considering the purchase of 28 aircraft and the compelling need was to improve revenues and save on unwarranted expenditure to meet the expected increase in interest burden. It was not only imperative to set the systemic weaknesses right but also time to focus on productivity, network expansion and work ethic. It was against this backdrop that I was taking over as the head of the HR department. I was aware of the challenges and also familiar with the inherent shortcomings of the department. Unlike many of my predecessors, I was not blind to the need for change and knew that most HR heads had spent their time carrying out routine duties rather than setting systemic shortcomings right. Many had also bartered away the airline’s future by giving in to the unions’ demands in return for personal gain. All of this had affected the quality of the airline’s performance, and now thanks to Mr Arora, I believed that I had a chance to bring about the changes that were long overdue. I was keen to align the airline’s work practices with the industry norms and brought about a few changes to achieve that end. Soon after taking over, I drew up a new compensation package for new cabin crew recruits and reworked the ratio of air hostesses to pursers in the crew. Earlier, the airline had had a female-to-male ratio of 50:50 for its crew members, while other airlines followed a ratio of 70:30, which we switched over to. Anticipating the need for more pilots, given the aircraft acquisition plan, I obtained management sanction for more frequent induction of trainee pilots—every three months—and initiated steps to hire expatriate pilots for the first time in Air India’s history. A corporate cadre scheme for graduates from the IIMs was put in place and the subsidiary company Air India Airport Transport Services Ltd (AIATSL) was operationalised. These measures were meant to boost the airline’s performance through enhanced revenues and cost rationalisation. I was keen to move fast on these changes because they were long overdue, could be implemented without delay and would also bring about a quick improvement in the airline’s performance. It helped that with Mr Arora at the helm, decision making was swift. There was a need to focus on measures that would bring about the maximum impact in the minimum time. Besides, since I had made up my mind to avail of the voluntary retirement option being offered by the airline, I believed that my time with the airline was limited; speed was the need of the hour. However, as mentioned earlier, Mr Thulasidas persuaded me to withdraw my voluntary retirement application and soon thereafter my focus shifted to introducing long-term corrective measures for the airline’s HR function.

THE SEASON FOR AGREEMENTS The airline was set to sign a wage agreement with its employees in 2004–05. The agreement was overdue as the previous one had expired on 31 December 1996, and it had assumed great significance as the aviation sector was in the throes of an overhaul. Air India was no longer operating in a nearmonopolistic market, and revenues were under pressure from international airlines that were fast expanding their services to and from India both in terms of the frequency of flights and the number of cities covered. Additionally, a lucrative source of income in the form of revenue from ground handling services was about to dip significantly as the government was set to end Air India’s monopoly over these services. If Air India had been able to make only modest profits earlier under a more favourable business environment, it did not need an expert to predict that the airline was headed towards a catastrophe unless it brought about a dramatic change in operational costs and efficiencies. The upcoming agreements presented an opportunity to bring the airline in line with the new requirements in terms of service, cost, revenue enhancement schemes and employee productivity. It could have been used to build a pay structure that helped reflect Air India’s ability to bear increased expenditure—one that allowed for greater flexibility in terms of the hours of work, etc. All in all, the wage agreement that was due to be signed in 2004–05 could have become a platform for the airline to rebrand itself as a customer-friendly organisation. It offered Air India a chance to set its house in order—its last chance, perhaps, to do so given that an agreement was signed only once every ten years. Air India’s experience with agreements was not a pleasant one. The process had been hijacked by the union leaders who used it as an opportunity to flex their muscles. They would bargain for the enhancement of existing perks, introduction of new allowances, concessions in work assignments, higher pay scales and other such benefits without making any commensurate commitment regarding work ethics and productivity. There was no consideration of the airline’s ability to pay. The management was weak, and none was keen to take on the might of the unions. All agreements, however, did have a few clauses where unions conceded a few of the management’s demands so as to give the document a semblance of respectability. Signing an agreement was not only a tortuous affair but also did not guarantee that the productivitylinked clauses in the agreement would be honoured. If the management tried to implement these conditions, it would be met with a barrage of protests from the union leaders, who paid no attention to the fact that these were part of the agreement. For instance, even though the terms of the agreement with the ground unions that had been signed in the early 1990s and again in 2005 clearly stated that all attendance-related allowances would be paid on the basis of computerised attendance systems, the unions blocked its implementation. An automated attendance system would have helped the airline crack down on those who were manipulating the system to claim undue benefits, but the unions refused to let that happen even after agreeing to make the switch during the wage negotiations. The same was true with regard to weight checks and security checks for the cabin crew, and there are endless such examples that one can cite. The point is that the airline had suffered in the past on account of agreements being one-sided and poorly implemented. It had led to a situation where employees were being paid more for less work, while productivity and efficiency at the workplace was sacrificed.

In all of this, the HR department had played a rather diffident role. It had allowed departmental loyalties to dominate the process and caved in to vested interests. The departments, in turn, were not able to withstand the pressure of the unionised workforce and failed to hold up the management’s point of view in the negotiations. Thus, we had a situation where the engineers’ union had the tacit approval of the engineering department and the pilots’ union had the support of the operations department and so on. The unions would enforce their end of the bargain through a battery of strongarm tactics, but there was no one to ensure that the management’s terms were met. This had taken a toll on the airline and one of the consequences of the skewed wage negotiation process was that the salary bill had ballooned by 30 per cent over a ten-year period without a corresponding increase in productivity or any improvement in work practices. It had been clear to me way back in 1997, after being in the company for about eight years and getting increasingly frustrated at the way wage agreements were being signed and executed, that there was an urgent need for reform. I had written to the then managing director M.P. Mascarenhas a letter titled ‘Implementation of wage agreements’. Apart from the flaws in the process, I was particularly agitated about the productivity-linked incentive (PLI) that had been introduced by his predecessor Brijesh Kumar, which had cast a huge financial liability on the airline without any corresponding benefits coming its way. Air India had ended the previous fiscal year with its highest ever loss of 297 crore in its history and that too after accounting for 94 crore of forex reserves. I said in my letter to Mr Mascarenhas dated 13 October 1997 that given its poor record in implementing wage agreements, the management should consider putting together a team that would be in charge of enforcing the clauses beneficial to the management in all the previous agreements. I also said that productivity-linked agreements had imposed quite a burden on the airline in the past two years. These agreements were supposed to have been self-financed with the payouts to employees being balanced out by gains through increased productivity, cost savings, etc. However while the unions had ensured the immediate implementation of clauses that were beneficial to them, the management had been unable to push through the requisite changes, either because the departments lacked the will to enforce the agreement or because unions were reluctant to honour their end of the contract. I suggested that we set up a committee of directors for overseeing the implementation of all agreements as it would not only ensure that departmental heads who were unable to withstand the unions’ pressure tactics were protected but would also make them accountable. I pointed out, for good measure, that many of the departmental heads had, in the past, preferred taking a soft line on account of their own departmental loyalties or personal agendas. Unfortunately, Air India’s management took no action. If today the airline is reeling under heavy losses and is unable to offer a competitive product, it is due to the cavalier attitude of successive managements and their inability to enforce agreements once signed. As the time for discussions for the next wage agreement drew close I wrote to the general manager in charge of industrial relations (V. A. Ferreira) as well as the chairman and managing director. In my letter dated 16 July 2004, I urged Mr Ferreira to ensure that the restrictive practices in the agreements were eliminated to improve productivity; unwarranted payments were withdrawn and earnings were made commensurate with the skills and matched the payments for similar jobs in companies of corresponding size in India and, if compared with international airlines for some categories of employees, were related to the Purchasing Index; differences in earnings of various categories of employees were made more realistic; and so on. In addition, I wrote that the management should be allowed to regain its absolute

right to introduce new practices as followed by other international airlines, be free to outsource noncore jobs, and so on. I was keen that we initiate the strategy-planning exercise and therefore emphasised on the same. Mr Thulasidas, who was the chairman at the time, endorsed the criticality of the agreement in a letter to me where he said that despite the misgivings of the Ministry of Civil Aviation, he had prevailed upon them to understand the need to get the agreement ready and signed. The ministry had been reluctant to accord its approval for the initiation of talks on a fresh agreement because Air India did not have the financial capability to bear the additional burden. When the airline’s leadership had approached the ministry for permission to initiate the negotiation process, the ministry had cited the rulebook, which stated that a public sector unit should have been in the black for three years in a row before it could enter into a new agreement—this was clearly not the case with Air India. Mr Thulasidas wrote: ‘Such productivity improvements have to be negotiated and agreed with the employees unions for which discussions on their Charter of Demands is essential.’ Further, he added: ‘This package is to be worked out and presented to the ministry by 29 July 2004, when both the minister and secretary will be in Mumbai to attend the JRD Tata Centenary celebrations. It will be useful to associate a HR consultant while drawing up this productivity package on a realistic basis taking into account the productivity norms prevailing in the company and those prevailing in the industry as a whole, both in India and abroad. I had issued an order constituting a group of officers to examine the need for such a consultant after a presentation was given by M/s Nihilent Technologies. This process may have to be expedited.’ Mr Thulasidas did, at least on paper, express his understanding of the situation. The Ministry of Civil Aviation was also on board because they had clearly opined that Air India had been making operating losses. LOST IN CONFRONTATION The situation was grim, and the way I read it, my options were limited. Air India had to get back on its feet and there were only two ways to do that—one way was to enhance its revenues through improved productivity and cost efficiency and the second was to curb expenditures. I decided to act without delay. One of the changes that we implemented was with respect to the deployment of cabin crew. At Air India, an understanding had been reached with the cabin crew union that if a flight took off without the minimum crew complement, the members on-board would be paid an extra compensation. As a result, the company was paying out an additional amount of close to USD700–1,000 per crew member on an India–US–India flight because flights were operating with 4–5 crew short of the requisite number. I decided to fly the full crew complement by augmenting the strength with new crew members who were trained in in-flight service but awaiting training for flight safety procedures. The condition was that flight safety would be the responsibility of those with the requisite training and that their number on a flight would exceed the number of doors in the aircraft. I sought the approval of the Director General of Civil Aviation (DGCA) for this, and upon obtaining the go-ahead, implemented it. This angered many of the old timers in the Air India Cabin Crew Association (AICCA) because they lost

out on the additional compensation. The AICCA was further riled by the company’s decision to reject its demand for an additional payment of USD362 per crew member for operating the Frankfurt–Los Angeles– Frankfurt sector because it exceeded 10 hours of flight time. We decided to operate the flights with the executive crew from the management cadre who were not members of the union, which the AICCA believed was unfair even though it saved the organisation a substantial sum of money and helped add a new destination to the network. It was critical for us to induct people into the two subsidiaries, Air India Transport Services Ltd (AIATSL) and Air India Charters Ltd (AICL), as it could help us retain business worth crores of rupees in the form of ground handling contracts that Air India had signed with foreign airlines. Besides, bringing in people specifically for these functions could free up existing staff for the airline’s regular flight-handling duties. It was meant to improve services and reduce the excessive and avoidable payment of overtime to existing staff members. The unions, however, saw it as an attempt to deny them their dues. They were perhaps intimidated by my refusal to bow to their militant tactics and worried about the role that I would play in the forthcoming wage agreement negotiations, given that some of the general managers of the department had shared my letters requesting a strategy meeting for the same with them. They wrote to Mr Thulasidas in February 2004 and Praful Patel in July 2004, seeking my removal from the HR department. Their letter stated, ‘In the recent past, there has been a total breakdown of industrial relations in Air India due to anti-labour, anti-union attitude and conduct of director-HRD, Mr Jitendra Bhargava. There appears to be a systematic and a sustained campaign to decimate all the unions. The DHRD has also publicly declared his intentions to finish all the Unions/Associations/Guilds of Air India. Sadly, this situation has only worsened by the inaction of the chairman and managing director who has preferred to let the DHRD resort to back seat driving of our company. This despite our drawing his attention to the disastrous consequences of DHRD’s actions from time to time.’They threatened to stop work if I was not removed from my post. The letter was signed by all the six unions, including the then derecognised Indian Pilots’ Guild. I sent a strong riposte with my comments on various issues that the unions had raised. In my letter to Mr Thulasidas, dated 9 July 2004 I refuted each of their allegations. I wrote that: ‘The letter begins by describing my conduct as anti-labour and anti-union. No instances of anti-labour and anti-union policies, alleged to have been followed by me, have been spelt out. They are perhaps referring to the following actions of mine. 1. My decision to roster new cabin crew on our flights, after providing them inflight service training, but awaiting flight safety training, after obtaining due approval of the DGCA for doing this. This decision has naturally affected the earnings of the members of the AICCA. It is worth noting that because Air India was operating short of the agreed cabin crew complement, the company has been paying compensation of the order of approximately USD 700–1000 to each cabin crew per flight for operating on the India/USA/India sector, in addition to their normal earnings of USD 700 per crew for each flight on this sector. My decision to roster inflight-service trained, but flight safety untrained crew, after ensuring that all doors are manned by safety trained crew and obtaining approval of the DGCA, has naturally enabled Air India to roster the crew close to the agreed crew complement, thereby saving the company huge sums. If helping save crores of rupees for the company is anti-labour and anti-union, I stand by my decision. Further, if this decision had been taken by the head of inflight Service Department in company’s interest, as per existing management

practices, instead of me, I would not have become the devil in the eyes of AICCA though I maintain it is essentially an HR function. 2. The corporate decision of not conceding to AICCA’s demand for payment of USD362 per crew for operating the Frankfurt-Los Angeles-Frankfurt sector because it exceeded ten hours of flight time has also not endeared them to me, particularly because we have been able to successfully operate these flights by rostering executive crew for these flights following their refusal to operate on this sector. Though they believe that I was the stumbling block for not allowing the payment, you are aware that it was a considered decision of the management as a whole. (Interestingly the AICCA’s demand was met soon after my transfer.) 3. I have acted as a catalyst for ensuring that we induct manpower in our subsidiaries viz Air India Charters Limited (AICL)/Air India Air Transport Services Limited (AIATSL) at various airports, so that customer service, which has suffered immensely due to lack of adequate manpower, can be improved. Induction of additional manpower will affect some employees owing allegiance to the Air India Employees Guild (AIEG), who are earning huge amount of overtime, on many occasions even without working. The total overtime bill at Mumbai Airport alone is close to Rs 25 crore per annum. If my decision, intended to help improve customer service and reduce overtime payments, is viewed as anti-labour and anti-union by any union, I reiterate that I have done no wrong.’ (See Appendix 9) Around the same time, another letter was sent out to the chairman by four general managers of the HR department. They, too, sought my removal on the grounds that I was not from within the HR department and hence should not be allowed to head it. The timing of the letters was suspect, but even more intriguing was the fact that neither the chairman nor the minister asked me for an explanation. Unfortunately, on the afternoon of 5 August 2004, Mr Thulasidas called me up to say that I had been relieved of the HR portfolio. It upset me, but when I look back on the sequence of events, I am shocked that even when it was clear to everyone concerned that the changes were justified and unavoidable, none stood up for the airline. The logical course of action on the joint petition of HR general managers would have been to nip such suggestions in the bud by pointing out that the appointment of a director was not dependent on the wishes of a few people. Alternatively he should have made sure that if I were being removed for not being a part of the department, the same rule should have applied to those protesting my appointment. Instead, all the four general managers who had signed the letter against me were appointed as executive directors—three of them in functional areas outside HR making me suspect his motives. I protested against my removal in a letter dated 7 August 2004 to Mr Thulasidas where in addition to the points that I had raised in my previous letter, I wrote: ‘The Company has saved several crores since these decisions were put into effect. I can understand the anger of the Unions against me … but what I fail to understand is as to why is the management not supporting me against their crusade when the company is reaping the benefits arising out of my decisions.’I also pointed out that if the leadership did believe that the decisions that I had taken were harmful to the company, these should have been rescinded, but this was not the case I concluded by listing what had been achieved by me as Director, HRD, and then added that I had done my best by being innovative, working long hours and by working in company’s interest. It was sad that the work

was not appreciated and those conspiring had been allowed to succeed. This was a small price for me individually, but I felt that it would turn out to be a bigger tragedy if the HRD officials, given their past record, failed to get good agreements with unions during the wage negotiations on which hinged the future of Air India. I was quite sure that they would not be able to do that since they had compromised their positions with the unions only to get me out. (Appendix 10) INTERNAL ALLIANCES AND INTRIGUES The decision to move me out of the HR department was shortsighted when one considers the manner in which the interests of a few employees were protected at significant cost to the company. I felt let down, especially because I had been asked to withdraw my application for voluntary retirement by Mr Thulasidas on the promise that the airline would be steered in a more professional manner. Finally, when the agreements that were being negotiated since 2004 were signed, the unions held sway and the airline failed to even keep its word to the ministry. Before embarking on the exercise, a team from Air India had made a presentation to the ministry, assuring the ministry that the liability arising out of the new pay-and-emoluments package in the agreement would be limited to 101 crore per annum, which would be recovered through improved productivity and cost rationalisation measures. However, the airline incurred an additional cost of 400 crore per annum as was to be expected from the way in which the management had compromised the airline’s position. The unions and a handful of HR department officials scuppered the plans to bring Air India on par with market realities. All wage agreements were approved by Mr Thulasidas, and interestingly enough, no consultant was appointed to guide the negotiations, thus violating the understanding on which the ministry had accorded its approval for a new wage agreement. The 2004–05 agreement has imposed a huge burden on the airline, one from which it has still not been able to pull itself out. So reckless was the management team assigned the role of negotiating the agreements that they conceded demands far beyond the airline’s ability to bear. Spare a moment to reflect on what Air India would have possibly been if the 2004 wage negotiations had been allowed to be conducted in a more equitable manner without union leaders bludgeoning all dissent and a few members of the HR department behaving in the obstructive fashion that they did. The airline would have had a more efficient work force and its expenditure bill would have been under control. It would have been better equipped to face up to competition from around the world. Ironically, what V. Thulasidas prevented me from doing in 2004 is exactly what is being prescribed in the 2012 turnaround plan that has been linked to the 30,000-crore infusion that the government has approved. The plan asks the airline to improve work practices, reduce costs and hive off ground handling and engineering services. This is what we had planned nine years ago! Interestingly, if I fast forward to the present situation when the management finally transferred employees working in Engineering and Ground Handling to new subsidiaries, effective 1 February 2013, the unions called it not only arbitrary and illegal but also a violation of service conditions as specified in the agreements signed between them and the management unions in the past. The unions

approached the Bombay High Court, which justifiably dismissed the clutch of petitions. The current management put up a spirited defence, stating inter alia in its affidavit that the decision was part of the turnaround plan and taken in public interest to ‘ensure that it capitalises on the growth of the aviation sector in and around India’. Air India also informed the court that ‘it was incurring operating losses of 15–16 crore per day and that cumulative losses as on September 2012 were of about 30,000 crore. The government has infused funds to the extent of 7,200 crore between 2009 and 2012. The very survival of Air India is a matter of serious concern for all stakeholders. While this scenario is exceedingly bleak and the task ahead seems much more dauntingly painted than it was in 2004, the signs of decay were more than apparent at the time. If the airline’s then management had acted as the present one has done, Air India would have perhaps been spared this fate. In recent times, we have had many commentators questioning the role of politicians and bureaucrats in the decline of the airline’s fortunes. We have also seen the devastating impact that a massive acquisition programme has had on its financial viability. But the truth is that the nail in Air India’s coffin had been hammered in long before the political interference and profligate spending punctured the airline’s chances of survival. Unions and a section of the managerial cadre at the airline had begun to tear at its fabric much before anyone else.

CHAPTER EIGHT

the politics of flying

IN INDIA, GOVERNMENTAL ownership of business has traditionally evoked fears of babudom. It is the common perception that when the government walks into a business, commercial interests walk out of the door; politicians, bureaucrats and administrators create a web of red tape and vested interests that makes it impossible for a business to flourish. When Air India was being nationalised way back in 1953, J. R. D. Tata was openly apprehensive about its future. However, Prime Minister Jawaharlal Nehru convinced Mr Tata that this would not be allowed to happen and asked him to continue as chairman. Air India was fortunate to have had not just Mr Tata as a leader during the early years of nationalisation but also a team of officials as committed and dedicated to the airline as he was. Old timers at Air India were full of praise for the behavioural integrity of the bureaucrats of that era. The one big difference they point out is with respect to the appointment of chief executives and the promotion process, which was not subjected to the kind of political pressures that became the norm in later years. By and large, the right people were chosen and placed in positions of responsibility in accordance with their capabilities. Also, the bureaucrats who belonged to the Indian Civil Service and led Air India in its formative years had a stature far more forbidding than their present-day compatriots. Few politicians or bureaucrats based in New Delhi dared question their decisions or doubted their integrity. All of this created a work culture that promoted initiative and commitment. Employee morale was high and even when the airline moved from propeller aircraft to 707s and then to the 747s, which occurred in the 1960s and the 1970s respectively, Air India was being managed with the professionalism of a private airline. It was fairly independent of political influence, and this protected the airline from the vagaries of governmental ownership. I was told by Inder Sethi, who was the deputy managing director of the airline during 1979–80, about an incident that clearly illustrates the difference in attitudes within the airline. A cabinet minister called him up to ask that his son, who was employed with Air India, be promoted although he was 60 on the seniority list. Mr Sethi refused to accede to the demand, saying that promotions would occur in due course and when he felt it would cause the minister the least embarrassment! However, after he left the airline in November 1980, the new chairman, who had assumed office in April that year, promoted 65 staff in that grade just to accommodate the minister’s son. Likewise, in another instance that Mr Sethi pointed out from the same period, when the airline transferred several employees from th

one station to another, one of them protested at being moved out of his posting in Kuwait to Nairobi. But when the airline did not give in even though his brother, a member of parliament (MP) at that time, intervened on his behalf, he accepted the transfer. However, when the new chairman, Raghu Raj, took over, the transfer was overturned. I was discussing this turn in the airline’s approach with the executive assistant to the chairman, who used to wield immense clout in the organisation and would have known the rationale behind the airline’s decision. He explained that it was thought to be better to promote 65 officers in that grade when they realised that the minister was not going to take ‘no’ for an answer. This was one way to ensure that those who were senior to the minister’s son were not superseded. While there is merit in his logic, it reveals the manner in which pliant chairmen and disreputable politicians had begun destroying the airline’s character. To quote Mr Sethi, who saw the shift in the airline’s priorities, ‘I remember when, in mid-1979, on a flight from Delhi to Bombay, after interacting with the ministry officials, K. G. Appusamy, the then managing director, told me: “The culture is changing and you may not be happy with the changes that I foresee. I suggest you look for another job”.’Mr Appusamy left soon thereafter and the man who replaced him was Raghu Raj believed to have been appointed under the instructions of the Prime Minister’s Office (PMO). Mr Sethi, who quit after the new chairman took over, adds, ‘Every year, I feel that Air India has reached its lowest level, but I wake up some mornings to find that a new level has been found.’ Political interference began in the early 1970s but grew rapidly after J. R. D. Tata’s exit in 1978, and in the period since then, the problem has assumed Frankenstein-like proportions. It was not as if politicians of that era did not call in favours; the difference is that the benefits they sought did not affect the day to day functioning as is the case today. For instance, they would ask for acquaintances to be appointed as general sales agents, seek complimentary air tickets for family and friends and such other considerations. Critical business decisions were left to the chairman and his team. The ministers also rarely ever called the chairmen or managing directors directly but instead routed their requests through the secretary in the civil aviation ministry. Over the years, the politicians have become more demanding. They interact directly with the chairmen, in whose appointment they are likely to have played a role. During 1993–94, when Ghulam Nabi Azad was the minister of civil aviation, Russi Mody, as the chairman of Air India, summed up the environment well when he publicly stated, ‘I want to be azad, and he wants me to be his ghulam’ (I want to be free, and he wants me to be his slave). Air India, in fact, has witnessed three phases. The first phase saw men of substance at the helm. As part of the airline’s senior management, they could thwart unwarranted interference and reject suggestions from politicians. This was the time when the airline was at its peak in terms of performance. The next phase was one of increased political involvement, but those in charge of the airline were able to argue their case and put their points of view across. It was another story that they had to eventually give in, in some cases, but they did not treat the minister’s word as a command. The third phase, which continues to the present day, is one of total subservience. Not only do the incumbents selected with ministerial patronage allow the ministers to steer the airline according to their wishes, they also willingly seek their opinion and guidance even when they don’t interfere. The

capitulation has been absolute and abject. Political interference reached its zenith during the period 2004–08. It, in fact, reached such a stage that board meetings, at times, were convened at a day’s notice, without the circulation of agenda papers. Sunil Arora, as an Air India board member and someone who was an exception to the general rule, said in a letter to the Cabinet Secretary in 2005 that the members would often receive a note asking them to take a particular decision on premeditated lines as that was what the ministry desired. LEADERS AND MEN What led to the sharp spike in political interference in Air India? The root cause, perhaps, is the manner in which the airline’s chairmen were appointed. While it had always been a governmental appointment, the search and selection process had been transparent earlier. The Public Enterprises Selection Board and the Appointments Committee of the Cabinet played a significant role in selecting and endorsing an incumbent. Now, whether it is because of the compulsions of ‘coalition dharma’ or the decay in our political establishment, the appointment of the chairman bears the unambiguous stamp of a minister’s authority. It has become a political appointment, and many a time, the person is chosen not for his professional calibre but for how pliant he is to the reigning minister. The politicisation of the chairman’s post implied greater uncertainty at the top. Ministers began to shift people around if they did not toe the desired line. They also appointed friends on the board and changed members if they refused to take a particular stand or comply with the desires of the political establishment. For instance, it was widely believed that V. Subramanian, who was on the Air India Board by virtue of being the additional secretary in the Ministry of Civil Aviation, had to go because he raised uncomfortable questions about aircraft purchase during a board meeting. Similarly, chairman-cum-managing director Raghu Menon was moved out while he was on vacation because he did not share the minister’s perspective on a ground handling joint venture, and Arvind Jadhav, who had been rejected by the Appointments Committee of the Cabinet in 2008, was appointed in his place. The ministers had become all-powerful, dismissing people at will and appointing them at their discretion. Since the incumbent chairman owes his job to political dispensation, he is quite naturally beholden to his benefactor—who could be a political leader, a minister or an industrialist with the power to influence the government. This makes him vulnerable, and as we have seen, he would not only allow greater interference but would go out of his way to seek ‘guidance’ on all issues. A far more damaging scenario was played out when a bureaucrat was chosen as chairman. In most cases, he was not invested in the airline because he knew that his tenure was likely to be brief and could be cut short further if the political dispensation so desired. ALL ROADS LEAD TO NEW DELHI Air India’s restructuring of its Delhi office has matched the rising political hold on the airline. Till the early nineties, the Air India office in Delhi was meant as a liaison centre to help expedite proposals pending for decision in various ministries. Gradually, as political interference grew, chairmen began posting their most trusted men in New Delhi to keep the minister in good humour and to ensure that the

minister’s requirements were met without it becoming public knowledge. Later— from 2004, to be precise—chairmen began liaisoning directly with the minister. They did not let anyone else interact with him, afraid that the minister’s wishes may not be met or worried that their proximity to the power centres may be challenged. The next step, naturally, was the shifting of the chairman’s office to New Delhi. V. Thulasidas was the first chairman to spend most of his time in the capital. As his presence in Mumbai grew more and more infrequent, he decided to set up a second home in New Delhi. Four senior managers of Air India were asked to give up their official accommodations, and their apartments were converted into a guest house for his exclusive use. Later Arvind Jadhav and his successor Rohit Nandan too preferred to operate from Delhi. This has had disastrous results for the airline. It was as if Air India were operating under an absentee chairman. After all these years, the ministry in early 2013 formalised the shift of the airline’s headquarters from Mumbai to Delhi for what it has termed ‘better’ management of Air India. As the chairmen’s attitude towards the government changed, so did the expectations of ministers. An incident from the early nineties illustrates the change well. In 1991, Victor Paes, the father of tennis player Leander Paes, approached the then Minister of Civil Aviation, Madhav Rao Scindia, for help for his son’s travel abroad for participation in global tournaments. Mr Scindia directed the senior Mr Paes to our office in Mumbai. We evaluated Leander’s potential and within half an hour committed to providing free tickets for two years. We saw a need for the airline to step in in the national interest, and we did. Contrast this with the situation 16 years later, when the Indian team won the T20 cricket championship. The Minister of Civil Aviation, Praful Patel, did not think it necessary to consult Air India before awarding the entire cricket team and family free tickets for five years! To clarify, the issue is not that it was not in the nation’s interest to let our cricketers fly free but whether a minister should have taken the decision on behalf of the airline. ABSOLUTE OBEDIENCE, NO DISSENT Between the years 2004 and 2008, the airline’s leaders had grown intolerant of dissenting voices. All of us had experienced the change in attitude and witnessed the emergence of a coterie culture during these years. If one protested publicly, the offending individual would be transferred to a different department or position or sidelined in his job. And as more and more people realised that it was better not to oppose the minister or the chairman, decisions began to be taken unilaterally. There were times when the minister took decisions on the airline’s behalf and we were informed about it either through the media or after things had already been set in motion. Even vendors or those seeking sponsorship arrangements with Air India would approach the minister directly instead of the chairman or the relevant management personnel. For example, when a reputed media house was hosting its annual summit, Praful Patel extended Air India’s patronage to the event without consulting the chairman. He committed the airline to 30 lakh worth of tickets by way of a barter deal in lieu of publicity for Air India. When the organisers sought tickets as part of the deal, we discovered that there was no written approval or sanction for the barter arrangement. No one had any knowledge of the verbal agreement either, but it had to be honoured since the minister had already given his word. As someone who had been with the airline since the late 1980s, I was particularly distressed at the

way events had turned out. I felt that Air India witnessed its worst phase of political interference during the Praful Patel–V. Thulasidas tenure during which decisions on acquisition or leasing of aircraft, purchase of merchandise, appointments, giving out free air tickets and upgrades, and on promotions, transfers and postings of employees were taken without any thought for the airline’s future. These decisions could have been overlooked if they had helped the airline. One may have been able to ignore a few errors too, but what is intriguing is the fact that the mistakes were repeated with no consideration for the consequences. Evidently, Air India has been let down by the people who led it. And this brings me to a phenomenon that I find quite disturbing—the separation of organisational prosperity from one’s own. In its early years, there was never any doubt that the interests of the chairmen and Air India were aligned. The chairman’s decisions were transparent in the way they were taken and executed and backed by feedback from the ground. However, over the years, partly on account of the quality of people in the chair and partly because of the rising political influence, the interests of the chairmen and the airline have at times been at variance. Chief executives have followed a set of priorities different from those of the airline. This shift has unfortunately gone unnoticed because most employees still believe that serving a chairman is the same as to serving the company. They blindly follow his directions even when they are detrimental to the company’s interests. Whether they do so out of naïveté or because they believe that serving the chairman or the minister will bring benefits, such as out-of-turn promotions, good postings and post-retirement jobs, is for the reader to judge. But the truth is that subservient senior executives have not only facilitated patently wrong decisions of the chairman and minister but have also given them legitimacy. As personal agendas assumed supremacy over corporate objectives, compromises were the norm and the airline’s performance became a casualty. Lack of employee involvement and resistance also strengthened the hand of the politicians. And even those ministers who were not intent on using the airline for personal gain to begin with were made to believe by such opportunists that they could do so. In the 33 years that I have spent in the public sector, the decline in the behaviour of the politicians and management personnel has been dramatic and rapid. This could perhaps be attributed to the lack of an effective and trustworthy mechanism for grievance redress within the public sector units. The honest and upright lack a voice because they do not find adequate support. And even if the perpetrators of managerial malfeasance are few, those willing to combat them are even fewer, and even they prefer to take on the role of silent spectators. On some occasions, public outcry over a minister’s action or a chairman’s comment acts as a deterrent to the perpetrators and gives courage to members of the management keen to bring about change. For instance, a lot was written and debated about a flight being diverted at the minister’s daughter’s behest and for changing an aircraft to accommodate the members of his extended family in the business class. The information emerged in response to applications made under the Right to Information Act, and the media took it up quite vigorously. In fact, The Times of India (12 June 2009) had reported on the issue and taken it further by bringing in an instance of how the minister had upgraded a member of his house staff to business class when the airline’s directors were denied the same privileges during the same period.

SPREADING LARGESSE AT AIR INDIA’S EXPENSE Apart from the arbitrary use of the airline’s facilities, the period also saw a sudden rise in expenses. For instance, every year in the past, during Diwali, Air India would gift a box of ‘toran’ and ‘ diyas’ handcrafted by the National Association for the Blind. The idea was to keep costs down and carry forward the airline’s image as a caring corporate citizen. However, when the airline’s finances were under pressure, it was decided that expensive gifts would be sent out, especially to the media, and it was not just selected civil aviation correspondents who were beneficiaries;instead, all those who covered the prevailing minister’s political party gained too. It was a dinner set one year, a set of wrist watches in another year and an iPod Shuffle in yet another year. Even though there are governmental restrictions on the value of gifts that can be given, these gifts were bought disregarding the rule and sent out ‘with compliments of the Minister’. Pliant chairmen did not protest the blatant misuse of the airline’s money. It was the same story when it came to organising familiarisation trips for the media at the time of a new flight launch or some such affair. The minister’s office would send a list of journalists to be invited, and the senior management was neither given a choice nor allowed to question his choices. I found this appalling, especially since some of these ‘journalists’ never wrote a line after their return. But our views were not taken into consideration, not even when it could have both saved the airline a substantial amount of money and ensured better publicity. In 2007, when India won the T20 cricket championship, Air India was forced to release a full-page advertisement in the newspapers on the specious plea that we should celebrate as almost half the victorious team was on the rolls of Air India. The advertisements cost the airline 3.5 crore—this at a time when the airline was financially bleeding. Political interference had reared its head in every aspect of the airline’s operations—even in the appointment of a public relations agency or advertising agencies. Traditionally, these were areas completely under the jurisdiction of the Air India management, but during this period, the ministry started dictating the newspapers and magazines where the advertisements should be released. Since advertising budgets had always been low, the airline has chosen its media basket with caution. But at the behest of a few people in power, Air India, Airports Authority of India and Indian Airlines were forced to release every campaign, irrespective of whether it was relevant to the newspaper’s readers or not, in a publication owned by a powerful media magnate. Even by the most conservative estimate, advertisements worth over 10 crore were issued to the said media house. A note, dated 3 May 2005, by a certain minister’s Officer on Special Duty (OSD) to all companies under the ministry (Indian Airlines, Airports Authority of India and Air India) stated, ‘It has come to the notice of Hon’ble Minister of Civil Aviation that advertisements/notices/promotional campaigns which go to the newspapers, are not given to… which is a leading newspaper for entire Western India. Hon’ble MCA (Minister of Civil Aviation) has expressed his displeasure as it entails limited publicity. I am directed to request that in future whenever any advertisements/notices/promotional campaigns are launched, it must be given to….’ Apart from handing out benefits in the form of contracts and special offers, which financially bled the airline, many ministers have also sought to influence the recruitment process within the airline, which

crippled operations and impacted the quality of its offering. Let us consider Air India’s hallmark inflight service. In its heydays, Air India was known for the exemplary experience that passengers were assured of on-board its flights. It had the best cabin crew in the business and an enviable training programme, which further honed the skills of the crew members. Over the years, the recruitment process was diluted by the political leadership and the management team, which did not recognize the value of the service offering. The recruitment process began to be viewed as an employment generation scheme by the politicians who routinely asked us to accommodate the wishes of their acquaintances, party cadres and other associates. All that mattered to them and to the people who let this happen was that the process could be used to provide employment. The ability of the people thus selected was never taken into account. This has had a devastating impact on the quality of the in-flight staff as well as on the morale of the people who had been recruited for the same job but through the official process. Having been chosen for their merit and aptitude, they felt short-changed when they saw that their colleagues had made it on the strength of their personal contacts and political clout. It was unfortunate that all those who were responsible for driving the airline into this state were indifferent to the consequences of their actions. No employee should allow herself or himself to be guided solely by personal interests because a job carries with it power and responsibility towards the organisation. Some of those who caved in to the minister’s demands may have believed that it was pointless putting up a fight. For them, I have this example. In late 1994, we were inducting cabin crew. After the selection process had been completed—before the appointment letters were issued—the then civil aviation minister Ghulam Nabi Azad summoned Captain D. S. Mathur, the managing director, to Delhi. Since I was the incumbent departmental head and Chairman of the selection panel, I was asked to accompany him. In the brief meeting that ensued, Mr Azad handed over a list of 20-odd candidates who he wanted to be recruited. On cross-checking with the list of selected candidates, I informed him that five candidates had been chosen on the merit of their credentials. ‘What about others?’ Mr Azad asked. ‘They have failed to qualify,’ I replied. I was asked to leave the two gentlemen alone, and Mr Azad reiterated his demand. Mr Mathur later checked with me to see if something could be done to include the other candidates. But I held my ground, and Mr Azad was informed accordingly. And he behaved as only a minister could: he cancelled the entire selection exercise! In recent years, the ministers have had no problem in getting their people recruited as pilots, engineers and cabin crew. And the results are out there in the open. Air India is failing to perform on every parameter, and part of the blame can definitely be laid at the door of the inept personnel who gatecrashed the selection process without having the requisite competence. And it wasn’t that they used the political route only for gaining entry; they continued to use it for promotions and postings. Interestingly, all the senior management personnel who gained a backdoor entry into the airline have been embroiled in controversies and corruption cases and have brought disrepute to the airline. To cite one example, V. K. Verma, who joined as Controller of Sports but managed to become the commercial director, finally landed up in Tihar Jail for his role in the Commonwealth Games scandals. Luck finally deserted him, unlike in the past, when he had managed to clear all corruption cases levelled against him during his stint in Air India. Likewise, Captain N. Beri joined Air India sometime in 1988 after a lot of political pressure was exerted on the management. When he repeatedly failed to perform satisfactorily in the mandatory DGCA exams and simulator tests even after more than the stipulated number of chances had been given to him, a decision was taken to terminate his services. However his file went missing and he continued in the job. With such instances, service standards and working

environment were bound to take a beating. CLOUDED VISION The decline of India’s political character definitely impacted the fate of Air India. Of course, what was even more disconcerting was the abject manner in which the airline’s leadership capitulated to their ministers’ commands, sometimes even converting a casual comment made by them into a directive etched in stone. There was no one to defend the airline’s rights, which were under threat from the burgeoning domestic competition as well as the growing reach of foreign airlines in India. The point is best illustrated perhaps by the way the government liberalised the country’s bilateral rights policy. While hitherto, the grant of these rights had been dictated by what was perceived to be beneficial for the national carrier as is the practice among all countries, the political powers did away with the tried and tested methodology. Foreign carriers were not only allowed to operate from multiple points but were also given frequencies far beyond their traffic needs between India and the concerned country. This hurt Air India’s revenue generation capabilities. According to the official data for 2011–12, which should make policy makers sit up and take note, Dubai-based Emirates flew more international travellers in and out of India than Air India did. While Emirates cornered 13.04 per cent of the total market share of India, flying 45.32 lakh passengers in and out of the country in 2011–12, Air India and its subsidiary Air India Express jointly carried 41.38 lakh passengers, only 11.91 per cent of the total market share. In the future, the policy is bound to come back and bite the Indian private carriers too because of the thoughtless manner in which the rights were granted, giving foreign airlines a head start and a stranglehold on the market before the Indian carriers were ready to mount operations. Not surprisingly, even some foreign carriers have begun feeling the heat. On account of the excess allocation of seats, these airlines are currently seeking passengers for destinations beyond the country of origin. If one scans the papers, one can see the advertisements by Singapore Airlines, Malaysia Airlines, Cathay Pacific and several others for destinations in Australia, New Zealand and Japan, while the carriers are advertising destinations in the US and the Gulf carriers are doing the same for destinations in Europe and US. This phenomenon is the result of the reckless allocation of bilateral rights by the government. Interestingly, the fact that the bilateral agreements relating to seat allocation are essentially for traffic between two countries was underscored in April 2013, when India and Singapore signed an enhanced air services agreement to build on the existing 216 weekly flights and meet the growing demand for air connectivity between the two countries. ‘As demand for air services between both countries continue to grow, the bilateral air services agreement was enhanced to include more capacity entitlements,’ said a statement from Singapore’s Transport Ministry. ‘Between the two countries’ is the key phrase, and yet, the number of flights being operated and proposed to be enhanced is far beyond the requirement of traffic originating in India for Singapore and in Singapore for India. While we may never really know what prompted the government to open up the policy on bilateral rights, we were well aware of the extent of pressure that it was under from foreign airlines. An interesting anecdote narrated by Inder Sethi, the former deputy managing director of Air India, reveals just how persistent some airline representatives could be. Sethi says, ‘Way back in the mid-1970s, Nari Dastur came into my office—he was then the chief of Commercial Department and I was the

deputy head of Marketing and Sales. He told me that he had been invited by Ali Gandhour, chairman of ALIA, to visit Amman. Mr Dastur had accepted but was now having second thoughts. He requested that I go in his place. He mentioned that ALIA wanted traffic rights to India and we had to “make the appropriate noises to politely refuse the request”. The meagre traffic between India and Jordan did not justify the grant of even one weekly flight. I left that night for Amman. I met Mr Gandhour and did as requested, leaving a rather unhappy India Manager for ALIA behind in Amman. Fast forward to 1979, and the venue was the IATA AGM in Geneva. Managing Director Appusamy and I were attending and had been invited for lunch by Mr Gandhour. Conversation during lunch veered towards traffic rights and we again made the “appropriate noises” and left. Fast forward to 1981. Mr Appusamy had retired, and I had left the airline. A new chairman-cum-managing director was appointed and guess what—Alia had been granted full traffic rights.’ The local manager of the airline representing ALIA was none other than the current chairman of Jet Airways—Naresh Goyal. To all those who believe that Air India’s management could have done little to counter the clouded political vision of those days, I would like to say that the most effective way to deal with manipulating and interfering politicians is to make your point forcefully and with all the facts of the case. It has been done in the past with remarkable results. The only trait one needs in such situations is unwavering commitment to the organisation. For instance, Air India had a rule (it still does) that stipulated that the air hostesses would have to wear sarees if they did not meet the physical specifications. One hostess, when she was denied the right to wear the salwar-kameez, approached the ministry, and I received a call from the minister’s office. I suggested that the hostess be asked to contact me, which she did the following morning. Since she had been in the airline for 10 years, I asked if she knew the rules governing the issue of sarees and salwar-kameez. She said she was aware that salwar-kameez was not for hostesses who were overweight. ‘Are you?’ I asked. She was, and asked what she should do. I said that she needed to reduce weight as per the rules. Three months later, she had conformed to the requirements of the airline, and the issue was resolved. Let us look at another instance of how the minister’s word and the airline’s interests were maintained. When Sharad Yadav was the civil aviation minister and Vijay Mallya, then not in the airline business asked for Kingfisher beer to be included on the flights for on-board service, I politely suggested that a senior functionary of the company be asked to meet me. When the senior executive called me a couple of days later, I explained how Kingfisher would get a decisive edge over other beer brands if we were to offer it on our flights. We were serving Budweiser and Heineken beer to our passengers at that time and if Kingfisher was to be included we should get a concessional deal. I also said that Kingfisher should factor in a marketing fee for Air India pitching the beer to its passengers. The terms were agreed upon, and Kingfisher beer made its way into Air India flights at a rate that helped save the airline a sizeable sum of money. Good times, of course, did not last long for Air India, as soon after my exit and that of the director of Materials Management, the price was raised. It is important to bear in mind that ministers are often prompted by the people around them to believe that their grandiose ideas, howsoever flawed, are the best. For instance, Shahnawaz Hussain, when he was the Minister for Civil Aviation, was very enthusiastic about the introduction of a Kerala oil massage service on-board Air India flights as a value addition to attract more passengers. He announced his decision to introduce such a service in the media and then asked the Air India management to implement it. Mr Gogoi, the then managing director, asked me to explore the

possibility and to interact with the minister on this issue. We played by the rules, informing the minister of the action being taken and also letting him know the problems inherent in such a move. We let him know that we could run into trouble with the passengers, who may object to the smell of oil; the upholstery could be soiled as a result of the use of oil; there would be a lack of privacy for those opting for the service. The minister suggested that we provide a curtained enclosure within the aircraft. We visited the Kottakkal Aryavaidyasalai near Kozhikode, which helped us arm ourselves with their informed view that a massage, while being feasible on the aircraft in a separate enclosure, would warrant a bath. With no such facility available onboard the aircraft, the proposal of an oil massage was finally buried. However, still reluctant to tell the minister that his suggestion was impractical, we considered the possibility of a massage with ayurvedic powder as was being practised by the Kerala Medical College in Thiruvananthapuram. But its application on the flight was again not feasible because the powder could trigger off allergic reactions in passengers since the air was recirculated inside the cabin. Finally, we managed to convince the minister that such an idea was impractical and should not be followed through. We did, however, end up asking a Delhi-based company to introduce Kerala massage facilities in the lounge at the Delhi airport. The service continued while Shahnawaz Hussain was the minister and ended with his term. What this does demonstrate is that if you are not the ‘ji hazoor’ kind of an officer willing to go overboard with all the directions of the minister, you can ignore the diktats that can harm the company and induce the ministers to see reason. One example that comes to mind of how a managing director did not let the minister’s displeasure come in the way of carrying out his duties is the way Mr Gogoi handled a delicate situation involving one minister and his desire to appear on television to comment on Air India’s routine operational issues. It was during the April 2003 strike of the Indian Pilots’ Guild, and the media was reporting on every one of our moves. I was being called to represent the airline’s points of view on every channel, and it was after one such programme that I received a call from this minister, who said, ‘Aap bahut acchha bolte hain TV par. Ab se aap hi boliye ’ (You speak so well on television that from now on, it is best that only you should speak on its behalf). Intrigued, I called up the managing director, who informed me that the minister had been miffed with my frequent appearances on television because he saw those as missed opportunities for promoting himself and his party! It was to Mr Gogoi’s credit that he had not only withstood the minister’s displeasure on this count but had not even let me know about the problem. The situation is very different today when ministers represent the airline in every forum and there is none from within the airline to speak on its behalf. However, for every instance of a political direction not heeded or countered with a justifiable argument, there are possibly 99 others that are blindly implemented because most executives believe that favours shown to politicians will help them someday. There are also instances of bureaucrats, who have held the chairman’s post, not wanting to buckle under political pressure but too weak to say no. Consider this example. A few months before the 2009 general elections, Praful Patel wanted an advertising campaign to highlight the progress made in the field of civil aviation during his tenure of five years. One can’t fault such a strategy since the five years had seen considerable progress. The only problem was that he wanted the campaign to be funded by all the Indian carriers and airports— governmental and private—and not by his party or himself. Mudra Communications Limited, which handled the airline’s advertising at that time, was

given the brief to devise the six-part campaign, but the onus for coordination was left to Raghu Menon, as the CMD of Air India, and Arun Mishra, then joint secretary in the Ministry of Civil Aviation (and now the director general of civil aviation (DGCA). Mr Menon was reluctant to be associated with the exercise but was unable to turn down the minister’s request. On the plea that I had the requisite communication background, Mr Menon suggested that I should liaise with Mr Mishra and accomplish what Mr Patel desired. When I met Mr Mishra, he was just as reluctant about the entire exercise, but he, too, could not say no. The meeting of the representatives of all the airlines and airports had been convened for the same afternoon, and I was compelled to chair the meeting. I apprised the representatives of the different airlines and the airport officials about the rationale of the campaign, informed them that the minister had wanted it done and that their respective companies were expected to contribute towards the expenses incurred. I also told them that the minister had already sounded out their bosses. The amount ranged from 2 crore for full service carriers, i.e., Air India, Jet Airways and Kingfisher Airlines, and airport operators, i.e., GMR, GVK and Airports Authority of India, and between 50 lakh and 1 crore for low-cost carriers like SpiceJet, Go Air, Indigo and Pawan Hans. I read out the contribution details as worked out by the minister’s office and handed over to me. Considering that the impact of the economic meltdown and resultant drop in the number of passengers was still being felt by the airlines, they were reluctant to commit before checking with their owners or promoters and CMDs. At the following meeting, the advertising agency presented the art works. Not realising that the minister would not let them have any say, everybody came up with suggestions on what was required to be done to deliver the message for a fuller impact. As the date of the campaign approached, Mudra, which had secured ad space at concessional government rates, asked for their dues as they had to pay the newspapers and TV channels. But it wasn’t forthcoming. I had advised my colleague at Airlines House in Delhi to stay off the fund collection drive and make the minister’s office chase the airlines and airports on the pretext that such payments will be released only at the intervention of Naresh Goyal for Jet Airways, Vijay Mallya for Kingfisher, and so on. The minister’s OSD Mr K. N. Choubey finally got the money to the agency. The six-part campaign cost 18 crore and was released in all newspapers and all channels. Mr Patel exhibited his business prowess by managing to get the campaign highlighting his performance without spending on it. One of the reasons for the increased politicisation of the airline has been the excessive enthusiasm of the senior management to comply with ministers’ requests. If the chairmen had played by the airline’s rules instead of those of the politicians, Air India would have been spared its fate. There is another way to look at this: by not looking into the airline’s interests, were the chairmen and the senior management personnel in fact complicit in the airline’s destruction? TAKING A STAND To stand up to the politicians, one needs an unwavering commitment to the company one works for. It needs one to be able to distinguish between loyalty towards an organisation and towards one individual. However, a word of caution here—one may not always succeed in one’s endeavours,

which may be disheartening and could push one to stay silent and submit to pressure. I was perhaps encouraged to resist uncalled-for pressures because I had been fortunate in my dealings with bureaucrats and the political leadership, who were not as brazen in their disregard for rules as many are today. At Coal India, for instance, a bureaucrat who was visiting our mines with a parliamentary committee threatened me that if I did not provide the entourage with a more expensive gift, we might end up with a negative report. He even took the matter up to my chairman, who supported me in my decision to not bow to his wishes. Instead of keeping silent about this threat, I walked up to the leader of the parliamentary committee, K. P. Singh Deo, who not only appreciated my honesty and commitment to the company but invited me to New Delhi a month later for a special assignment that involved assisting in the organisation of the IX Asian Games. I was awarded the Asiad Jyoti Presidential Award for my efforts. Thus, I had seen the benefit of standing up for what was right and had been encouraged to stick to my principles by people whose commitment to their organisations and their work was exemplary. I never thought of changing my attitude and therefore paid a price for not being pliable. Many of the Air India employees and unions who are today blaming the management and the politicians for destroying the airline were at some stage or the other equally guilty of colluding with the corrupt and inefficient executives and chairmen/managing directors. They were chasing short-term gains at the cost of long-term losses. While the instances just recounted can be described as successful examples of defending my company’s interests, it isn’t always the case. There are occasions when the minister’s office issues recommendations because they have been approached by acquaintances they cannot refuse. The story is, however, different if the minister has a vested interest or is unable to turn down the requests. My attitude was evident to all who have worked with me, and I have often faced the brunt of my actions, such as in the year 2000, when I was the head of In-flight Services Department. Air India had invited bids for the catering contract at London’s Heathrow Airport for India-and US-bound flights from London. As the tender value was huge, I had, as a matter of abundant caution, requested the deputy managing director, J. N. Gogoi, to constitute a committee of directors over and above the Tender Committee so that no wrongdoings took place at any stage. However, on 24 August 2000, a day prior to the final negotiations, I received a call from the minister’s office asking me to postpone the negotiations. I informed him that the team representing the lowest bid was already airborne for Mumbai and it would not be fair to cancel the negotiations at this stage. After due consultations with the minister, he advised me to go ahead but not to take a final decision. On 28 September 2000, A. H. Jung, secretary of the Ministry of Civil Aviation and Chairman, Air India, summoned me to Delhi. While discussing other issues, Mr Jung asked as to why we were changing our caterer in London. I explained that the contract was being awarded to the LSG Sky Chefs, a unit of Lufthansa, on the basis of tenders issued as the existing contract was due to expire soon. I added that LSG Sky Chefs’ bid was 3.5 per cent (actually 4.97 per cent) lower than that of Abela, the present caterer, and would save Air India 10 crore over three years. All efforts to bring about a change in the decision were in vain as I stood my ground. It was no coincidence that I received my transfer order from the ministry soon thereafter, overruling objections from the managing director, M. P. Mascarenhas. This was not the end of the saga. Two officials, Sanat Kaul, joint secretary for the Ministry of Civil Aviation, and S. Punhani, director of the Finance Department of

Air India, were dispatched to London to investigate the deal and report aberrations. They found none. However, two years later, I received a list of charges pertaining to the London contract from Parambir Singh, an IPS officer on deputation to Air India. My responses were detailed and tackled the accusations from every angle. For instance, it was alleged through a selective rendering of the tender document that the firm that the Tender Committee had recommended was not favoured by the local committee. I nailed their lies by revealing the entire document and further justified my decision by showing that every firm on the list had some adverse remark against it or the other. In the end, I was able to prove that the tender had been contracted as per the rules and that there was nothing unique about the firm that the Tender Committee had chosen, as was being made out. In the context of today’s environment, when honest officers can be maligned and tried by the media with debilitating effect, it is imperative to follow the rules, keep all the records and make sure that the enquiry committee receives a detailed reply so that nothing is left to imagination and misinterpretation. This attitude has stood me in good stead. For instance, years later, when I was openly critical of the airline’s management, Arvind Jadhav directed his people to inform the media that I too had been questioned by the vigilance department during my career in Air India. A few journalists called me up to confirm the veracity of his comments. My response, which was self-explanatory, was simple: ask for a copy of my response. If they still had any further questions, they could come back to me. But none did. The minister–chairman nexus with a virtually ineffective board of directors has cost Air India dearly. The instances that I have cited here are just a small sample of the way events were playing out within the airline. There were many more such cases experienced by many of my colleagues which show how the board and the management allowed several decisions to go through unquestioned, even on deals that had a bearing on the airline’s future. The senior management team, barring those forming the coterie, was kept out of the loop. Also, since the minister had begun appointing people of his choice to the post, the periodic performance reviews became a meaningless exercise. It is important to understand that the airline’s fate was being sealed not just by politicians but also by weak and shortsighted leaders within the airline. And those who were at the helm during the period have played an equally dangerous hand in the airline’s decline.

CHAPTER NINE

a saga of financial mismanagement

THE PICTURE, DURING 2004–08, was bleak. The number of foreign airlines operating out of India was on the rise. Domestic private airlines were due to commence international operations. And the Indian flier was getting more and more demanding. Air India’s market share had plummeted and was set to drop even further. Its traditional sources of revenue were also under pressure as the aviation sector was being opened up. To add to the problem, costs were rising and set to soar even higher with the planned acquisition of 68 new aircraft. The infusion of funds by the government to augment its equity base in Air India from a paltry 153.84 crore in the wake of aircraft acquisition and the merger with Indian Airlines, though recommended by Accenture, was also not forthcoming. The airline was in the throes of a crisis. The external environment had changed beyond measure, and internally, the vice-like grip of politicians, bureaucrats and unions and a weak management was preventing the airline from rising above its challenges. Air India’s future was looking grey. Many of us within the airline knew that it was time to bite the bullet. We needed a plan to help the airline out of the storm clouds, the political will to see it through and grit and determination on the part of the management to weather the turbulence that this would cause. Instead, all problems were swept under the carpet. There was a deliberate attempt to keep the real state of the airline away from the public view. At board and interdepartmental meetings and during regular office interactions, a perception was sought to be created that it was ‘business as usual’. The real financial health of the airline was not revealed. Losses were shown to be lower than the actual figures by inflating revenues and suppressing expenditures. By straying from the established accounting standards and through smart juggling of numbers, the airline’s statement of accounts was made to look better than it actually was. The finances, according to the annual reports of the respective years, were: an operating profit of 49.29 crore in 2004–05 and operating losses of 399.60 crore and 1,431.18 crore in the years 2005–06 and 2006–07 respectively. Effectively, in these three years, the airline was taken from a state of marginal profits to one of rising losses. While it would be impossible to establish the real loss figures for the years being examined, the following examples will show how even the published loss figures were gross underestimates.

ADVENTUROUS ACCOUNTING PRACTICES As the annual reports for the years indicate, the operating loss figure more than tripled between 2005– 06 and 2006–07. The chairman of the airline at the time was V. Thulasidas, and the minister for civil aviation was Praful Patel. The figures were kept under cover from not just the public at large but also from all of us in the airline. The accounts used to be circulated among the senior management every month, but the practice was discontinued during this period. Thus, when Arvind Jadhav, chairman and managing director, revealed the real picture in June 2009 and said that the airline did not have money to even pay salaries to its employees, we were both surprised and shocked. A look at the annual report for 2006–07 (the year prior to the Air India-Indian Airlines merger) shows the extent to which the accounts were manipulated. Consider some instances: • The airline changed its accounting policy on forward sales to be able to recognise revenue from unutilised passenger and cargo sales for after two instead of four years. By doing this, the airline was able to transfer an amount of 235.64 crore from current liabilities to revenue. Auditors, Kalyaniwalla & Mistry and S. K. Mehta & Company, commented, ‘Hitherto, the revenue was recognised in respect of passenger and cargo sales, remaining unutilised for more than two years.’ The auditors also observed that this was not in compliance with Accounting Standard 9, ‘Revenue Recognition’, issued by the Institute of Chartered Accountants of India (ICAI). The board and the senior management ignored the auditors’ observations.. • The ‘sale and leaseback’ mechanism was employed to help the airline unlock its assets. Air India sold its six A310 aircraft according to its annual report to a European bank, Investec, and leased them back for operations. The cash received from the sale was booked into the airline’s accounts. There is no physical delivery of aircraft in such arrangements. The ‘sold’ aircraft are leased back to the company that ‘sold’ the aircraft (i.e., Air India, in this instance) and the monthly rentals flow to the company that ‘bought’ the aircraft. Such transactions are adopted by many airlines as it helps ease cash flow in the short run but causes enormous damage in the long run as the terms are almost always skewed in favour of the financier. Air India managed to improve its cash flow by about 200 crore in this fashion, which helped bring down the loss figure for the immediate period. The auditors highlighted this too in their report, but what was more disturbing than the irregularity of such a tactic was the attitude of the people leading the airline. No one was interested in its longterm survival but focused on the short-term objective of showing minimal losses by inflating the revenue figures. A ‘sale and leaseback’ transaction also helps to shift the accounting liability: instead of showing it as depreciation, the amount can be shown as lease rental expense. • Amounts that had been written off as expenses were converted into potential revenue. For instance, the total value of aircraft spares was written off in 2005–06 and then brought back into the books the following year to bring down the loss incurred in 2006–07. Air India had phased out B747-200 aircraft in 2006. The spares that had been purchased for this aircraft fleet were considered obsolete since B747-200 aircraft were also not in operation anywhere else in the world. Hence, in the 2005– 06 accounts, it was decided that 135.9 crore would be written off as the cost of spares. However, as pressure mounted on the Finance Department to minimise losses, inventory worth 135.9 crore was brought back into the books of account for the next year (2006–07). The auditors questioned this, but the management’s explanation was that the spares would be sold to the Air India–Boeing joint venture—Maintenance, Repair & Overhaul (MRO)—at Nagpur. Incidentally, MRO, seven years down the line, is yet to be operationalised, and even if I were to give the management the

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benefit of doubt and believe that they couldn’t possibly have foretold that the venture would be stuck, why would the MRO need spares for aircraft that were not in use by any airline? Losses were understated and inventories overstated. The airline recorded an amount of 15.31 crore as a result of the capitalisation of spares for its leased aircraft (B777-200 LR), which was carried forward from the previous year. However, the obsolescence amount of 5.5 crore for these spares was left out of the accounts. The airline had changed the classification of owned A310 aircraft inventory’ worth 153.99 crore to leased inventory’ and consequently brought back into its books the amount of 66.02 crore, which had been provided as ‘obsolescence’ up to the previous year. The auditors stated that the changes were not in compliance with Accounting Standard (AS) 2, ‘Valuation of Inventories’, and generally accepted accounting practices. The auditors commented, ‘This has resulted in understatement of losses to the extent of 216.45 crores and overstatement of inventories by 201.14 crores and capital work in progress of 15.31 crores.’ For the same year, Air India also decided to capitalise its maintenance expenditure instead of charging it to the profit and loss account. This allowed the airline to show a reduction in expenses on aircraft maintenance to the extent of 236.69 crore (which included 157.88 crore for the previous years). The management said that it had been a mistake in the earlier years to charge the expenditure to the profit and loss account, and hence the correction. The auditors, however, felt it prudent to draw attention to the fact since the entry would show a drop in expenses although there had been none. The auditors were also concerned about the manner in which Air India was calculating its rental earnings. It had claimed 77 crore as rent from the office building at Nariman point, which was a gross exaggeration, given that several tenants in the building were paying antiquated rates of 3–5 per square foot and a large part of the building was lying vacant following the eviction of many tenants on the grounds that Air India needed the space for itself. Some tenants had challenged their ouster, and the Committee of Disputes was looking into the charges made against Air India. Until the disputes were settled, Air India could not rent out the vacated space. There was no way that it could have earned the amount that it said it did in the annual report. It would be interesting, however, to understand the calculations that led to the figure. While hearing the case of one of the evicted tenants, the Committee of Disputes had used an approximate rent estimate of 300 per square foot of the building. The figure was hypothetical and meant for the express purpose of the court hearing. Air India applied this rate to all tenants for their occupation since 1 April 1995 i.e. from the time their licenses were terminated. They were asked to pay mesne profits/damages until they handed the premises over to Air India and that helped arrive at the amount of 77.77 crore. The auditors noted, ‘The actual rent earned during 2006/07 from the tenants was Rs. 2 crores.’ Such an ingenious method of bolstering revenues was adopted for the first time during this period. The auditors stated that Air India had changed its policy on accounting of exchange rate difference which was not in compliance with Schedule VI of the Companies Act and the impact of this change on the airline’s loss figure for the year was not ‘ascertainable’. Air India recognised a deferred tax benefit of 201.93 crore which would bring its losses down by the same amount. This was done with the intention of adjusting the amount against future taxable profit which the auditors said was difficult to ascertain in view of future uncertainty.

There were many other discrepancies that the auditors pointed out. For instance, the report said,

‘Related to Airport Authority issues for ground handling, route navigation charges, the auditors have estimated that the Company has underestimated losses by 135.26 crores.’They also made a note of areas of non-compliance with the Companies Act and the Accounting Standards. The auditor further noted that ‘despite not being able to ascertain impact of certain changes in accounting policies, in respect of some other changes, the loss would have been much more.’ What was extremely shocking was the fact that while there were so many revelations in the auditor’s report about the changes in accounting policies, the principal director of commercial audit of the CAG’s office after perusing the financial statements of Air India for the year said, ‘Nothing significant has come to my knowledge,’ thereby giving the airline a clean report. This was intriguing and surprising, given that the CAG’s report was prepared by its officers, who were based out of the fourth floor of the Air India’s accounts office and were auditing Air India’s accounts throughout the year. The auditors further reported that without considering items like accounting for forward sales, exchange rate, and stores and spares, which couldn’t be quantified, if only the aberrations relating to the revaluation of inventory, capitalisation of spares, change in the classification of ‘owned aircraft’ inventory to ‘leased aircraft’ inventory and dues to/from the Airports Authority of India were taken into consideration, the net loss for 2006–07 would have been 799.64 crore as against the reported figure of 447.93 crore. The juggling of accounts continued even after the merger with Indian Airlines. With the induction of new aircraft in July 2007, Air India decided to take the ‘useful life’ of B777/B787 aircraft and Airbus A319/320/321 aircraft as 20 years, as against 16.96 years, prescribed in Schedule XIV of the Companies Act, 1956. This action resulted in a higher estimated life of assets and a consequent drop in depreciation provision. By 2008–09, once a significant number of new aircraft had been added to the fleet, the depreciation provision was lowered by 92 crore, prompting the auditors to remark in their report that the loss for the year was understated by this amount. During the previous year, 2007– 08, the understated loss was 24.63 crore. During 2011–12, the airline has been accused of understating its losses by 2,842 crore by its auditors. Instead of introducing a disciplined and more transparent system of expenditure and revenue management, the airline looked for accounting loopholes. Deception, not course correction, was the name of the game. When the management of an organisation resorts to such measures, it indicates a serious lapse in judgement on the part of those entrusted with its care and raises doubts about their true intentions. BLIND EYE It did not need an investigator to bring out the aberrations mentioned above; a glance through the airline’s 2006–07 annual report would have sufficed. Interestingly, the airline’s annual reports are approved by the board members before being sent to the Ministry of Civil Aviation, which subsequently places it on the floor of the Parliament. The question is—how did the numerous transgressions in accounting procedures escape the attention of so many people in different positions of authority? It was also odd that neither the board nor the ministry stepped in and asked for an explanation for the accounting anomalies. The chairman should have been questioned about the

manner in which revenue estimates were being resized to suit the need of the hour, and the relevant departmental heads should have been pulled up for coming up with unrealistic projections to justify or conceal irrational expenses. Instead, the chairman and the board became active collaborators to create a world of make-believe. On the one hand, revenue figures were being exaggerated and costs understated to show lower losses, and on the other hand, there was talk and promises of expansion and growth. The period saw not only the launch of the ambitious aircraft acquisition programme but also numerous other expensive ventures. I wonder what it was that prompted Mr Thulasidas to undertake projects of this magnitude which the airline could ill afford. And even if he was acting under pressure from the ministry, should he not have consulted the rest of the airline and voiced his apprehensions? Mr Thulasidas would also tend to deal directly with the media on behalf of Air India. Journalists met him often and on several occasions, instead of seeking greater clarity on the way the airline was managing its expenses, unquestioningly reported what he said. An example of the manner in which the media reported on the airline is best illustrated in the way an article was written on Air India’s plans to buy a Serbian airline called Jat Airways. On 31 May 2007, The Times of India published a report that quoted a ‘source’ as saying, ‘Because of the merger (Indian Airlines and Air India), the matter (acquisition of Jat Airways, a Serbian carrier) was on the back burner for a while. But now, we are actively working on it.’ Where was the money to buy the Serbian airline? More importantly, why was a potential acquisition plan revealed to the media when such discussions are conventionally not made public till the deal is sealed? It belied all logic, unless the intent was to create a perception that all was well with Air India and to boost the image of the chairman. I had been transferred out of the public relations department by then for reasons never clearly stated, and hence, I can only surmise that it must have been due to my unwillingness to publicise the chairman’s initiatives. This was also perhaps why Mr Thulasidas felt the need to appoint an external public relations agency at the cost of 1.75 lakh a month even though we had a full-fledged department within the airline. Mr Thulasidas’s behaviour has raised many questions about the way he conducted his business. While it may be true that he was under tremendous political pressure, his attempts to mislead us on the health of the airline indicated that he he may have been complicit in the political manoeuvre. He was keen to establish the perception that the airline was being managed well and that its performance was well above the mark, when the reality was very different. He was rewarded with an extension of his term and the perk of a lifetime of free flights to all destinations that Air India flew to—a benefit that no other bureaucrat-chairman has enjoyed. By keeping the true state of the airline under wraps, the people in charge also ensured that none questioned the high-value orders and projects being placed and undertaken during the period. In 2006, the cabin interiors of six B747-400s were refurbished and upgraded at a cost of 400 crore. The aircraft had been inducted by Air India in 1993–96 for deployment on the India–Europe/USA sectors. It was a massive project—one that was not justified, given that the aircraft were soon to be grounded. The matter was discussed during the 101 meeting of Air India in Mumbai held on 13 September 2004, where approval was sought for the refurbishment expenditure for six Boeing 747-400 aircraft st

that were 8–11 years old and eight Airbus A310 aircraft that were 14–18 years old. There was no budgetary approval for this expenditure at the time. No cost-benefit analysis of the proposal was presented. In fact, the agenda item for the meeting blatantly mentioned that this exercise was being undertaken at the behest and suggestion of the Minister of Civil Aviation. The overhaul commenced on 1 February 2007, even though Air India had ordered B777s in 2005, which were to be delivered starting July 2007. When the refurbishment project was called off even before work on the last of the six aircraft was initiated and the refurbished aircraft were not deployed on prime routes since new B777s replaced them, it therefore came as no surprise. Some of the aircraft have now been kept aside for the president and prime minister to travel in, and Air India continues to bear a huge maintenance bill for keeping them flight-worthy. Given the haste with which it was done, it seemed that refurbishing the aircraft was not the primary aim of the entire exercise, but running up high bills may well have been the hidden agenda. The refurbishment project was just one in a string of extravagant expenses that the airline undertook during its toughest financial downturn. A similar attitude was on display when Air India decided to re-enter the cargo business in 2006–07. Way back, between the years 1986 and 1988, Air India had acquired eight A310 aircraft. The planes were mostly used to operate flights to the Gulf and Southeast Asian countries, and for a couple of years, these were also flown to destinations in Europe. Twenty years later, around 2006–07, we were about to decommission the aircraft, when it was decided that four A310s would be converted into freighters. Air India had found it difficult to break into the cargo market in the past, having tried and failed three times. Its marketing efforts had been weak; the cargo business demanded an aggressive approach towards customer acquisition and product service, which the airline had not been able to provide. Moreover, in the early years, inbound cargo traffic had been low while the majority of cargo traffic was outbound from India, which made the business unviable. The only difference between the attempt being made then and the previous ventures was that this time, Air India would be using its own fleet as opposed to leased aircraft to transport cargo. Praful Patel, the minister of civil aviation, and V. Thulasidas, chairman and managing director of Air India, were optimistic about the business. Four A310s were sent to the European Aeronautic Defense and Space Company N. V. (EADS) for conversion into freighters. At a cost of USD7.95 million for each aircraft, the conversion involved the restructuring of the interiors, removal of seats, strengthening of flooring and removal of windows and others such changes. The first refurbished freighter was inducted amidst great fanfare by Praful Patel, and soon thereafter, on 27 June 2007, he flagged off Air India’s first dedicated freighter aircraft to Europe. Speaking on the occasion to the press, he stated, ‘This is a major milestone achieved not only in Air India’s history, but also in the history of Indian civil aviation. Cargo is one of the key components of the nation’s economic growth. Our vision is to make Air India a preferred cargo carrier in the years to come, and to this end I assure that the government will provide its full support.’ Addressing the media at the same event, Mr Thulasidas said, ‘Post the merger, cargo is going to be one of the most important strategic business units for Air India.’ Within 18 months of the induction of the first freighter and less than six months after the last of the four was inducted, the aircraft were grounded and the business was termed unviable. After spending close to USD36 million, the A310s were put on the block. Finally, Air India sold its A310s in 2012, receiving USD4 million each for those that had been converted into freighters and an average of USD2.68 million for the four others.

The cargo venture was launched without studying the market and despite its past history of failure. There were several such instances. One that got the attention of the Vigilance Department in 2005 was the procurement of 500 portable entertainment assistants (PEA) for first and business class passengers. These cost the airline 5.6 crore and would lead to an additional annual expenditure of 7 crore, which the airline would have to pay as content management and licensing fees. The devices were bought even as the B777s, which were fitted with in-arm video systems, were due for induction. The Vigilance Department found that each unit was acquired at a price that was way above the market rate. The report criticised the deal on several counts, including its pricing. The PEAs were purchased at ‘USD3000 per piece, reduced from the original offered price of USD3600 per piece during negotiations, even though the same was available in the market at USD300–500 per piece’ the Vigilance report said. The departmental charge sheet issued to V. Srikrishnan, the director of Materials Management, based on the enquiry stated, ‘You have committed certain irregularities in the procurement of portable entertainment assistant from Messrs North Star Aerospace Inc.’ It further said that even though there were alternatives available in the market, the product was declared as proprietary to circumvent the global public tendering process and further alleged the involvement of middlemen and fly-by-night operators whose association with the product was not supported by any authorisation documentation from the manufacturer. Even though the investigations proved the guilt of the people involved, the airline issued a formal charge sheet to those involved in 2011, by which time Mr Thulasidas a co-accused in the Vigilance Department report had long retired and Air India’s incumbent chairman, Arvind Jadhav, closed the case and absolved Mr Srikrishnan of any wrongdoing. But the CBI took up the case in 2012 and raided Mr Srikrishnan’s premises. Will the defaulters be taken to task? Doubtful, because of the role of strong lobbies in the entire operation. Another questionable approach adopted by the airline was for the selection of the seats for B777 aircraft. Seats are an important component of an aircraft, and airlines take great care in their procurement. Most appoint a senior person to oversee the entire process. But V. Thulasidas put himself in charge; he visited vendor establishments across the globe, personally chose the supplier and even supervised the order. This was unusual, not just because it had never happened in the history of Air India but also because the airline was beset with problems at the time and that ought to have been his immediate priority. The cost of seats for the 23 B777s was more than USD50 million ( 220 crore at the time). But instead of running the purchase through routine internal checks, corporate sector stalwarts and socialites were invited to sample them. People such as Ratan Tata, S. Ramadorai, Deepak Parekh, A. K. Krishna Kumar, Shobhaa De, Yash Birla and Tina Ambani were called in and their opinion sought. The entire exercise did not last for more than half an hour, and the vendor that was finally chosen was the one whose seats had found the most takers. While there was nothing wrong with seeking the opinion of Air India’s fliers, it should not have been the dominant criterion since they were spending no more than a few minutes on the seats that had been laid out in the Air India building. Besides, this should not have been allowed to substitute for a regular tendering and selection process, but that was what finally happened, and the contract was awarded to an Italian company, Avio Interiors. Several of Air India’s leased aircraft had Avio seats, and the experience was poor. There were recurring technical problems and the support service was substandard. The engineering team had approached Avio but failed to procure spare parts when needed. The poor choice has come to haunt

the airline now. Air India has been trying to lease its B777-200LR aircraft for more than a year but has found no takers and one of the reasons cited by other airlines for their refusal is the quality of seats in the aircraft. In another similar example, when the order for B777s and B787s was placed, Air India decided to appoint the Alia Group to design the aircraft interiors. While it was commendable that a professional design company had been hired, the problem lay in the manner in which the choice was made. It was unilateral, and as always, there was no attempt to draw upon the experience of those who were aware of the airline’s furnishing requirements and knew the do’s and don’ts of such an exercise. It did not take long for one to realise that the Alia Group, then headed by Sanjeev Malhotra, had been thrust into the limelight from the top. He made no attempt to hide his association with the minister and the chairman and would unabashedly drop their names whenever there was a difference of opinion between him and Air India officials. And in cases of divergent opinions and unresolved discussions, he would get Mr Thulasidas to intervene in his favour and overrule objections. His rates were prohibitively high, and unlike the regular advertising and design agencies, his company was charging Air India on an hourly basis. So strong was his influence that his company was also given a project to redesign the airline’s web site. He quoted 50 lakh for the project. From the scope of work outlined by the airline, this was regarded by all of us, including the three executive directors, representing IT, finance, and corporate communications, as too high. He dropped the charges to 25 lakh, which was also considered to be too high for the cosmetic changes planned. As was his manner of working, he reported the matter to Mr Thulasidas, who called up the director of the Finance Department, S. Punhani, to say that the deal was finalised at 15 lakh and that he should be allowed to start work. The payment was made and the web site created, but it was generally agreed that it was not much of an improvement over the previous site. Such misadventures contributed in a big way to crippling the airline. Consider the way in which Air India went about introducing new uniforms for its cabin crew and ground staff when new aircraft were being inducted in 2007. We invited the country’s best known fashion designers and based on their presentations, a committee specially constituted for the purpose drew up a shortlist. However, the exercise was suddenly called off. The designers protested—particularly JJ Valaya and Tarun Tahiliani—but their objection notwithstanding, the job was entrusted to Ritu Beri, a Delhi-based designer. Ms Beri had been rejected in the first round of approvals, but she offered to waive the designing fee, and the tendering process was disbanded midway. How Ms Beri was compensated for her efforts makes for an even more interesting story. Mr Thulasidas deputed a team of Air India officials to her farmhouse on the outskirts of Delhi. The team comprised a member each from the inflight services, finance and materials management departments. Initially, she offered to supply the sarees at 4,000 each, but that was way more than the amount that we were paying our existing vendor—‘1,600 per saree. When the team brought that to her notice, she agreed to drop the price to 3,600. She sourced the uniforms from one of our existing vendors, and we ended up paying an additional amount of 2,000 per saree. Worse—the sarees couldn’t be introduced across the airline at the time of the launch of the new aircraft in August 2007 because they were delayed also and for a variety of other reasons. J. J. Valaya and Tarun Tahiliani took Air India to court for wasting their time and effort and were reimbursed all costs in an out-of-court settlement later.

THE LEASING IMBROGLIO Aircraft leasing has traditionally been prone to misuse, especially with respect to Air India. The contracts are usually signed between the airline and a vendor, and in most cases, for Air India, the order for a new deal would emanate from the minister’s office, which would hardly ever be challenged by the airline’s management. It did not matter whether Air India needed more aircraft or whether a new route was viable and needed new aircraft to service it. In my years of service, I have found that if a minister so desired, a new route would be identified and the departments in charge would be asked to come up with a proposal that justified the lease. Ideally, this would be the point at which the officers in planning, commercial and finance departments raised their concerns and advised the airline in favour of or against the lease. But the management had grown so weak that a minister’s wish had begun to be considered as a command. Consider, for example, a first-hand account of how Air India discussed dry leasing plans in its 99 board meeting held in Mumbai on 17 July 2004. Prior to this meeting, the minister spoke to Sunil Arora a board member and told him that since he and the Secretary for the Ministry of Civil Aviation were satisfied about the correctness of the plans, these should be expressly endorsed during the board meeting. When Mr Arora pointed out some issues, he was curtly asked to back the proposal and a counter-question was posed, ‘When the minister and the secretary himself are satisfied, what more is there for them to see?’V. Subramanian, another board member, confirmed that he had received a similar call. th

In the majority of cases the projections made prior to the rolling out of routes operated with leased aircraft were never met. And since the decisions were taken at the ministerial level, no enquiry was ever conducted to fix accountability or seek an explanation as to why the numbers estimated before the leasing of the aircraft were at variance with the actual figures. However, in the wake of mounting losses, the board, in a meeting held on 28 September 2010, sought an enquiry. The Vigilance Department carried out a detailed study, and the results were startling. Some of the observations made in the report are as follows: • The study of 16 dry/wet leasing agreements of the National Aviation Company of India Limited (NACIL), the company formed at the time of the merger between Air India and Indian Airlines and which was subsequently renamed Air India Limited, revealed that all leases had led to losses during the period 2005–10. • In the case of all the leased aircraft, the actual revenues realised had been lower than the projected revenue. • Leased aircraft were deployed on routes on which Air India-owned aircraft were operating and were already making losses. In a particular case, a replacement aircraft was taken on fresh dry lease five months before the lease period of the then operating dry leased aircraft came to a close, and that too when this route was generating a loss. Subsequently, operations on the same route were terminated. • The passenger load factor and aircraft utilisation, in some cases, were estimated to be nearly 50 per cent higher than the actual figures. There was no monitoring by Air India officials of the projected performance of the leased aircraft vis-à-vis the actual performance. • Lease rentals were paid for the aircraft even when the leased aircraft were not deployed. The report also stated that the leasing arrangements accounted for over 30 per cent of the total

cumulative loss that Air India had incurred during the period 2005–10. It castigated the management for taking decisions on leasing on facetious premises. It said, ‘Aircraft were taken on dry/wet lease despite showing negative returns for reasons such as protecting the slots or maintaining the integrity of schedule.’ It also said, ‘The economic viability report was prepared on the basis of estimated revenues based on actual yields achieved in the preceding year and ignoring the net operating result of the route on which the leased aircraft was proposed to be deployed—which gave an incomplete picture of the viability of the project.’The Vigilance Committee report was scathing about the manner in which the viability of operations was ascertained and established. It said, ‘The economic viability report did not take into consideration the cost of borrowing funds which would have given a more realistic estimate of the net result for evaluating the viability report.’ Naturally, then, the revenue earned by operationalising the aircraft taken on lease was far below the projections. The report estimated that the amount earned was half of that originally envisaged in the plans. Similarly, in most cases, the average passenger load factor was also much lower than the estimated passenger load factor and the average utilisation of the aircraft was less than the projected utilisation. The committee looking into the lease deals found that not only were the projections grossly overstated, the loss perception that was clearly evident at the time the proposals were drawn up was also ignored. For instance, at the time of induction of 777-200 aircraft, it was noted that the payload of this aircraft was 26 tons—as opposed to the 31 tons that had been assumed to be its payload at the time of revenue calculation. This would lead to a loss of approximately 12 crore per annum. But ‘no corrective action was taken by the Lease Committee to avert the losses,’ the Vigilance Committee report said. There were several instances of new leases being entered into while an old lease was still functional. For instance, the dry lease aircraft from M/s KAL was going to expire in March 2006, but the airline took an aircraft on dry lease from M/s GAP from October 2005 to October 2006, six months before the lease on the KAL aircraft had lapsed. Moreover, the Lease Committee accepted the aircraft from Globespan, which had 160 seats, with a seat pitch of 30 inches as against the stipulated 32 inches, and thus violated the technical conditions of the tender. Even though it had been stated by the empowered committee in 2005 that the impact of the leasing arrangement on revenue and profitability should be tracked and the difference, if any, between the actual and projected figures should be reported to the board, this was not done. When the CAG questioned the leasing arrangements, Air India said that it was a ‘commercial decision to operate certain routes—despite losses—in order to maintain the market share and visibility and being the national carrier, it was not always possible to withdraw from such routes.’ The Vigilance Committee report said, ‘Total lease rentals amounting to USD75,92,766.67 was paid towards the delivery of these aircraft for which there was no Board approval.’The airline seemed to have lost all control over the plunder being perpetrated in the name of expansion and growth. It was also clear that decision makers lacked all compunctions about violating rules when it came to serving their own interests but followed them diligently when it came to matters that would help the airline curb costs and improve productivity or take decisions like that of the ordering of a passenger service

system (PSS) that delayed the airline’s ability to comply with conditions set down by the Star Alliance. The policy makers were indifferent to the state of the airline. The hypocrisy on the part of those who were managing the airline during the period with respect to the adherence to rules and regulations, procedures and systems is simply inexplicable. BIOMETRIC IDENTIFICATION SYSTEMS In 2006, a proposal was mooted for installing a biometric passenger identification system at select domestic and international airports. A tender was issued in February 2006, eliciting 20 bids. The applicants made their presentations between May and July 2006, following which the technical committee shortlisted two Canadian agencies—IPCON and Cryptometrics—and rejected 18 others, including two public sector undertakings. Commercial bids were opened on 25 August 2006, and it was almost unanimously recommended that the contract be awarded to Cryptometrics as it was the lowest bidder. Interestingly, the project, which required the consent of the airline’s commercial and security departments, was initially presented as a government-mandated initiative. It was only when the Commercial Director sought a written confirmation from the authorities in February 2007 that we were told it was not compulsory. V Srikrishnan, the director of the Materials Management Department, who is currently being investigated by the CBI, and Manjari Kackar, Director Vigilance who had been given additional charge of the security department, together signed the tender committee note. The note was then handed to S. Punhani, the Director of the Finance Department, who decided to seek the opinion of his colleague, V. K. Suri, General Manager of the Finance Department and one who is known to be an upright officer, before appending his signature. The Finance Department’s scrutiny revealed several inconsistencies with respect to procedural protocol and technical efficiency of the product being commissioned. For instance, there was a mismatch in the cost estimates for the project. According to the records, the Security Department estimate was about 75 lakh but the tender committee had, in its note, pegged the cost at 492.75 crore (the figures in rupees have been calculated using the rate of exchange prevalent in 2006). One reason for the increase in cost could have been that the period of the contract had been changed—it was being offered for a higher tenure of five years instead of the originally envisaged three years, but that alone did not justify the extent of the increase. The Finance Department also questioned the estimates that had been made by the airline’s management about the number of passengers to be covered by the biometric scheme. The original figures were: 18.48 lakh passengers if the system was confined to the Indian and some foreign airports and 1.02 crore passengers if the entire Air India network was to be covered. However, when the tenure of the proposed contract was amended from three to five years, the numbers were revised to 37.50 lakh and 5 crore passengers respectively. The Finance Department sought an explanation for the increase and also asked whether the estimates had been calculated by the Commercial or the Planning Department of Air India. No explanation was forthcoming, which fuelled speculation that the high passenger estimates had been provided by officials who were perhaps privy to the impending

merger between Air India and Indian Airlines. The Finance Department looked into the technical evaluation report (dated 14 August 2006) wherein out of 20 bidding parties, only two had been approved. There was much that was wrong with the shortlist because IPCON, the other contender for the project, had not even submitted its bid on a formal letterhead and its quote defied economic logic. IPCON set the rate for 37.5 lakh passengers at CAD16.95 per passenger, but for 5 crore passengers, instead of bringing it down as dictated by economies of scale, it quoted CAD21 per passenger. The numbers for Cryptometrics were USD14 and USD2.10 respectively. Clearly, the IPCON bid wasn’t genuine, for how else does one explain the anomaly in the rates quoted? The officials who were in charge of the project ought to have questioned IPCON, but they were focused entirely on Cryptometrics, and the issue was never taken up. The Finance Department also questioned why even though the Technical Committee had recommended that the shortlisted agencies be visited before finalising the deal, there was no record of such a visit. It sought an answer but there was none forthcoming at the time. The Finance Department also asked for the inclusion of a termination clause in the contract that could be invoked if Cryptometrics failed to deliver as promised. But the company refused to accept the clause and sought the intervention of V. Thulasidas. In a letter dated 30 August 2006, Cryptometrics said that it did not want such a clause to be a part of the five-year contract. What was surprising was the fact that Cryptometrics had been allowed to get away without a termination clause, but another bidder, Electronic Corporation of India Ltd (ECIL), had been disqualified from the tendering process for asking for an exemption from the same. The Finance Department made two more significant observations with respect to the bidding process. Its first point was that considering the value of the contract, the discussions and negotiations with the party should have been held with the heads of the respective departments, which was not done. And the second point was that there should have been a few US companies in the fray because biometric systems were a part of all major US airports under the supervision of the Department of Homeland Security. Since the project was finally estimated to cost 500 crore, and not 75 lakh as was earlier estimated, a global tender should have been issued. Finally, the project was given up because it became impossible to counter the objections being raised and explain the huge expense being incurred, especially since the airline was struggling to keep its head above water. But Air India was not as fortuitous with its other big expenditures, where rules were openly flouted and several crores of rupees wasted on awarding tenders to friends and people of influence. Barring a couple of instances—such as when the chief vigilance commissioner intervened to direct the removal of V. Srikrishnan from the position of executive director, Materials Management—the company’s own vigilance department has always looked the other way during such deals. Several years later in 2012, the biometrics case hit the spotlight, when it made headlines in the context of a bribery case against Praful Patel. According to The Globe and Mail, a Canadian newspaper, Canada’s federal justice department was planning to prosecute a Canadian entrepreneur of Indian origin, Nazir Karigar, who was working on behalf of Cryptometrics on charges of corruption. The charges had been leveled at Mr Karigar by the Royal Canadian Mounted Police (RCMP). Mr Karigar was accused of trying to influence a deal worth CAD100 million for biometric

identification systems in favour of his client, and it was alleged that he named Praful Patel as one of the Indian officials involved in the case and that he had paid CAD2,50,000 for getting the approval. Recently the Canadian courts ruled on the matter and Justice Charles Hackland said that, despite the fact that prosecutors were unable to prove that money had been funnelled to any of the Indian officials, there was a sufficient paper trail, including e-mails and a spreadsheet that was created to break down how bribe payments would be dispersed, to show that Mr. Karigar and other Cryptometrics executives intended to make illicit payments. 1

2

Mr Patel, however, termed these charges as false and preposterous, and made three points in a letter that he wrote to the prime minister. He said: one, the project was scrapped virtually at the inception; two, he was not responsible for decisions of this nature and; three (this he mentioned in the annexure to the letter), the technical evaluation committee had visited Cryptometrics in December 2006 to assess its credentials. Soon after the letter, the prime minister cleared Mr Patel of all wrongdoing. This is surprising because the CBI investigation into the case is still open and senior officials from Air India were asked to provide details of the case as late as June 2013. Let us consider Mr Patel’s assertion that the project was under consideration for an extremely brief period. The truth was that the project was active for at least a year after the tender had been issued and for a substantial period of time after two of the three tender committee members had signed a note recommending Cryptometrics. As for Mr Patel’s contention that such tenders for procurement of various items are routinely issued by Air India and at no stage are dealt with or sent to the Ministry of Civil Aviation, much less the minister; the prime minister’s office ought to have considered the manner in which the airline was functioning at the time. Mr Sunil Arora, a board member, had, in his letter to the Cabinet Secretary on 2 June 2005, stated, ‘During the last one year, almost all Board meetings of Air India, and even some Board meetings of Airports Authority of India have become a farce. Instructions on key agenda items are communicated beforehand on telephone or personally by Minister, Civil Aviation, or by his Officer on Special Duty, Shri K. N. Choubey. No suggestions to the effect that the issue in question requires a more detailed examination or that there are some implications are countenanced. The key word is “immediate and unquestioned compliance”.’ As Mr Arora described and as we who were a part of the airline during the period knew, the chairman and managing director, V. Thulasidas, was more than willing to be led by the bureaucrats and political leadership in Delhi. Thus, even if we were to accept Mr Patel’s statement that the issue didn’t come to him for approval, we still need to know who authorised the tendering procedure because of the huge cost involved, but that is for the investigating agencies to determine. With respect to the visit to Cryptometrics by the technical evaluation committee, this came about after the commercial bids had been opened and the tender committee had finalised its recommendation whereas, as per the rules, the visit should have taken place before these steps had been taken. Also the visit did not include the other contender for the project. The biometrics project and the way it was handled revealed the rot that had set in within the airline. It also showed that those who were in power during the period cared little for the airline’s financial stability and its future. The fact that the airline could do without such an expensive project is best understood when we look at the situation today, more than seven years later, when one can still see no need for passenger identification systems.

It is ironical that the period that saw the maximum financial turmoil and window dressing was also when the airline made a bold proclamation in its annual report of 2006–07, the last one before the merger, ‘Air India’s corporate governance philosophy was to continuously strive to attain higher levels of accountability, transparency, responsibility and fairness in all aspects of its operations. The company remained committed towards protection and enhancement of overall long-term value for all its stakeholders—customers, lenders, employees and society… The Company follows sound business practices and conducts its business in a transparent manner. The Company remained committed towards ensuring observance of Corporate Governance principles in all its dealings.’ The examples mentioned in this chapter, whether cited to highlight inflated incomes, suppressed expenditures, or decisions relating to unwarranted expenditure, are not exhaustive. There were many more such instances. It is, therefore, difficult to gauge the damage inflicted on the company’s finances. One can, however, aver that if the accounts had not been dressed up to show the finances in a better state than they actually had been and acts of unwarranted expenditure had not been resorted to, and if instead, the management of that era had acted judiciously, Air India would not have been struggling to stay afloat today. While the system infirmities and the role of the senior management, employees and unions had reduced the airline to an ‘also-ran’ status, the injudicious decisions thrust on the airline during the 2004–08 period inflicted fatal blows. The mismanagement of accounts was so blatant that it could not have escaped the expert eye of the board members including the independent director. Yet, none raised the red flag. How does one explain the silence of the independent directors and other members of the board? As the airline crumbles, it may be a good time to bring all of those who contributed with their collusion and their silence to account. NOTES 1. For further information, please see http://www.theglobeandmail.com/news/politics/canadian-accused-of-bribing-cabinetminister-in-india/article543625/?page=all. 2. For further information, please see http://www.theglobeandmail.com/news/national/executive-convicted-in-indian-briberyconspiracy/article13804839/

CHAPTER TEN

flight from reason

A YOUNG FLEET is the aspiration of every airline. It reduces operational costs, improves customer experience and makes the airline more competitive. So too it was with Air India. The airline had been a cautious expansionist, however. Since its establishment in its original avatar as Tata Airlines in 1932, the fleet had grown at an average of no more than one or two aircraft a year. Many global airlines that made their debut much later grew more rapidly in terms of fleet size and network. Air India added 17 Lockheed 749s and L1049s over a 10-year period spanning 1948–58. The 11 nextgeneration Boeing 707s were inducted during 1960–68; the 11 B747-200s were added during 1971– 79; the eight Airbus 310s were added during the four years between 1986 and 1990;two B747-300 in 1988 and the six 747-400s were inducted during the four-year period between 1993 and 1996. In all, 55 aircraft were added to the fleet over a period of five decades, if one did not take into account the aircraft taken on lease for brief periods at various times. Air India had for long nurtured a grouse against the government for not supporting its aircraft acquisition plans. When the board finally approved an order for 28 aircraft—10 medium-capacity long-range aircraft and 18 small-capacity short-range aircraft in November 2003— it was seen as a sign of hope by all of us in the airline. A few years earlier, a recommendation for the seventh B747400 and three A310 aircraft had been rejected by the government; the latter on the grounds that Indian Airlines had surplus capacity. Thus, the government’s change of heart was seen as a major victory and when Praful Patel, on his maiden visit to the Air India headquarters as the civil aviation minister in June 2004, promised to fast-track the acquisition, there was still greater reason to cheer. The events that followed, however, showed that our hopes had been premature and even misplaced. With total disregard for Air India’s experience with aircraft induction, its annual turnover and its ability to generate profit over the years, a small but powerful team comprising Praful Patel, V. Thulasidas, a few bureaucrats from the ministry of civil aviation decided and a handful of officers from the commercial, planning, and finance departments lent support to the proposal to increase the number of long-haul aircraft being ordered from 10 to a staggering 50, a five-fold increase. The rationale for the quantum leap in numbers was not clear. It flummoxed everyone because Air India did not have the finances to afford such a large fleet. Moreover, market conditions had changed dramatically, and Air India’s turf was getting smaller by the week. It seemed imprudent at the time to

expand one’s fleet on such a massive scale. Mr Patel was well aware of the changing market situation, especially since he was the one piloting the policy to grant more bilateral rights to foreign carriers, allowing foreign airlines access to more Indian cities and Indian private airlines the rights to fly the international skies. All of this had already had a negative impact on the airline, and there was no way Air India could have profitably deployed its expanded fleet. Subsequently, the decision came under flak from the CAG, which criticised the way aircraft orders were managed in its report in September 2011. But the damage had already been done with the signing of the deal. It may be relevant here to mention a conversation that I had with Mr Patel a couple of days before the CAG released its report on aircraft purchase. He was apparently unhappy about my article published i n Governance Now (‘Big thinking for quick sinking’, Governance Now, May 16-31, 2011) and remarked that my understanding of the aircraft deal was incomplete. Mr Patel said that he had acted in good faith and had sincerely wanted Air India to become a major airline. In my response I pointed out that even if that were the case, the board members and chairman should have assessed the airline’s capability before making those purchases and hence they were as much to blame for the debacle. The point is that whether it was a case of the minister being overambitious or misreading the ground realities, there was no one looking out for Air India. Mr Patel was also known to have chided the officials associated with the departments of planning and commercial in Air India, on several occasions, that they were not thinking big like other airlines, notably Singapore Airlines and Emirates, which may have prompted them to take a more generous view of the aircraft requirements. Let us trace the sequence of events that followed the purchase decision. Soon after the order was sanctioned, Air India and Indian Airlines were merged. And over a period of 30 months, commencing July 2007, Air India inducted 38 (20 B777s and 18 B737-800s) aircraft and the erstwhile–Indian Airlines part of Air India inducted 40-odd Airbus aircraft. An airline that had seen its fleet increase by barely a couple of aircraft every year had added several times that number in just over two years. It was a quantum leap! Besides, for Air India, the total order of 68 aircraft, which included 23 B777s, 27 B787s and 18 B737-800s, and was expected to cost the airline over 40,000 crore, was way more than it could afford. Already reeling under the onslaught of the competing airlines, the purchase was sure to strain the airline’s precarious financial situation. If we fast-forward to the state of the airline today, the debt incurred to service the acquisition, coupled with operational failures, has led to its financial downfall. One can only imagine the catastrophic implications on Air India’s financial health if the production of B787 Dreamliner aircraft had not been delayed and Air India had begun its phased induction from August 2008 as originally scheduled. Considering that the government had vehemently opposed fresh acquisition of aircraft in the past, its silence when such a huge order was being pushed through is also inexplicable. RUNWAY TO RUIN There was no doubt that the acquisition would impose a huge financial burden on the airline, but the prevalent market situation made it worse. Competitive forces, unleashed by the changing policy of the government, were growing stronger. Passengers were becoming more and more demanding, and there was a steady erosion of the airline’s operational and strategic efficiencies. The writing was on the wall, but Air India chose to ignore it. And even though the future of the airline was at stake, all

stakeholders—the politicians, the bureaucrats and the senior management of the airline—watched silently while the expansion plan was operationalised. Praful Patel, in a meeting held in the civil aviation ministry on 2 August 2004, asked both Air India and Indian Airlines to revisit their fleet acquisition plans. Mr Patel suggested that Air India should take a comprehensive view of its fleet requirements, keeping in view the following developments: • Introduction of non-stop services with ultra-long-haul aircraft to USA by competitor airlines in the Gulf/Southeast Asia and the consequent need for a competitive product offering by Air India. • The low-cost, low-fare operations envisaged under a separate airline—Air India Express—to the Gulf/Southeast Asia with short-range B737-800 aircraft. • Induction of aircraft on lease (to meet the interim capacity requirements of Air India and Air India Express) pending the purchase of the aircraft. Indian Airlines rejected the suggestion and stuck to its original demand for 43 aircraft. But Air India increased the requirement of long-haul aircraft five-fold, and its board passed the order without considered debate or dispute. The truth is that if we were to look at the plans today and compare those with the projections made on earlier fleet expansion plans, they would not stand scrutiny. In November 2003, at the time of the original fleet acquisition plan, an internal study had revealed that the acquisition of 10 wide-body aircraft would result in a positive net present value (NPV), while it would be negative if the number went up to 17. However, when the order for 50 wide-body aircraft was being considered, the same head of the planning department presented a report that showed the overall NPV to be positive as a member of the airline’s board pointed out. How could 50 aircraft generate a positive NPV when 17 did not? Most members of the board were privy to both reports, and yet they cleared the expansion without a note of dissent. Those who facilitated the aircraft acquisition plan are now willing to open up. They say that certain officials in the commercial department tinkered with the projections to show enhanced revenue earnings from the increased number of aircraft. Only an enquiry can reveal who influenced the change. The acquisition has come in for heavy criticism in recent years. Many have questioned its rationale and timing, to which the stock response from the minister and representatives of the ministry has been that although the government was responsible for the policy, the plan was formulated and operationalised by the Air India management. But, contrary to what is being conveyed, the Ministry of Civil Aviation—not the management—has been the primus inter pares in the entire exercise. There is a vital difference between laying down the policy guidelines and remote-controlling the operational decisions, which was the reality on the ground. Thus, even though there was no significant change in market dynamics between the time the decision was taken by the board and August 2004, Air India was made to review the fleet plan. There were clearly external factors dictating the decision. Says Sunil Arora in his letter, dated 2 June 2005, to the cabinet secretary, ‘We received a notice on 21.12.2004 to the effect that there is a Board meeting (104 ) at short notice in Hansalaya Building, which housed Air India office in Delhi, on 22.12.2004. No agenda papers were made available.’ That apart, it has also been alleged that the agenda of the meeting was discussed among ministry officials. Moreover, prior to the meeting, one of the aircraft manufacturers had sent a letter to the chairman about the possible impact of some changes in specifications on the economics of the evaluation. And in his letter, Mr Arora said that the secretary th

for the civil aviation ministry and the minister told him, Raghu Menon and the chairman what the common stand should be. Clearly, this calls the ministry’s bluff when it says that it was in no way connected with the nuts and bolts of Air India’s aircraft acquisition programme. Mr Arora described this meeting as historical because a decision was taken even when agenda papers were neither circulated in advance nor placed on the table during the meeting. Only a mention of the issue was made by the chairman during the meeting, and a decision was taken as instructed. For the sake of appearances, however, the board of directors of Air India considered the report of the Techno-Economic-cum-Negotiating Committee, which assessed the airline’s fleet requirement until 2012–13 and identified the nature of the aircraft to be considered while outlining the phase-out plan of the existing aircraft. In a meeting on 26 April 2005, it set out its recommendations based on the committee’s report, which included the following: 1. For the period 2006–07 to 2012–13, the committee sought the induction of 50 wide-body aircraft, comprising eight ultra-long-range planes to the fleet—the eligible aircraft for this purpose being A340-500 and Boeing B777-200LR. In addition, 15 MCLR-A (medium-capacity long-range) aircraft were to be inducted, for which the planes to be considered were A340-600 and B777-300; and 27 MCLR-B, for which the planes being considered were A330-200 and B787. 2. The report recommended that the acquisition of two-third of the aircraft be done on a firm basis and the rest on ‘option’. 3. It was also recommended that the selection of the aircraft should be based on the report of the Techno-Economic Committee and their projection of a futuristic airways network for 2012–13, which envisaged an expansion of over 10 per cent annually for the first 2–3 years and at 5–6 per cent thereafter and an expected long-term growth rate of 7–8 per cent. There is no quibble with the recommendations, except that acquisition of even two-third of the aircraft on a firm basis would not have been justified given Air India’s financial state and revenue earning potential. The problem arises when one considers the report in the context of Mr Patel’s pronouncements. He had clearly stated that the original aircraft order was being reviewed in the backdrop of recent developments, such as the introduction of non-stop flights by competing airlines in Southeast Asia and the Gulf region and the proposed launch of a no-frills airline Air India Express for narrow-body aircraft. However, the expansion plan that was subsequently put into force was based on a futuristic projection of air traffic and network strategies up to 2012–13. There is no explanation provided as to who changed the terms of the review or why it was done. And given that the aviation industry was undergoing a series of changes, including the liberalisation/open skies agreements that were being piloted by Mr Patel, it is a moot point whether the airline should have undertaken such a large investment commitment for an extended horizon. Also, the fleet projections were carried out on the basis of a future network, which was expected to be in place after six years. For this, the capacity growth had been assumed at an average of 12–14 per cent per annum, compared to the expected traffic trend of 7–8 per cent. Analysed in conjunction, it was likely that Air India may not be able to profitably deploy the fleet as planned, stated a board member in a letter to Air India. How prophetic, considering that this was stated way back in 2005! The fact that Air India was saddled with excess capacity was established in January 2013 when B787 Dreamliners were grounded and Air India could pull out its B777s as substitute aircraft.

It is also significant that in the meeting of the board of directors on 24 November 2004, while discussing the new fleet plan envisaging the induction of 50 wide-body aircraft and 18 narrow-body aircraft in the time span of six years, one of the board members asked whether Air India had factored in the likely competition from foreign carriers and possibly domestic private carriers. Air India’s response was that while other airlines could be expected to expand their international operations, it had developed a strategy to grow at a rate faster than the market rate and add a large number of new destinations. The board member also suggested that a conscious view ought to be taken on whether the decisions taken with respect to private Indian domestic carriers and Indian Airlines being designated for new destinations and the likely intensification of competition from foreign carriers in the aftermath of the ‘open skies’ agreements with the USA, UK, China, etc., would or would not result in Air India facing stiffer competition than ever in the past. Was this aspect factored into the evaluation report?—asked another board member. The queries went unanswered. And as I have pointed out on several occasions, Air India has had to suffer the consequences. It has had to absorb the excess capacity, losing money by grounding its aircraft while servicing a huge debt burden. How could this have been allowed, and why did the board members not pursue the matter? The member who had raised the issue did write to the prime minister’s office complaining about political pressure, but nothing came of it. It is equally perplexing that despite the recommendations of the techno-economic committee and the Air India Board that two-third of the 50 aircraft should be ordered on a ‘firm basis’ and the rest on ‘option’, the empowered group of ministers decided to order the entire lot on a firm basis. No explanation has been forthcoming except that it helped enhance the discount quantum offered by Boeing. While such an argument may be acceptable to those unfamiliar with the industry, those conversant with the airline sector will dismiss it out of hand. Air India had tendered for 33 aircraft and Boeing, as per established industry practice, would have offered a discount for that many aircraft in their original bid. The increase in the amount offered as discount was only to be expected because the number of aircraft ordered on firm basis was enhanced to 50. THE BILATERAL BONANZA The acquisition of aircraft was sanctioned at an inopportune moment. As the government was beginning to get increasingly liberal in handing out air traffic rights to foreign airlines, Air India’s share of the skies was on its way down. It was more critical for the airline to protect its market than to purchase new aircraft in such large numbers, and it should have looked at consolidating its position instead of increasing its debt burden. Why the government behaved in the manner that it did is subject to conjecture and speculation. But I would like to focus on a larger question: should the government have given away bilateral rights in the manner that it did? There are two reasons for the need to question the rush to grant air traffic rights. First, such rights, once granted, are rarely, if ever, rescinded or withdrawn. In India’s case, there has not been a single instance of the government even temporarily withdrawing the traffic rights of any airline. In aviation

parlance, once the rights are granted to an airline, they become ‘grandfather’ rights, according to M. P. Mascarenhas, the former MD of Air India and one who had strongly resisted the giving away of rights in the mid-nineties. What this implies is that once an airline bags the rights to operate a certain number of flights or is allowed to offer a specific number of seats per week on a route, it can operate that number of flights or seats on that route in perpetuity. And second, most governments take into account the interests of their own airlines before granting air traffic rights. They consider the ability of home airlines to mount incremental capacity to utilise their share and do not grant rights to foreign carriers till the home carriers are ready to mount the routes within a short term of 3–6 months or at best 6–12 months. Similar caution was not exercised by the Indian authorities. I believe we have been reckless in the way our air traffic rights have been handed out in the years since 2004. In January 2004, the total number of seats to/from India was 4.31 lakh per week for both foreign and Indian carriers. At the end of March 2010, the comparative figure had risen to 16.49 lakh seats—an increase of 280 per cent in a matter of six years. The number of seats per week available to foreign and Indian carriers separately this year has crossed the million seat mark. The air traffic rights allotment, in fact, has a much wider dimension than just seat numbers. Its impact will be felt for years as India’s competitive advantage as a subcontinent has been negated by allowing foreign airlines to operate services directly to more than a dozen Indian cities from their hubs abroad. Interestingly, the lion’s share of additional seats have been granted to national carriers of small city states, which have limited potential to offer to Indian carriers because of their small geographical sizes and limited population potential for travel to or from India. The rapid increase in seats led to falling airfares, and many may therefore view the policy as being passenger-friendly, but that, I believe, would be a hasty conclusion. The increasing presence of foreign airlines has the potential to drive the home carriers out of business, and a policy must be evaluated for the positive as well as the negative impact on the economy. I am not against the increase in competition but object to the manner in which it was done. Home-grown airlines should have been allowed to build capacity before opening up the sector, just as other countries do for their carriers before embarking on similar ventures. To understand how the unchecked distribution of bilateral rights impacted Air India, let us look at what happens when foreign airlines are allowed to increase their capacity substantially and homegrown airlines are not. The industry behaves in the following manner. • Market share follows capacity share; that is, as the foreign airlines increase the number and frequency of flights, they acquire a larger percentage of the passengers. • For national carriers, if the capacity share declines, then the market share declines. • When capacity and market share both decline, there is a drop in revenue load factors. To compensate for low revenue load factors, fares are slashed. • Low fares lead to a decline in revenue yields—measured in terms of earning per kilometre per passenger flown—and often without a proportionate increase in revenue load factor. • The final result is a drop in both revenue load factors and revenue yields. The fate of Air India followed such a trajectory. How does one explain the government’s behaviour? While purportedly planning Air India’s revival through a series of strategic moves on the one hand,

was it handing over the market to foreign airlines with the other? The only way to reconcile myself to such an attitude is by believing that we were playing true to our character of being the perfect hosts— as the famous Sanskrit proverb says ‘Atithi Devo Bhavo’. To keep the visitors happy, the government put the very existence of Air India at risk! On a more serious note, the government has not only gambled with Air India’s future but that of the entire Indian aviation sector. By giving away bilateral rights in this fashion it allowed foreign carriers to increase their stranglehold over the market and to manipulate fares to their advantage. In the future, the policy is bound to come back and bite the private carriers too because of the thoughtless manner in which the rights were granted, giving foreign airlines a head start and a firm grip on the market before the Indian carriers were ready to mount operations. The story of Cathay Pacific illustrates how the liberal grant of rights put the Indian airlines at a disadvantage. In May 2008, the airline was allowed to increase the number of flights to Mumbai and Delhi from Hong Kong from 4 to 10 and 7 to 14 per week respectively. The airline was additionally granted rights to operate four weekly flights to Chennai and a new point of call, Bangalore, was granted to its subsidiary airline Dragon Air for a daily flight. Since then, additional rights have been granted to more Indian cities, including Hyderabad. In sharp contrast, the merged Air India has been unable to mount any additional capacity even five years later and though other Indian carriers subsequently commenced services to Hong Kong, the combined capacity of all Indian carriers is nowhere close to that of Cathay Pacific and Dragon Air. Many foreign airlines have obtained huge increases in third and fourth freedoms of air traffic rights between India and their home countries. Moreover, they have also been able to gain access to interior points in India. These airlines are using their excess capacity to funnel traffic between India and the USA/UK/Europe/Australia/Japan through their respective hubs. As a result of increased capacity deployment by competitor airlines, the international skies to and from India have become fiercely competitive. In fact, such is the domination that sixth freedom traffic today accounts for 40-79 per cent for Gulf carriers; 35-70 per cent for South-East Asian airlines and 61-87 per cent for European carriers. 1

2

Old timers in Air India recount an interesting aside. When the Jyotirmoy Basu Parliamentary Committee was auditing Air India in 1978–79, it used to, for justification on various counts, ask Air India officials, ‘What is the consideration?’ His question hinted at external factors playing a role in the airline’s internal decisions and the growing influence of the political class. In the wake of the mammoth increase in capacity increase granted in recent years, it is perhaps time for Air Indians to ask the government, ‘What is the consideration?’ If the hue and cry on the allotment of mining rights for coal, a natural resource, could lead to a political impasse, I can’t help but wonder why no such enquiry has been initiated for air traffic rights, which is akin to a natural resource, even though there has been such a demand by a parliamentary committee. DELUSION OF GRANDEUR An organisation undertakes an expansion plan when either one or all of the following conditions are

met: it has a healthy reserves position; market conditions favour expansion; and the expansion is done in a phased manner with a built-in revenue realisation mechanism. At Air India, none of the above conditions was met, and yet it went ahead with a hugely ambitious growth plan. Air India was about to acquire 50 Boeing aircraft and Air India Express was to acquire 18 Boeing aircraft. The total expenditure envisaged was 38,149 crore; Air India would incur a cost of 33,197 crore and Air India Express, 4,952 crore. The state of its finances was not robust enough to justify an acquisition of such scale. In the five years prior to fleet expansion, profits were meagre. And if one takes into account the 10year period from 1997–98 to 2006–07, the figures are worse as the airline made a net loss of 532.52 crore. During 2005–06, the year in which the order for aircraft was placed and in 2006–07, the year before the merger, the airline made a net profit of 14.94 crore and an operating loss of 399.60 crore and a net loss of 447.93 crore and an operating loss of 1431.18 crore respectively. Air India thus had hardly any cash reserves, which meant that the project would have to be financed through debt as was projected in the reports sanctioning the acquisition. There was to be a small infusion of equity, too, worth 325 crore. The interest burden and the repayment of the loan would be met through internal accruals, according to the report. Given the size of the acquisition and the amount it was valued at, Air India would have had to set aside a sizeable sum every year for the repayment of the principal amount. The aircraft induction was to commence from 2007 and the industry practice was that payments had to be a year before the delivery of aircraft. Air India took its first loan in 2006 for delivery of aircraft in 2007. The loans, as per industry practice, were payable over a 12-year period. Since all aircraft were to be delivered by 2012 (the delay in delivery of 27 B787 Dreamliner was a later development), the period of repayment was expected to be 2007–2023. And the amount to be paid out was expected to be around 2000 plus crore in 2009–10 by which time 38 aircraft - 20 B777s and 18 B737-800s would have been delivered and peak during the 2012–2018 period to over 3500 crore, when all 68 aircraft would have been inducted. Given Air India’s financial situation and going by its past performance, there was no way the airline could have met this requirement. It is common knowledge that the airline industry works on wafer thin margins. At best, an efficient airline can generate about 5 per cent of its revenue as profit. For Air India to be able to earn a net profit amount sufficient to pay back the loan it would have had to generate 75,000– 80,000 crore as revenue, which, incidentally, is not even the combined turnover of all the Indian carriers put together. What, then, was the basis for the projections and their underlying assumptions? It was assumed that an increase in capacity would automatically result in an increase in market share from 19 per cent to 30 per cent by 2012. There was nothing to warrant such optimism. Air India’s market share had remained static at 19.4–19.5 per cent from 1999–2000 to 2003–2004, even though the number of aircraft had increased from 23 to 35 (aircraft had been taken on lease). The revenue estimates were exaggerated and based on unrealistic passenger yields, while costs were kept more or less constant, ignoring inflationary trends. The revenue yield from direct flights to and from the USA was projected to go up by 10 per cent even though other airlines plying the same route had not achieved anything close to that figure. Long-term traffic was projected to grow at 8 per cent even though the average growth registered during the period 1998–2004 was only 6.5 per cent. The ministry had also announced a liberal bilateral rights policy, which should have alerted all those

concerned with the airline’s expansion that Air India’s traffic was unlikely to go up. But none paid heed; nor was there an attempt to seek a moratorium on further grant of capacity, as had been suggested by Accenture and which should have been the logical course of action since the airline was under pressure to scale up the number of long-haul aircraft. The project report was also unrealistic with its fuel price projections, which constitute the largest component of an airline’s operational expenses, accounting for as much as 35 per cent of the total bill at times. A prudent accountant will always take current fuel prices and arrive at an estimate after factoring in the inflationary trends. However, what did the decision makers at Air India do? They calculated an average fuel price based on the previous three years’ prices and did not account for inflation at all. Clearly, the projections that were made on the basis of such figures were not worth the paper they were printed on. COMING TO GRIPS WITH GRIM REALITY Air India’s expansion plans were based on a set of projections that fell apart almost as soon as they were inked. When it began posting losses year after year, post the aircraft induction, its working capital requirement ballooned substantially, as did interest costs. Currently, the amount drawn as working capital loans from the banks has already crossed 21,000 crore, and with losses mounting daily, it is set to increase every day. Air India had also argued in the feasibility report that a larger fleet would help operate new routes, which would yield greater revenues. This was like to building a house of straw to escape a cyclone. Prime routes, such as those between India and the USA and Europe, had been yielding very little. For most foreign airlines, however, these are profitable sectors because of huge capacity deployment, feeder networks and carriage of sixth freedom traffic. For Air India more than 50 per cent of flights did not and do not recover even the cost of fuel and almost 80 per cent can’t even realize their operating cost. The CAPA report of February 2013 states, ‘Of the 189 routes that Air India operates only 12 meet operating costs. A further 82 cover their cash costs but not their total costs and 95 routes or just over half do not even meet cash costs.’ It appears as if the airline was either unable to or preferred not to anchor itself in reality. This seems odd given that the board of Air India was not only peopled with professionals from different quarters but also had a financial expert, N. Vaghul, former chairman of ICICI Bank, as an independent director. Air India also has a vigilance department, which was headed by a deputationist from the Indian Revenue Service during the period under review. Today, Air India is reeling under accumulated losses and loans of around 78,000 crore. It made a loss of 2,226.16 crore in 2007–08, 5,548.26 crore in 2008–09, 5,552.44 crore in 2009–10, 5,489.09 crore in 2010–11, 7,853 crore in 2011– 12 and an estimated loss of 5,198 crore in 2012–13. Even if we were to ignore the obvious folly of approving an order of this magnitude, there is no explanation for the decision being upheld even when the reviews showed that the revenues were falling year after year. Were these periodic review exercises a sham? The minister and ministry officials were was present at several review sessions conducted at the Air India building, and were briefed about the state of the airline’s revenues. How is it that the ministry can then say that it failed to ‘discover’ the real state of the airline’s finances?

The Comptroller and Auditor General (CAG), which went into the acquisition in detail, has questioned the quantum jump in the requirement of long-range aircraft from 10 to 50 in its report. It observed that it took just four months to prepare a revised project report after being advised by the ministry of civil aviation to ‘revisit’ the original proposal. How was it that such a large and ambitious expansion did not merit greater consultation, especially given the airline’s history with aircraft purchase? The ministry submitted that ‘strictly speaking, it is for the Air India board to take a view in the matter, and its advice should have been regarded more as a suggestion’. While that would have been true in any other organisation, the growing politicisation of Air India made it difficult for the chairmen to protest or raise an objection. The incumbent chairman did not have the gumption to resist even the meekest of suggestions, let alone ignore a direct order from the ministry. The CAG report further observed, ‘The logic advanced that expanding capacity faster than the market/competitors would enable it to grow and increase market share, since the market from India was booming was flawed. The assumption that increase in capacity share would automatically lead to an increase in Air India’s market share—projected increase from 19 per cent to 30 per cent by 2012–13—was not adequately validated. For the year ending 31 March 2012, the size of the domestic and international markets is 55.8 million seats and 36.6 million seats, with Air India’s share of about 17 per cent in both cases. Likewise, the two Parliamentary Committees namely Parliamentary Standing Committee on Transport, Tourism and Culture and the Committee on Public Undertakings in their Reports have faulted the acquisition on several counts.’Why did no one protest? We may find a clue in a statement from V. Subramanian, who was on the Board of Directors of Air India and Indian Airlines as additional secretary and financial adviser to the ministry of civil aviation from February 2000 to January 2005. He was scathing about the manner in which Air India would conduct its board meetings. There was hardly any discussion over matters of critical importance, and some chairmen merely carried out the wishes of their ministers with little thought for the airline’s future, he said. The member was transferred out of his post in the ministry for seeking an explanation from the then chairman V. Thulasidas about the airline’s fleet plan. Lack of dissent had vitiated the decision-making process in the airline. Board meetings had been reduced to a joke. With virtually no participation of members other than those who were genuinely concerned about the airline, agenda papers were sent to members only a day or two earlier. This included occasions when proposals for acquisition of new fleet were being discussed. In fact, when the board met on 26 April 2005 for its 106 meeting, the copy of the financial evaluation report was neither sent with the agenda papers nor given to members during the meeting. Instead, a powerpoint presentation was made by the Director of Planning in the course of the meeting. th

This prompted one board member to write to the company secretary, ‘It would be appreciated that on a matter of such importance, involving huge outlays, a copy of the Financial Evaluation Report should have been made available to the members of the board of directors at least a week or ten days before the board meeting.’ This was in fact a reiteration of what he had stated almost a year earlier on 28 May 2004 at the time of discussing the concept of Air India Express as a low-cost airline. He had said, ‘I do feel that making available the papers on such sensitive issues either on the day of the board meeting or a day before does not serve any useful purpose and makes the entire exercise somewhat opaque.’

While the CAG and the two parliamentary committees headed by Sitaram Yechury and V. Kishore Chandra Deo have produced damning reports on Air India’s aircraft acquisition, none has been taken to task yet. The Public Accounts Committee is seized of the matter, and one hopes that the Special Leave Petition filed in the Supreme Court of India, with which I have an indirect association, will hold those responsible guilty. The petition assumes significance in the background of the failure to prevent the purchase of aircraft in such large numbers, even though the government had been warned at the highest level by Sunil Arora about the way in which the order was being pursued. One has therefore no option but to rely on the courts for a fair hearing of the issues. Air India today stands at a crossroads. Some are seeking privatisation, and others want an infusion of funds for breathing fresh life into the airline. Corporate denizens and industry associations have been candid in their call for privatisation, pointing out that this is the only route to future survival, but the current minister for civil aviation, Ajit Singh, has been guarded and said that although the country does not need a national carrier, Air India will not be privatised. With losses growing year after year, market share dwindling year after year, more and more people moving away from the airline, and turnaround plans failing, the government ought to take an urgent note of the real state of the airline for corrective action before it is too late. NOTES 1. Commercial aviation traffic rights are usually expressed as “freedoms of the air”, which constitute a set of commercial aviation rights granting a country’s airline(s) the privilege to enter and land in another country’s airspace. 3rd freedom:The right to fly from one’s own country to another country. 4th freedom:The right to fly from another country to one’s own country. 2. 6th freedom: The right to fly from a foreign country to another foreign country while stopping in one’s own country

CHAPTER ELEVEN

troubled alliance

AIR INDIA AND Indian Airlines were conceived and allowed to function as distinct entities ever since they were established under the Air Corporations Act of 1953. One flew the home skies while the other plied international routes; both were owned by the government, but they were raised to be independent of each other be it in terms of the customers they served or in the brand that they embodied. Thus, even though the two airlines were both government-owned, they were managed very differently. The decision to merge the two in 2007, therefore, raised a storm in both airlines, and those with even the slightest understanding of the task at hand balked at the audacity of the proposal. A STUDY IN CONTRAST Air India existed even before the Air Corporations Act came into being. It was known as Air India International till 8 June 1962, when the word ‘international’ was dropped from its name. The 1953 Act did not materially impact its functioning because not much changed except its nomenclature. Indian Airlines, on the other hand, came into being after the 1953 Act. It was created by bringing together a clutch of airlines into existence at the time—the Air Services of India, Bharat Airways, Deccan Airways, Himalayan Aviation, Indian National Airways and Kalinga Airlines. The Act created Indian Airlines out of several old companies. But Air India merely changed from a privately owned airline into a public sector company. There were other differences too. Air India had grown up in the shadow of the legendary J. R. D. Tata, who had conceived it as a professionally managed organisation. The team that Mr Tata had handpicked to set up the airline also helped in its transition from a private to a national carrier and instilled global management practices and quality standards at the time of its nationalisation. Also, Air India had been exposed to competition, albeit in a limited manner, from global airlines operating out of India. It had been exposed to international practices early in its existence and had a reputation to protect. Thus, right from its initial days, the airline was known for its on-time performance and well-groomed and polite cabin crew. It was also recognised for its uniquely Indian appearance and had been informally anointed the country’s unofficial ambassador of culture. Industrialists, film stars, politicians, sportspersons and artists—they all flew Air India. It was the face of India away from home.

Indian Airlines, on the other hand, was born as a public sector unit. It operated in a monopolistic environment and functioned like any other governmental entity with all the attendant infirmities. Its service was nothing to write home about, and it had never had to woo passengers or worry about setting its fares on par with those of other airlines. It was managed as an extension of the ministry of civil aviation and was more vulnerable than Air India to political pressures. The two airlines were, clearly, leagues apart. In fact, a passenger who flew both airlines till the 1990s once succinctly summed up the difference. He said, ‘When we had an unpleasant experience on an Air India flight, we used to feel anguished, but when faced with a similar experience on Indian Airlines, the reaction was laced with anger.’ Air India’s fliers were loyal and willing to give the airline a long rope for its lapses in service. But Indian Airlines was not treated with the same patience. We could not have had two companies more different from each other, not just in their operational approach and attitude but also in terms of customer perception and brand identity. The two corporations were so different from each other that the Committee on Public Undertakings (COPU) that decided to look into the merger of the two airlines in an effort to understand the malaises afflicting public sector undertakings also commented on it. The report that the COPU considered and adopted on 20 January 2010 said, ‘[The] critical fact to be noted is that prior to the merger, Air India and Indian Airlines were distinct entities having wide variances in critical areas such as operations, fleet requirement, requisite expertise, service conditions to a good measure, conditions of recruitment, pay structures, IT requirements and functioning.’Thus, the committee pronounced that the merger was a marriage ‘between two incompatible individuals with hardly any meeting ground’. The obvious mismatch between the airlines has led many to question the idea and seek a rationale for its genesis. Rajiv Gandhi, former prime minister of India and an ex-pilot with the Indian Airlines, was the first to moot the merger of the two government-owned carriers. After assuming charge in November 1984, he had retained charge of the civil aviation portfolio for the initial months. During that time, he initiated the process for setting up three major institutions—The National Airports Authority of India for the management of domestic airports, Pawan Hans for managing helicopter services and Indira Gandhi Rashtriya Udaan Academy for providing training facilities to young boys and girls aspiring to be pilots. All three institutions came up in 1985—which, on hindsight, can be described as one of the most decisive years in the history of Indian civil aviation. S. S. Sidhu, a 1952-batch IAS officer and the then civil aviation secretary, explained to me that Rajiv Gandhi, while laying the foundation for civil aviation in India through the creation of such bodies, had mooted the merger. A study was duly undertaken, and subsequently, a cabinet note was drawn up. The merger was actively considered and discussed during those months. Soon thereafter, Rajiv Gandhi handed over charge of the civil aviation portfolio to Jagdish Tytler, and industry denizens Ratan Tata and Rahul Bajaj were appointed as the chairmen of Air India and Indian Airlines respectively. And the merger proposal was quietly buried. Even at that time, the people involved with the entire proposal say that Air India wasn’t enthused with the idea as Indian Airlines did not have a comparable profile and Air India did not wish to dilute its globally recognised brand. REVIVING AN OLD IDEA

For many years, there was no mention of the merger proposal. Neither airline saw the need for joining forces as long as they were both flourishing in a monopolistic environment. But times changed, and the government opened up the skies. Soon, private airlines emerged as competition for the domestic business and snatched market share away from Indian Airlines. Around the same time, the government allowed international airlines greater access to the Indian market and Air India found itself under pressure. As competition got tougher, Indian Airlines and Air India began to crack under the pressure of their own weaknesses. And the merger proposal was brought back into play. The ministry began looking for a solution that would enable the two airlines to build on their strengths and survive the onslaught of the private Indian and foreign airlines. Consulting firm Accenture was appointed to study the situation, and the report that came out of the study suggested that Air India and Indian Airlines should coordinate their operations more closely. The idea of a merger appealed to everyone. And even those who were not keen to see the two airlines join hands were willing to see merit in the proposal, but what flummoxed everyone was the pace at which the plan was pushed through. There was no attempt at debate; nor did anyone take into account the history of mistrust between the airlines. V. Thulasidas and Praful Patel were in a hurry to see the plan through and in the process, they ignored the lessons that would have helped take a more judicious call. There were two things the merger enthusiasts should have considered. One was the merger between Indian Airlines and Vayudoot, which had been carried out in the mid-1990s but which, more than a decade later, was still a source of acrimony for the employees of the airlines. And the second was an attempt made way back in 2003 to bring about greater synergy in the working of Air India and Indian Airlines. The government had set up a committee to look into the affairs of the airlines, and the suggestion had been that they should coordinate their efforts, but that did not happen. It would have been worthwhile for the ministry to look into the reasons for this before launching into the merger. It became increasingly evident to most of us that the merger was being effected not for the good of the airlines but for reasons not obvious to anyone. In fact, this was also the question raised by the parliamentary committee that looked into the merger and its aftermath. It questioned the ministry’s rationale for the creation of National Aviation Company of India Limited (NACIL). The ministry replied that the merger was the best decision in the history of both Air India and Indian Airlines. In fact, the COPU report records the ministry’s statement that the merged entity would have a fleet of more than 140 aircraft, which would help take on the growing competition from the private airlines and international carriers and that it would help the airline join the list of the top 30 airlines globally and the top 10 airlines in Asia in terms of fleet size. The ministry submitted before the committee that with the merger, Air India had become the largest airline in India and was comparable to other airlines in Asia. In fact, at the time of the merger, this is what the minister and the chairman had assured us. They were also very keen to move ahead at the earliest because, as they said, time was of the essence. Once the merger had been approved and NACIL had been created, the sense of urgency seemed to evaporate. The euphoria, if any, generated by the government’s decision to merge its national carriers started fading in almost all the areas—administrative, financial and operational even before it had

actually become effective. Employees of both the carriers felt apprehensive about several aspects of the new set-up. They claimed that they were not consulted when some major decisions regarding the merger were taken. The Parliamentary Standing Committee on Transport, Tourism and Culture in its report commented on the situation thus, ‘The merger process was started in the year 2007 and both the existing national carriers were merged into one entity called NACIL but even after a period of two years, the merger process was yet to take shape. Even after two years there are literally three entities functioning till date namely, the Air India, Indian Airlines and the newly created NACIL.’ The Ministry of Civil Aviation replied that time was a factor in every merger deal. In view of the complexity of the process and the time required for the same, the question of derailment of the merger process did not arise. The ministry quoted instances of international mergers, such as JAL–JAS and AF–KLM, to support their argument. But the committee was not convinced. It said in a damning indictment of the entire process, ‘The merger is neither visible in the air nor on the ground.’ It said that the merger had been delayed beyond reasonable limits and that it appeared that ‘all the planning and road map for this [have] gone haywire’. In addition, it said, ‘Any successful business model, in fact, depends on the proper integration of men and material from the beginning and not in the mid-way. In this case, the essential integration has not yet taken place in real terms. As per the merger document, the integration of human resources will take at least two more years. In such a scenario, NACIL is having virtually three managements, namely, NACIL itself, erstwhile Air India (NACIL-A) and Indian Airlines (NACIL-I).’ A RECIPE FOR DISASTER? COPU has noted in its report, ‘In the pre-merged scenario, Indian Airlines had registered profits between 2003 and 2006 and so had Air India between 2001 and 2006. In 2006–07, the losses incurred by both companies totalled 688.22 crore (Air India, 447.93 crore and Indian Airlines, 240.29 crore)… in 2007–08, the merged airline recorded losses worth 2226 crore which went up to 5548 crore in 2008–09.’ Clearly, the merger accelerated the fall in the fortunes of both the airlines. What went wrong with the plan—was it flawed at the planning stage or was it poorly implemented? More importantly, why has no one been held accountable for the decision even though Air India has already paid a huge price for this misadventure? Let us look at the sequence of events leading to the merger to gain a better perspective. The potential for value creation through collaboration on fleet and network between Air India and Indian Airlines had been discussed for several years, and a few unsuccessful attempts at Indian Airlines providing an efficient feeder arrangement for Air India’s international flights had also been made. A concept note to this effect was first prepared by consultants A.T.Kearney in 2003–04. The plan was that Indian Airlines would bring in passengers from various Indian cities to Mumbai or Delhi and feed them to Air India’s international flights. On short routes, Indian Airlines aircraft would be deployed instead of Air India deploying its own large aircraft. This was undertaken on an experimental basis, but frequent squabbles on various operational and financial aspects meant that the alliance was beset with problems right from the start. At this stage, it was just a partnership between the two, and even that was proving to be a non-starter which should have been a sign of things to come.

The first time that a public pronouncement of the intent to merge the two airlines was made by a person in authority was at the Kolkata convention of the Travel Agents Association of India in September 2004. V. Thulasidas, while addressing the gathering, said that the national carrier should merge with Indian Airlines and create a strong domestic hub to boost the aviation sector in India. What prompted him to make such a statement, and that too, at a public forum? Should he not have first discussed it with his team internally? With less than a year at the helm in Air India and no aviation background, it was unlikely that Mr Thulasidas was voicing his own opinion on such an important matter. The report of the CAG found the first reference to the merger of Air India and Indian Airlines in the records of the Ministry of Civil Aviation in a noting dated 16 March 2006, which stated that the Minister of Civil Aviation desired a concept paper on the integration or merger of Air India and Indian Airlines. The notation was made on a concept paper drawn up by A. T. Kearney, 18 months after Mr Thulasidas’s statement. Why was there such a time lag between the chairman’s words and the request for a report? Ideally, the concept note should have preceded the announcement. Even more surprising is that within six days of this noting, a presentation was readied for the prime minister on the subject. Such haste was completely out of character with respect to Air India, where proposals usually languished for years. Stranger still was the fact that the presentation vanished without any trace. It could not be retrieved from the ministry’s records, according to the CAG’s report. The CAG’s report quoting the notations that had been made said, ‘In the presentation, it was highlighted that in the light of the global trend towards consolidation in the airlines industry, it had become incumbent for the two national carriers to work towards merger, as the merged entity would not only be able to compete effectively in the market but would also find greater acceptability amongst the global alliances. It was emphasised that given the overall developments in the civil aviation sector internationally as well as in the domestic sector, nothing short of merger would be an effective way to compete effectively in the market.’ There can be no quibble with the objective: competition was getting more and more intense, and the market had been snatched from under Air India’s wings. But what was mystifying was that although the solution being suggested was fraught with problems, the people involved paid no heed to the history of trouble between the airlines. The HR department should have been particularly alert to the problems, as should have been the board, the chairman and the ministry. The CAG has also observed that A. T. Kearney, had emphasised the need for synergy between the two airlines in 2004 when it had been appointed as a consultant by Air India. But the ministry had not moved to merge the airlines at that time. CAG also hinted that the ministry had been aware of a concept paper drawn up in 2004 on the potential synergies between the airlines but had not referred to it at the appropriate time. It took two more years for the ministry to initiate action on a merger, and then the matter moved with uncharacteristic haste. What makes the timing suspect is that this was done barely months after both airlines had placed their orders for a large number of aircraft. Indian Airlines purchased 43 aircraft comprising 19 A319s, 4 A320s and 20 A321s from Airbus Industrie, and Air India purchased 68 aircraft, comprising 23 B777s, 27 B787s and 18 B737-800s from Boeing. If the two were to be merged, the orders could have been placed together and NACIL could have gotten a far better deal. The CAG’s report said, ‘Had the possibility of merger (with attendant route rationalisation, network integration, common maintenance/overhauling facilities and other synergies) been considered—even

at a late stage—in the process of fleet acquisition, the underlying economics, including frequencies, routes, seating, and other operational aspects, could have been significantly altered; perhaps, even a common acquisition process for AI/IA could well have been considered. In the CAG’s view, the potential benefits for the merger would have been far higher, had this been undertaken before the finalisation of the massive and separate fleet acquisition exercises undertaken by AI and IA.’ Why is it that the minister and chairman did not consider these options? If they had decided to merge the airlines, why did they push through the acquisition of 68 new aircraft for Air India? The ministry officials, in their reply to the CAG in August 2011, while elaborating the background and rationale for the merger and acquisition of the aircraft, stated that the merger would not have altered the aircraft acquisition programme significantly, and that no losses could be attributable to the merger. The ministry could not have said anything else since it was in charge of the aircraft order and the merger. But the facts belie the ministry’s contention. The point is that Air India was bleeding. Its finances were in a state of disarray and revenues were being squeezed dry. It could ill afford the purchase of 68 aircraft, but since there was no going back on that decision, the authorities should have considered the burden that the merger would impose on the airline. COPU observed with bafflement that ‘…while the merger of these two airlines had extensively been deliberated upon since the early 1970s, and the refrain all through had been to tread cautiously, it was abruptly done in 2006–07, throwing all caution to the wind…and millions have been spent to appoint consultants to advise on various matters starting with the revival roadmaps, followed by merger and turn around plans, which have gone in vain due to non-implementation of the expert inputs in their entirety.’ The COPU report and, in a way, all the reports that have come out since the time of the merger seem to emphasise the fact that there was a large gap between what was promised and what has been delivered. For instance, the champions of the merger had said that NACIL would offer stiff competition to the private airlines with respect to fleet size, route efficiencies and economies of scale. But once the merger was approved, no efforts were made to realise the promised potential. The Parliamentary Standing Committee on Transport, Tourism and Culture report also says, ‘The Committee fails to understand how the two major avowed objectives of merger—“economies of scale” and “increased leverage”—could be accrued without achieving proper synergies. The Committee also notes that the technical infrastructure for aircraft maintenance including various workshops created by each company over the year is specialized and unique to each fleet type owned by both these airlines. As such, cross-utilization of the maintenance services is also not feasible. The Committee feels that in such a situation these inherent contradictions existing within NACIL have become major stumbling block in achieving the required economies of scale and increased leverage.’ According to Accenture, the consultants appointed to conceptualise the merger and evolve a road map for implementation; the main intentions of the merger were to: • Provide an integrated international/domestic footprint, which would significantly enhance customer proposition and allow easy entry into one of the three global airline alliances. • Achieve synergies on two counts—revenue synergies (primarily on account of network integration) and cost and capital productivity synergies (leveraging economies of scale for rates for catering, crew boarding and lodging, etc.; opportunities for rationalising overlapping facilities and infrastructure, e.g., international locations serviced by both airlines).

Unfortunately neither has been achieved. When COPU pointed out the delay in the accrual of benefits due to synergy and also the status of the merger as on date, the ministry replied that Accenture had projected a saving of 3–4 per cent in costs and an increase of 3–4 per cent in revenue (arising out of synergy benefits) to accrue over a period of time. This was based on the consideration that the merger would enable optimal utilisation of the existing resources through improvement in load factors and yields on commonly serviced routes, as well as through the deployment of the freed capacity on alternate routes. The merger was also to provide an integrated, international/domestic footprint, enhance the customer proposition and ensure its entry into one of the three global airline alliances. But none of this actually happened; the points remained on paper, and the two airlines continued their fall into oblivion. Even the recommendations made of Accenture were ignored. Air India has also been kept out of the Star Alliance and the official reason is that the airline failed to comply with the minimum requirements, but the real reason, many say, is that Air India’s dipping profile among fliers made it an unattractive proposition. As for cost and revenue rationalisation, that too has fallen apart. The consultants had projected a figure of 820 crore on account of synergies at the end of the third year after the merger, but the real figures are nowhere close to this amount. There have been limited savings on fuel uplift and on account of shutting down one of the two offices. The losses sustained in the post-merger period far exceed the financial gains. What is perplexing is the fact that the total revenue of the merged Air India was less in 2012 than at the time of the merger. The Parliamentary Standing Committee on Transport, Tourism and Culture report points out, ‘The Consultants had to prepare a road map for the merger specifically related to the integration of flight schedules, networks, infrastructure, marketing and distribution channels, integration/rationalisation of the fleet, subsidiary companies, and business strategy and plans for the merged entity. They were also asked to support change management and communication during pre- and post-merger stages and look into the issues involved in the integration of manpower resources and support implementation of various integration measures/initiatives for a period of one year after the merger.’ But without support from the ministry, they could not achieve any of this. EXPLANATIONS AND EXCUSES Given the severe indictment from various committees, the Ministry of Civil Aviation was forced to explain. On the charge that it had not taken any steps to ensure a smooth integration of functions between the airlines, the ministry said that it had set up a ‘cross-functional integration cell’ under the chairman-cum-managing director for the purpose. It also said that there was a three-tiered grievance redressal machinery that had been instituted, but was silent on the fact that none of this had managed to achieve what they had set out to do. The problem, as the ministry sought to establish, was not that there was a lack of effort on its part to make the merger work but that circumstances and people had let it down. The ministry further told the committee that it had extended all support to the board of NACIL to implement the merger. However, the COPU was unconvinced, and the report was categorical in its censure of the Ministry of Civil Aviation: ‘Nowhere does it reflect the assistance you have provided. You will see the reply is totally beating around the bush. You are not talking about what exactly you are doing about it.’ The COPU also asked what, in the opinion of the ministry, had been the impediments in the way of the

merger taking place as per plan. The ministry replied, ‘There were a number of issues involved in the merger of the two erstwhile airlines in the areas of IT, Manpower, Sales and Marketing, Network Integration, Finance, Materials Management, etc. Merger of Air India and Indian Airlines coincided with the global recession and increasing fuel prices, which has further complicated the matter and affected the pace of integration negatively. While there has been progress in the areas of route rationalisation, combined insurance policy, sourcing of fuel, sharing of engineering facilities, management of working capital, etc., the progress in certain areas like IT, manpower integration has been slow.’ On being asked who was responsible for the mess that the merged entity had landed in, the ministry replied, ‘At the time the merger was contemplated, it was anticipated that there would be optimal utilisation of all the resources and a growth in market conditions and global commitment for travel. Subsequently, due to the recessionary conditions affecting the market conditions in India and abroad, there has been a continuous pressure on yields, passenger load factors, etc. The loss of NACIL is mainly attributable to these factors, including the expansion of fleet, which has resulted in additional interest and depreciation charges. Added to this, the implementation of the wage agreements and the spiraling ATF prices has also impacted the bottomline.’The ministry was trying to absolve itself of all blame, but nothing could have been further from the truth. For any merger to succeed, it is imperative to ensure that the merged entity is allowed a stable leadership whose vision is synchronised with that of the rest of the organisation and a dedicated team of professionals to stand by the leader. These are the two pivots on which the success of the entire exercise will rest. Both were missing in the case of the Air India–Indian Airlines merger. First, let us look at the quality of the leadership. It was the government’s responsibility as the owner of the airlines to bring in or promote from within a candidate who was familiar with the pitfalls and potential of the aviation sector. But bureaucrats with little or no knowledge of aviation, Air India and the changing market scenario were appointed. They were chosen not for their expertise but for their proximity to the political establishment. Even that would have been acceptable if the people who took on the mantle of chairmen were willing to learn on the job or take hard decisions that would help give the merged entity a chance against the competition. If the government was committed to turning the airline around, the best option would have been to appoint someone with a proven track record. A perfect candidate would have been one who was associated with both Indian Airlines and Air India and had performed commendably in both and was in active service. Sunil Arora fit the bill. However given his independent streak—he had sent a strongly worded letter to the Cabinet Secretary in June 2005 protesting at the way pressure was being mounted on him and his colleagues on the boards of Air India and the Airports Authority of India—his candidature has not even been considered by those in power. The government also played a game of musical chairs with the position of CMD. In the period of five years since the merger of the two airlines, there have been five people—V. Thulasidas, Raghu Menon, E. K. Bharat Bhushan, Arvind Jadhav and Rohit Nandan, all bureaucrats—at the helm. Did anyone have any experience in managing a merger, leave aside running an airline? No! Worse still, none had the chance to settle into the job and understand the needs of the airline. Even before they had taken a measure of the problems within the airline, they were moved out. With Air India’s future at stake, should the ministry and the political stakeholders in the airline not have sought people with professional credentials who could have been held accountable for their

actions? A bureaucrat—and that too, one whose job was constantly under threat— meant that the airline was being asked to perform with its wings tied to its side. It seemed that the ministry treated the process of appointment of chairmen like buying a lottery ticket in the fond hope that someday, someone would hit the jackpot. Or maybe, it was a case of misplaced optimism that the chair would make the man—after all, operating from the same room and chair as the legendary J. R. D. Tata should have some beneficial effect! On a more serious note, this was the attitude that killed the airline’s hopes of revival. There should have been just one committed chairman to drive the merger agenda, and not a new man at the helm every one or two years. As one who spent almost two-and-a-half years in the merged airline and has since retirement been closely observing the developments, my impression is that the ministry and the airline’s leadership were negligent of the needs of the merged airline. A project, howsoever simple, can’t be left on auto mode. It needs a dedicated and consistent effort from all the parties involved. And given that the merger between Air India and Indian Airlines was of a complex nature, it was even more important to monitor it closely every step of the way and ensure that the people in charge were not moved midway through the execution process. To quote the COPU report, ‘The Committee feel that there is a need for consistency in plans and policies of the company for the merger to consolidate and for this purpose, there is a need for some credible leadership at the top.… The leadership of NACIL should be put on a mission mode with a mandate spelt out in unequivocal terms to turn around the Company within a specified period. The postings in the top slot of the Company should invariably be governed on the basis of performance and accountability.’ Merging two airlines requires the integration of networks and manpower on the rolls of the respective airlines. Saikat Chaudhuri, assistant professor of management at Wharton School, University of Pennsylvania, who studies and teaches mergers, acquisitions and innovation management, wrote in an article titled ‘Opportunities and Challenges in Merger of A-I, Indian’, published in The Economic Times on 2 April 2007, ‘A well-implemented merger would catalyse growth efforts as well as provide revenue and cost synergies.’ According to him, the merger should have bestowed upon the airlines ‘the ability to optimise networks and reduce overcapacity, expand geographic coverage, capitalise on economies of scale and scope in fleet utilisation and ground facilities, remove duplications in back-end operations, and increase bargaining power in purchasing activities as well as airport slot negotiation’. For Air India and Indian Airlines, all promises of enhanced performance have remained unfulfilled. While the Single Code Passenger Reservation System, which is essential for the merged entity to operate all its flights on a single code and helps reap the benefits of network integration through seamless travel for passengers on all domestic and international routes, was operationalised only in early 2011, manpower integration is still a pipe dream. In fact, the environment has become so vitiated today that senior officials in charge of the merger are being accused of favouring one airline over the other and their decisions are being challenged. This does not augur well for the merger and for the aviation sector as a whole. NO COMMON GROUND

To be fair, managing people is the toughest part of any merger. But the manner in which it has been handled in Air India makes a mockery of the entire exercise. The integration should have been driven by the chief of the HR department with active support from the rest of the team. In Air India, the HR department has traditionally been a weak spot. It has never had a strong leader. It was the same story even after the merger. The HR heads looked towards the chairmen for guidance for every minor change. But the chairman’s post was a moving target, and every time a new man came to the job, he brought a different perspective and set of guidelines. He would also invariably change the HR head, in keeping with the general trend that all senior positions were seen as handouts and favours. The CMD chose a person whom he was close to—not necessarily one who was right for the job—and then let personal prejudices get in the way of support for the chosen person’s actions. For instance, V. Thulasidas felt that a member of the board of NACIL, Anup Srivastava, who was head of the HR department and belonged to the erstwhile Indian Airlines, was choosing his former employer over the merged body when it came to key decisions such as emoluments and promotions for the employees. Mr Thulasidas was quite open about his mistrust of the gentleman and said so on several occasions at internal meetings. He would, thus, prefer to deal directly with the junior members of the department, thereby undermining the authority of the chief, which did immense damage to the merger process. Another chairman-cum-managing director, Arvind Jadhav, decided to entrust the HR department on a part-time basis as additional charge to the head of the airline’s medical department. Thus, for a while, human relations was managed by a doctor and then by an official from the materials management cadre, who had been censured by the Central Vigilance Commission a few years earlier. Rohit Nandan, the current chairman-cum-managing director, who, unlike his predecessors, isn’t essentially a hands-on chief executive, handed over charge to two executives from the erstwhile Indian Airlines, who had limited experience with corporate HR. Ironically, the board-level position of director of the HR department remained vacant for a year-and-a-half when it was needed most, further demonstrating the lack of interest and commitment at the political level in making the merger work. Now, the airline finally has appointed a deputationist from the Indian railways to head the personnel department, and it remains to be seen if he succeeds. The tragedy is that the leaders have ignored even their own experiences with past mergers. Consider the Indian Airlines–Vayudoot merger that was brought about in the 1990s. After Vayudoot’s financial performance deteriorated beyond redemption, it was felt that a merger with Indian Airlines would help revive its fortunes. Vayudoot was a comparatively small airline with only 2,000 employees. But the merger proved to be tumultuous in terms of manpower issues, which are still unresolved. Unfortunately, the HR heads appointed to oversee the Indian Airlines– Air India merger were either unaware of this history or preferred to pay no heed to past lessons. One of the key assumptions made at the time of the merger was that it would improve employee productivity because NACIL would have fewer employees per aircraft on account of a larger fleet through the procurement of additional aircraft and reduction of the employee base by around 4,000 people due to expected retirements over a period of five years. The employees have retired, leading to a reduction in manpower on the rolls of the airline, but productivity is still low because the work practices and systems have not been improved. There is an increasing reliance on the induction of staff on contract in subsidiary companies, such as the Air India Air Transport Services Limited, to undertake the work hitherto performed by permanent employees.

MISSING THE REAL PICTURE The merger was officially announced in 2007, but the airlines have failed to make any progress on the integration of their key functions, especially the HR operations. Employees are disillusioned, given the problems that have ensued in terms of delayed salary payments, lack of promotions, ad hoc and arbitrary rewards to select personnel and frequent changes in policies. No serious effort was made to address the HR issues in the initial years. The ministry, then led by Praful Patel and directly in control of the merged entity, allowed issues to fester until Vayalar Ravi came in as minister and constituted a Committee of Experts under the chairmanship of Justice D. M. Dharmadhikari, a retired Supreme Court judge, on 11 May 2011. He set up the committee five months after assuming charge, but the merger was already four years old. For most of us who have watched the sequence of events closely and knew the way the government worked, the formation of a committee brought no cheer. We wondered whether this would turn out to be a way to sweep all the problems under the carpet, and we were hoping against hope that we would be proved wrong. To understand the impact of the committee and its report, let us study what it set out to do and how it went about its task. The terms of reference were: • Examination of the principles of integration across various cadres and determination of level and seniority • Examination of the principles of pay/wage rationalisation and restructuring for all the employees of the erstwhile airlines • Examination of and suggestions on harmonised working conditions of various categories of employees of the erstwhile airlines, depending upon the requirements • Examination the aforementioned points in the light of the cost neutrality principle • Examination of of the principles governing the structure of pension schemes, death-cum-retirement gratuities and other terminal benefits having financial implications • Examination and recommendations with respect to the general principle parameters of the different productivity-linked incentive schemes and bringing them in line with airline practices • Tackling any other related matter that would be referred to the committee The task was onerous, and the committee seemed aware of that. In fact, the report stated as much in the preface, ‘We could realise a deep sense of frustration and mistrust amongst the employees of two merged entities. However, as soon as they realised that the committee has been set up by the ministry of civil aviation and not by the management of Air India, they had self assurance of the impartiality and independence of the committee.’While this was commendable, what I am mystified by is why the report then did not factor in the bias perception that they had recognised. If a section of the employees believed they were being discriminated against, the committee should have heard out both parties and involved independent observers in the process. As the committee was entrusted with the responsibility of the merged airline it should have considered both points of view. The committee members did not do that, and as a result, the report turned out to be a one-sided recounting of events. And what should have been a rejuvenating exercise turned out to be a degenerative one that perpetuated the differences between the employees of the airlines. The report also erred on facts: it proclaimed that Indian Airlines was older than Air India, missing the fact that Air India had existed as Air India International and before that as Tata Airlines long before

Indian Airlines came into being. While this may not appear to be a major transgression, it is shocking that the committee members did not check their facts before putting them down, and this makes one doubt the validity of their recommendations. What was incomprehensible was that the committee sourced some its information from a website (http://www.flyforfood.com) that carries a disclaimer that it cannot verify the information it provides! The committee should have accessed information from authentic sources such as the airline personnel directors council which has members from all airlines including Air India. Why did Justice Dharmadhikari, a learned retired judge of the Supreme Court heading the committee, not ensure that the report reflected the views of the people who had a stake in the airline’s survival? If he had done so, we may not have had to deal with the row over disparity in pilots’ pay in 2012, which has further debilitated the airline. An opportunity that had been provided to bring about a harmonious transition of the two arms of the government’s aviation business into a single entity employing close to 30,000 people has clearly been missed. Even though Air India has set up an in-house implementation committee to redress the grievances arising out of implementation of recommendations, this is not a simple task, and nor is there a quick-fix solution. Both Justice Dharmadhikari and Air India CMD Rohit Nandan should have sought explanations from the concerned officials who briefed the committee about how discrepancies —inadvertent or deliberate—were allowed to creep in to make the report a subject of yet another controversy with serious and adverse impacts on the merger’s success. That the merger has caused irreparable harm to Air India is no secret now. The belated admission by a government functionary, Mr Ajit Singh—the incumbent civil aviation minister—that the synergy and other gains expected from the merger haven’t materialised yet came only in May 2012 in the face of the strike by the Indian Pilots’ Guild,. But we need to ask ourselves whether an acknowledgement of guilt is enough or if the guilty should be brought to book.

CHAPTER TWELVE

the critical years

THE YEAR 2008 was a tumultuous one for the world. The global financial infrastructure was collapsing, and the economy seemed to be shrinking in double time. Uncertainty and fear gripped the markets worldwide, and if there was anything that one could be sure of, it was that everything was about to change. At Air India, things were no different. V. Thulasidas was retiring after serving an extended term as the chairman and managing director. He had helmed the airline for four years and three months, a tenure longer than the tenures of most other chairmen in recent years. His reign marks a critical juncture in Air India’s history as the airline, after a prolonged period of decline, had just entered a phase of cautious optimism. His immediate predecessors had shown courage and foresight in dealing with some of the airline’s longstanding problems—they had dealt with the unions firmly and also cut down on expenses, which had ballooned to an unmanageable extent. Emphasis had also been laid on enhancing revenues. It was also the time when the aviation sector was being opened up more liberally in India than ever before. Competition was nipping at its heels, and Air India needed someone who had the vision and perseverance to see it through some rough times. LOST OPPORTUNITIES V. Thulasidas, when he joined the airline, had on several occasions stated that he wished to take Air India to the heights of its glory. His words brought hope to many of us in the airline as we had begun to glimpse a turnaround in its fortunes owing to the fact that Mr Thulasidas’s predecessors had set the airline on the road to recovery. But by the time he retired on 31 March 2008, all of our hopes had been dashed. Under his watch, the airline’s fortunes had gone from bad to worse. Air India’s losses were higher than ever. Ambitious projects launched with a lot of fanfare had either been abandoned or were half-done. Political and bureaucratic meddling had reached its zenith. His tenure, having begun with a flicker of hope, was ending under a cloud of despair. I had, on several occasions, locked horns with him about union high-handedness, about neglect of the product and poorly planned projects. He was also responsible for transferring me out of the HR department at the behest of a handful of union leaders. In fact, I had written many letters to him to document my displeasure on the way things were being run. But his response, apart from agreeing with the points raised in my letters, had been to do nothing. On his last day, all the functional and

executive directors from all over the country and abroad had been summoned to the conference room of the Air India building at Nariman Point. Generally considered an opportune occasion for the chairman to talk freely to his colleagues without the burden of office, these meetings were congenial affairs. But the mood was sombre. Some of us who were aware of the financial disaster staring us in the face were relieved that Mr Thulasidas was making way for another because we were hopeful that the airline would get a fresh chance for survival, but a set of loyalists who praised his efforts publicly and agreed with all that he said were unhappy. We were all in the room, waiting to bid our goodbyes to the man in the chair. But Mr Thulasidas kept us waiting. He turned up almost two hours late for the meeting. His office staff told us that he was with Praful Patel at his Mumbai residence. Why should a chairman—on his last day in office—see fit to visit his minister before the rest of his colleagues? He never shared the details of his meeting with us, and he was not under any compulsion to do so either. When Mr Thulasidas finally arrived at around noon, the meeting was kicked off with paeans in his honour. References to how he had shown courage and ambition in placing one of the largest orders for aircraft in Air India’s history were made. Some of those present at the meeting also thanked him for providing exceptional and inspiring leadership to the company in its critical hour; they said they had learnt a lot from him. Whether they said this because it is customary to say so on such occasions or because they really meant it—it would be difficult to say; but clearly, they were unaware of the true state of the airline. They did not know that Mr Thulasidas was leaving Air India with a balance sheet dyed in red. When the numbers were released a few weeks after he left office, we saw how precarious the situation was. Air India was poised on the brink of bankruptcy—it had a 40,000crore aircraft acquisition deal to honour, while its market share was being eroded by the day. Meanwhile, the farce continued in the corridors of the Air India building. Mr Thulasidas was unwilling to go without a fight. Although protocol demanded that the chairman relinquish his duties on the afternoon of his last day, he stayed back well beyond the office hours. He was there long after we had left office, literally burning the midnight oil on his last night in office. We found out the next morning that he had been busy issuing orders for promotions and transfers, withdrawal of disciplinary action and signing orders for post-retirement jobs for a few chosen employees. He issued promotion letters for 30 officers who were to be made general managers, another 25 to be made deputy general managers and some others as executive directors. Many of the orders were to come into force with prospective effect—even two months later. Mr Thulasidas’s actions were in violation of the All India Service (death-cum-retirement benefits) Rules, 1958, and also went against the moral and ethical stand that a chairman should have taken. Some of these decisions imposed a financial burden that the airline could ill afford. Interestingly, only a couple of years earlier, in 2006, Mr Thulasidas had kept in abeyance 38 applications of employees of the Hotel Corporation of India (HCI), a subsidiary of Air India, for voluntary retirement on the plea that the applications had been recommended for acceptance by the HCI managing director in his last few days in office. It was a case of blatant doublespeak. Mr Thulasidas’s actions were criticised by a section of the airline’s management team and also by commentators and journalists in the media. He was never forthcoming about the reasons for his decisions but it was possible that he was taken by surprise when the government did not extend his term further. There were rumours that he had sought an extension to his term, which were fuelled by the fact that his successor, Raghu Menon, an IAS officer, who had been named three days earlier, did not come to Mumbai for a formal transfer of charge on the last day of his term. He arrived the next

morning. DOWN THE BEATEN PATH Raghu Menon assumed charge on 1 April 2008. He followed the usual practices and made all the right speeches. It was a ritual that we were familiar with by now. Every new chairman would come in and garland JRD’s bust, which is located in the foyer; a photographer was present recording the moment for posterity; and then the chairman walked into the room once occupied by J. R. D. Tata. He would then say that he was humbled to sit where the great man once did and that he would endeavour to restore the airline’s past glory—or words to that effect. Mr Menon did the same. But there was one difference: instead of working in Mumbai for some time before going off to Delhi, he left barely a week after he joined. He went on a long leave on medical grounds, but speculation was rife that the financial condition of the airline had scared him away. He was, it was said, taken aback by the extent of losses and loans availed to run daily operations. When Mr Menon resumed office (many said that he was forced to do so by his superiors in the ministry), he held a meeting with all the functional and executive directors on 26 May 2008 in Mumbai. The meeting was a monologue. It lasted a good two hours, during which Mr Menon revealed the financial state of Air India, its declining market presence and the flight of passengers to competing airlines. He shared his views on what the critical problems confronting the airline were, including the unsatisfactory progress on the merger, and opined that urgent remedial action was imperative, but, like his predecessors, did not spell out how to go about bringing the change. I was glad that the problem was finally being recognised and congratulated him for his candour after the meeting, hoping that he would hold some of the people responsible accountable for their actions. It was not that I sought a vendetta against my colleagues but rather that I was hurt and aggrieved at the manner in which the airline had been knocked off its position in the marketplace, the open plunder that had followed and also the way in which I had been transferred in 2004 because the unions had wanted it. I sent him a message (an SMS) saying, ‘Morning revelations very shocking. Shouldn’t people responsible be taken to task? Also, those who signed union agreements for personal gain.’ Mr Menon replied, ‘Let’s not go into the past,’ prompting me to respond, ‘I have reason for it. I paid a price for standing up to unions in company’s interest. Ferreira gained by signing agreements without protecting company’s interests.’ He replied, ‘Let bygones be bygones.’ I did not pursue the matter and thought that it was best to wait for a more opportune moment to take this up with him again. By this time, I was getting increasingly frustrated by the way Air India was being led up the garden path by every chairman and minister. I had become cynical, but old habits die hard, as they say, and when Praful Patel called for a review meeting about six weeks later in July, I decided to write to Mr Menon. Acutely aware of the fact that my letters had been ignored on numerous occasions in the past I was emphatic that I was offering my suggestions for one last time. My letter was titled ‘Perform or Perish’ because that was a phrase Mr Patel often used with reference to Air India. The letter was blunt about the problems at hand and stressed upon the need to act fast. It set out a five-point plan for action. The first step was to ‘set an agenda for the company’ so that departmental heads had their task cut out for them. Second, I wrote that we needed to address the conflict between unions and the

management because each held the other responsible for the airline’s decline. Third, I said, it was time to take a final call on ‘whether a soft approach will help us make Air India a better airline or a hard approach is imperative for effecting a change’. Fourth, I wrote, ‘It is possible that some [employees] may have reached their current positions due to sheer luck, seniority, external factors, sycophancy, by default and not necessarily merit,’ and the airline should look at whether the team in charge could deliver the desired results. Finally, I asked, ‘Can we hope to transform the airline when most employees work only from 9 to 5, five days a week, without realising the challenges before the company? Long working hours with enough work and clear-cut company goals should be made mandatory’ (see Appendix 11). I also wrote that the fact that a third of the country was illiterate was a tragedy, but the bigger tragedy was that those who could read couldn’t read the writing on the wall. My letter was ignored. I was also quite vocal at internal meetings. However, the people in charge either found my suggestions too radical or too impractical, and ignored them. For example, in April 2009, the Commercial Department put forth a plan for introducing an Ahmedabad–Frankfurt flight, effective 1 July 2009. As one who had been in the airline for more than a decade and a half and seen all our Europe-bound standalone flights losing heavily, I sought Mr Menon’s intervention through a hard look at the economics of the proposed flight. Mr Menon asked me to talk to the commercial director Deepak Brara directly and for good measure added, ‘The trouble in Air India is that no one speaks to each other.’ I had deliberately taken the matter directly to Mr Menon not because we did not speak to each other in Air India but because, in my experience, suggestions, howsoever legitimate, were construed as interference by the concerned department. My objections were brushed away and the flight was operationalised, but the route had to be shut down within four months. Was anyone held accountable? No, because Air India, unlike other professionally run companies, did not have a finance department running a hawk-eye over such ventures. Nor did it ever assign clear accountability to the departments and their chiefs when such plans were implemented. Mr Menon did not last long at the job, however. Praful Patel replaced him while he was on leave attending a family wedding in Kerala for alleged ‘non-performance’ as Mr Patel told the media after the ouster. The unofficial reason was that Menon faced the axe because of ‘non-compliance’ on certain issues. He had serious differences with Mr Patel on the joint venture with Singapore Airport Terminal Services (SATS) for the ground handling business. To quote Deepak Talwar, the Delhibased confidante of Mr Patel, who told me and another colleague after the inaugural party of Indian Aviation 2008 which was held on 8 October 2008 at Taj Falaknuma Palace, Hyderabad, that ‘with Mr Thulasidas it was a two-way traffic, we used to do what he wanted and he did what we wanted, but with Raghu Menon it is a one-way street, he displays the rule book whenever asked to do something.’The compelling urgency to remove Mr Menon has remained a mystery because it was carried out while the 2009 general elections were on when decisions are generally left to the new government. Mr Menon was replaced with E. K. Bharat Bhushan, joint secretary in the civil aviation ministry, who was appointed as the acting CMD on 27 April 2009. His tenure lasted just about a week before the government appointed Arvind Jadhav, also an IAS officer, as the new CMD. The game of musical chairs that was being played with the chairman’s post was shocking and revolting. Air India was in need of stability, direction and dynamism, but the political and bureaucratic machinery was busy playing around with its leadership to further their own interests over that of the airline.

As a result, the chairmen in recent years have done little apart from tinkering with the airline. Instead of focusing on strategic issues, they’ve busied themselves with cosmetic changes. For example, one chairman changed the shade of red in the Air India logo, implying perhaps that whatever was done, Air India would continue to be washed in red! And then the hyphen between ‘Air’ and ‘India’ was dropped thus delinking India’s strong emotional connect with Air India; a new logo was designed after the merger but could not be hoisted atop the Air India building in Mumbai at its vantage position because it had a skewed ‘centre of gravity’. The lack of balance of the logo may just be indicative of the state of the airline today as it stands on the edge of financial oblivion. Also, the logo’s absence from the top of the building that used to be a city landmark at one time signifies the fact that Air India is gradually fading from public memory. GAMBLING AWAY THE FUTURE Arvind Jadhav was aware of Air India’s financial crisis, and soon after he joined, he blew the lid off the state of the airline’s finances. He also publicly admonished all who had worked closely with Mr Thulasidas and accused them of manipulating accounts. He had no time to listen to anyone, so he would hold long discussions where he was usually the only man talking. And in all his meetings, he expressed shock and anguish at Air India’s state of finances. He also spoke out against Air India to the media. He gave an explosive interview to Business World (‘The time for talking is over 16 August 2009.) within months of joining office where he described Air India as a ‘typical’ publicsector organisation that was spiralling down towards a debt trap. ‘Its net worth is slowly, but surely, getting eroded,’ he said. Also, he called Air India an ‘organisation where people felt nothing has gone wrong’ and ‘that they were doing their best’. He further stated that after the merger, the airline had two people for every job, no single chain of command and ‘a hugely bloated and pampered set of employees’ . He also said that 25 per cent of Air India’s employees were physically unfit and that the airline was spending far more than it was earning—for 14,000 crore in revenue, he said, the airline was spending 19,000 crore. 1

Mr Jadhav, in a message circulated to the employees sometime in July 2009, observed that if immediate corrective measures were not initiated to improve Air India’s finances, the choice before the airline would be either austerity or oblivion. But he never stated what these ‘corrective measures’ were. Having identified the problem, he should have looked for solutions instead of taking his grievances to the media. He did not inspire his people; nor could he bring about a change in their work ethic. Instead, employees lost interest in their work and even those who were sincere in their efforts felt demoralised. Mr Jadhav would also, time and again, say that Indigo Airlines, a new player on the block at the time, would soon overtake Air India. Air India’s market share was 18 per cent of the domestic business, while Indigo Airlines held 12.5 per cent, and the two were number three and four on the list, which, he said, would change. Thus, it was not just Indigo Airlines, but almost every airline that was focusing on the economy segment, that raced ahead. Air India ranked much lower than the industry average both on aircraft utilisation and load factors and there was ample scope for it to enhance its load factor and improve its aircraft utilisation. Jet Airways, the market leader, had begun increasing its capacity in the low-cost segment. Why did Air India not follow suit? It should have focused on the economy segment and leveraged its strengths to

race past the competition. In fact, the airline announced its intentions at a press conference on 7 August 2009 where Mr Jadhav said that a low-cost airline was on the anvil. This was followed by a supporting statement from the minister, Praful Patel, who reasserted the airline’s desire to target the flier looking for cheap fares at a press conference on 25 July 2010 in the presence of the entire board of Air India, which included Gustav Baldauf and Arvind Jadhav and industry stalwarts such as Anand Mahindra and Amit Mitra. Yet, for reasons unknown, and despite the fact that the airline would have benefited from such an initiative, the plan never took off. It is difficult to apportion blame for the way things turned out and, while it may have been easy, it would be unfair to hold Mr Jadhav responsible. He was an outsider to the aviation business, and as he had no prior experience, failed to understand its requirements. Subsequently, in May 2011, as market shares dipped Mr Jadhav made all of Air India a low-fare airline. Its fares were maintained modestly above those of low-cost airlines but significantly below those of other legacy carriers. Air India’s operational costs were among the highest in the industry, and when fares were lowered, the airline slipped deeper into the red. Mr Jadhav also appointed a host of external consultants during his tenure. This was done at a huge cost to the airline; but what was the outcome? Not a single report or recommendation was implemented, and Air India continued to sink lower and lower every passing day. An article that appeared in Business World (‘Those Air India Papers, 10 February 2012) at the time read: ‘I came across what must be the nth report on Air India (we need a Wikipedia on these) and its possible turnaround plan. This one is a critique of the latest plan prepared by a bunch of bureaucrats in October 2011. I am, by now, convinced that the government is full of the deaf and the dumb who just cannot comprehend what they have been told repeatedly by a series of consultants, former bureaucrats and technocrats over the past 30-odd years.’ The author went on to say that Air India was losing close to ‘ 250 crore every month’ and SBI Capital, Booz Allen and Rothschild were all appointed to guide the airline on drawing up a roadmap, cost rationalisation and debt restructuring strategies. But ‘their reports were never accepted by the board (CMD Arvind Jadhav was at loggerheads with many board members and senior officials) and I do not think Booz Allen ever got compensated for its efforts.’ The article was scathing about the manner in which consultants were being appointed and how, after having been assigned the task, their work was being discredited by the management. 2

We were also witness to the strange spectacle of the board approving an overambitious proposal to halve payouts under the controversial Performance-Linked Incentive (PLI) and the unions refusing to comply with its decision. The PLI scheme, which had very little to do with productivity, had been bleeding the airline dry, but the unions were adamant that it should stay. The board, on the other hand, unmindful of the airline’s troubled relationship with its unions, ordered that the incentive payments be cut by 50 per cent. The net result was an unresolved stand-off between the unions and the management, which meant that Arvind Jadhav could not reduce the wage bill by a single rupee. Meanwhile, airlines the world over, including India, managed to lay off staff and invoke a 10–15 per cent cut in the salary bill to tide over the crisis inflicted by the economic downturn of 2008. If the board had set a more reasonable target, the unions may have come around. But that was not to be, and in the end, Air India was saddled with a mounting wage bill, which it could not afford. Salaries were delayed by a couple of months, and the PLI payments were delayed by four months, till the scheme itself was replaced by an enhanced basic wage structure based on the guidelines of the sixth pay commission in July 2012, a plan endorsed by the Dharmadhikari Committee. It remains to be seen, however, whether the 250-crore annual savings that the ministry claims will be achieved through the

change will actually materialise. KARMIC CONSEQUENCES ‘Good deeds beget good; and evil brings evil’—this, in a nutshell, is what I believe to be the basic understanding of karma. The lack of concern displayed by Air India employees for customers over the years, particularly when passengers were at the mercy of the airline in the monopoly era, has come back to haunt the airline. I recall a phase in the airline’s history when crew members and other staff would inordinately delay flights if the management did not give in to their demands, even when it meant inconveniencing passengers and damaging the airline’s reputation. The fact that the airline has lost its passengers and is now reduced to a state of disrepair seems to be the direct result of such actions. There was a time when Air India was deemed one of the best airlines and the best organisation to work for. Its employees were held in high esteem; everyone jostled to be part of the organisation, if given an opportunity. Being an Air Indian improved the matrimonial prospects of an employee or their children as the case may have been. It brought perks such as flying to exotic locations, flying down to attend family functions when air travel was not such a common phenomenon, funding children’s higher studies abroad and, for some, a foreign posting. In a matter of decades, however, the scenario has changed dramatically. Air Indians are no longer envied; they are no longer amongst the better paid; they don’t receive their salaries on time; banks are loathe to lend them money; and they retire at 58 years of age, earlier than their counterparts in other public-sector organisations. Foreign travel has been cut down. Career paths are not smooth, and promotions are no longer assured. A job at Air India is no longer coveted and those within the airline are increasingly exploring opportunities outside the organisation. I believe that employees’ karma has led them to this state. They were irresponsible in the way in which they dealt with the airline’s fliers and are suffering due to delayed payments and curtailed perquisites while facing an uncertain future. Air India, which was once a great global brand, no longer has a loyal set of fliers, and its service is no longer comparable with that of the best airlines in the world. It was not always so. Air India’s history can in fact be divided into three phases: the first phase, beginning from the year of its inception to the early-1970s, when it ruled the skies and was acknowledged as a premier airline; the second phase, commencing from the mid-1970s and running into the beginning of the twenty-first century, when the gradual drift downwards had begun and gathered momentum; and the final phase, continuing into the present, when the airline needs huge financial assistance for survival. Interestingly, Air Indians can also be classified into three categories— those who helped establish the airline, those who acted as mute spectators while the airline was in a sinking mode, and finally, those who aided and abetted its virtual destruction. Whilst there is no denying the fact that there have been individuals who have been sincere, dedicated and have put in their best efforts for the airline even during the period when the airline was sinking or being totally destroyed, Divine justice seemingly has no mechanism to spare the good and sincere when it comes to a collective retribution for harm done to the airline by others.

I remember an incident from 2008 when I was still with the airline, with less than two years to go till my retirement. I met a former employee at an event organised by the Flight Engineers Employees Welfare Association, where I had been invited as a speaker. He said that a month from then, he would be celebrating the silver jubilee of his retirement. How have the retirement years treated you?—I asked. He was very happy—he told me—with the way the airline had taken care of him. Having been a part of the airline’s glory years, I felt that he had been blessed with the consequences of good karma. With my retirement close at hand, I wondered if I would be able to enjoy even half the benefits that he had! I am convinced that employees who were a part of the airline in the 1970s have been unscathed by the harsh times that employees of the later years have had to face. Those who worked in the 1980s and the 1990s have suffered marginally on account of delays in salary revision, payment of arrears and such other ignominies. But those who have recently retired or are due to retire in a few years may not have any retirement benefits at all. Many are already fearing the curtailment of medical and air passage benefits. In a clear case of divine justice, those who once thought themselves to be all-powerful, wreaked havoc on flight schedules and were uncaring about passenger inconvenience are today caught in a trap of their own making. FAILING TO PERFORM Air India’s decline has been so dramatic that even Prime Minister Manmohan Singh had to take note of the impending threat to its survival. In an unprecedented move, he referred to its plight in his Independence Day address from the ramparts of the Red Fort on 15 August 2009. He promised to help. But the airline’s performance metrics showed no change, not even after a committee of secretaries was set up to monitor its operations. Even though the airline’s survival was under threat, the company did not step up to the challenge. Why did no one pull the chain on the rising expenses? Why was the leadership team not chosen more carefully? The only visible impact of the airline’s state of crisis was the delayed payment of salaries. Political interference continued. The board of directors failed to evolve a strategy that could steer the airline out of the turbulent skies. And the chairman failed to motivate his team and create an environment more conducive to growth. Even measures such as induction of private-sector stalwarts to the board of directors and the appointment of an expatriate chief operating officer, Gustav Baldauf, did not yield any result because they were half-hearted. The appointment of Gustav Baldauf at an annual salary of over 3 crore came to naught because he quit within eight months of joining the airline. He did not have the experience to run an airline and why he had been inducted to the top position was a mystery to all of us, but what was stranger still was that having brought him on board, the ministry never gave him the freedom to perform. Air India’s power-packed board, with N. Vaghul, Amit Mitra, Anand Mahindra, Harsh Neotia, Air Chief Marshal F. H. Major and a host of other big names too turned out to be ineffective in stalling the airline’s continued fall. Mr Jadhav preferred to run the airline from New Delhi with the help of his many advisors, one of whom, V. Srikrishnan, is currently facing scrutiny from the CBI. His handling of senior management personnel, by shuffling them frequently in a whimsical manner and posting officers with no aptitude and experience in key operational areas, and that too on part-time basis, took a heavy toll of the airline, making some of us wonder whether he was working to revive Air India or sabotage its

revival. I eventually wrote to the prime minister in May 2011 to draw his attention to all that was going wrong in Air India. My objective was to update him on the condition of the airline ‘so that at a later stage no one in the prime minister’s office can say that the real facts were not brought to your kind notice in time for your intervention’. I wrote that our market share was plummeting and losses rising; the airline was defaulting even on interest payments; and the turnaround plan was a non-starter. I said that the airline had resorted to lowering its fares to lure passengers but that this had impacted its financial viability and that employee morale was at its nadir. The letter titled ‘Is Air India Being Sabotaged?’ pointed out how the airline was being mismanaged: passengers were being neglected with part-time and inexperienced people heading customer-service functions; the HR department was left to weak and ineffective managers; and there was an overall lack of accountability in the organisation (see Appendix 12). An undersecretary from the civil aviation ministry called me a fortnight after I had sent off the letter and asked me what he should do with it. ‘Do what you do with other letters referred to the ministry by the PMO,’ I replied. As the undersecretary knew me well, he said, ‘Mr Bhargava, there is no point in sending it to Air India because Mr Jadhav does not reply to letters from the ministry.’ I told him to do what he thought was best. The inability of the airline to rise above its challenges led me to write an article titled, ‘Airline on a free fall’ in the Hindustan Times on 12 June 2011, where I asked how much more the airline’s performance would have to slip before the government stepped in. It did not bring about any change in the way things were being managed in the airline. A couple of months later, on 12 August 2011, Mr Jadhav was shown the door because Rajiv Pratap Rudy of the BJP, through an RTI application, pulled out his recruitment papers. He argued that the appointment was untenable because Mr Jadhav had no domain knowledge—a requisite for being considered for the position. Clearly, the ministry, in its haste to replace Raghu Menon, had overlooked a key criterion for the appointment and, in the process, endangered the future of Air India. But there was none to hold them accountable for their actions. The governmental interference over appointments has not been called to a halt despite the crisis within the airline and that has, in turn, exacerbated the problems. Unsure of their tenure and always fearful of the consequences of their actions, the bureaucrat-chairmen have faltered at every turn, and the airline has continued to slip down the performance charts. Currently, under Chairman Rohit Nandan, despite modest improvements Air India ranks the lowest amongst all the Indian carriers on most parameters—particularly on load factors, aircraft utilisation and customer satisfaction index—and highest in the number of flight cancellations. The point that we need to understand is that chairmen who do not have the support of the ministry or are made to feel insecure in their positions will soft pedal on serious issues and sacrifice long-term strategies at the altar of short-term survival. As I was aware of the paucity of managerial talent and how the select few who delivered got engaged in various non-operational matters leading to neglect of priorities, I had suggested to rohit Nandan, soon after he had taken over, the need for putting in a team of committed ex–Air Indians who would be willing to give their guidance free of cost. Even though Mr Nandan welcomed the idea, he couldn’t pursue it because the people around him felt that the team would be a threat to their supremacy. It was once again a case of Air India being accorded secondary importance, while employee interests were

given primacy. FALSE HOPES, UNFOUNDED EXPECTATIONS In recent months, we have read several reports and interviews about how Air India is getting back on its feet. The common perception is that the airline has finally emerged from the rainclouds. The protagonists cite minor increases in market share in a particular month or fleeting improvements in its rankings or a slight reduction in its loss figure to back their prognosis. But all this talk is nothing more than just a pie in the sky. It does not necessarily indicate an improvement in the airline’s fortunes. If one is not an old industry hand, it is easy to misread the situation— especially when the minister and the chairman of the airline publicly laud the airline’s performance. Minister Ajit Singh, during a recent press conference (10 June 2013) in London, said, ‘The national carrier’s total revenue is expected to go up from 16,130 crore in 2012–13 to 19,393 crore in 2013–14.’He said that these figures implied that Air India had turned around earlier than anticipated. Chairman and managing director Rohit Nandan, in a letter to employees on 10 May 2013, said, “My confidence in our performance emerges from the proven track record in the last financial year 2012–13. During this period the passenger revenue has gone up by 7.3 per cent over the previous year. The increase in revenues was a robust 21.9 per cent on our domestic services. Also, the increase in revenue was despite a reduction in capacity to the tune of 11.9 per cent, as compared to the last fiscal. Passenger load factors as well as yields have improved appreciably during the assessment period. A significant increase in the business class and first class passengers has contributed to increase in yields on both domestic and international networks. Increase in carriage of first class during the last fiscal was higher by 12.3 per cent as compared to the previous fiscal. Similarly, the increase in carriage of passengers in business class went up by 25.6 per cent in the year 2012–13 vis-à-vis 2011–12. In 2012–13, we end with an EBIDTA (earnings before interest depreciation, taxes and ammortisation) positive to the tune of 19.45 crore, as compared to a loss of 2,236 crore in the previous fiscal. Every parameter is looking better than the last year. The year 2012–13 would also mark a significant reduction in our net losses, thanks to a robust increase in the revenues to the tune of 1,200 crores.’ Any improvement in performance ought to be welcomed and celebrated, but I would like to put in a word of caution here. We need to understand whether the improvement is real or perceived, whether it is temporary or long-term and whether it is the result of systemic changes or the outcome of changing market dynamics. One factor that has helped Air India boost its revenues, reduce its losses and improve load factors has been the withdrawal of services by Kingfisher Airlines. In fact, all the airlines registered higher revenues and load factors post–November 2011, when Kingfisher Airlines began to scale down operations. In the year 2012–13, when Kingfisher scaled down the capacity to carry only 1.2 million passengers as compared to 9.5 million in 2011–12 ([It ceased operations in October 2012), Indigo registered an increase in the number of passengers by 3.4 million and SpiceJet an increase by 1.8 million. Air India shared the third place with a relatively small airline, GoAir, with an increase of just 0.6 million passengers. However, once capacity augmentation takes place, which will be soon, with the entry of Air Asia India, the favourable market conditions will disappear. And so will the temporary rise in market share and revenue. Unless performance improvement is the result of operational and functional efficiencies and systemic changes, it cannot be deemed as

permanent. It is not my intention to undermine Air India’s recent achievements, but one should not ignore the ground realities. Unless the real picture is known, all attempts at course correction would be half-hearted—something we have seen on several occasions in the past. A fair assessment of the airline’s performance during the period would be to see if the increase in the number of passengers carried by Air India was greater than that of other airlines and also whether Air India’s revenue rose by more than those of the rest. But that has not been the case. I would like to reiterate here that, given the market circumstances, being good is not good enough. The challenge lies not in just surpassing one’s own performance but being better than other airlines in a competitive environment. As any experienced airline hand will vouch for, any airline can raise load factors and thereby market share by offering discounted fares in the garb of promotional schemes. But unless yields go up, it will suffer financially. And yields will rise only if the product commands a fare that at least neutralises the cost of producing a seat, which, however, isn’t the case for Air India. Air India has repeatedly failed to improve its service and product quality because it has focused more on discounts and rate cuts than on increasing its market share by bringing about improvements in the flying experience. Masaru Onishi, who guided Japan Airlines (JAL) out of bankruptcy protection as president before being appointed chairman in early 2012, said he did not want to become embroiled in what he called ‘muddy fighting’ with rivals for market share. ‘We don’t want market share for the sake of market share. I don’t want to be number one in volume. I don’t care about that. I want to focus on profitability, even if the share is small. As long as it is making us money,’ he said. ‘We want to focus on the section of that market that will give us the most yield and profitability,’ he added. Air India needs to take a leaf out of the JAL experience. In its quest for market share, the airline has been chasing quantity over quality. It has been busy matching low-cost airlines in fares offered to fliers even though its costs are high, thereby adopting a flawed business model for its operations. Air India has in the six years since its merger suffered a cumulative loss of 33,000 crore. (According to CAPA, an aviation industry think tank, it made a loss of 2,226.16 crore in 2007–08, 5,548.26 crore in 2008–09, 5,552.44 crore in 2009–10, 6,865 crore in 2010–11, 7,559 crore in 2011–12 and an estimated loss of 5,198 crore in 2012–13). Any other company with such high losses, a mounting debt of over 45,000 crore, and no solution in sight would have sunk without a trace. But in the case of Air India, the government’s 30,000-crore turnaround plan has handed it a lifeline. The irony here is that even though all those involved with the airline are convinced about its critical state, they appear to be under the delusion that time is not of the essence. It was as late as January 2013—almost four years after the pitiable financial situation was made public and nine months after the turnaround plan was given effect—that the Ministry of Civil Aviation, not the Air India Board, decided to constitute a committee to suggest ways of reducing the costs. The five-member committee headed by Professor Ravindra Dholakia of IIM, Ahmedabad, submitted in the end of March, 2013, 46 recommendations of which Ajit Singh, speaking to the media, said, ‘[It] will have a far-reaching impact on the airline’s financial health. It is a useful report, which could help implementation of Air India’s turnaround and financial restructuring plans.’The committee studied the experiences of foreign airlines such as Japan Airlines, Malaysian Airlines and Garuda (from Indonesia) with the objective of bringing down Air India’s daily operational deficit of 14 crore. It suggested that the national carrier take a cue from the no-frill airline model and prune costs, including those on its 26,000-strong

staff, by conducting a technical efficiency audit for manpower rationalisation. It also said that the national carrier should seek the government’s nod to issue tax-free bonds worth 10,000 crore to enable it to retire its high-cost debt, apart from scrapping flights to economically unviable routes which, they said, alone could result in a net saving of 600 crore per year, adding that fuel efficiency measures could also result in a saving of 400 crore annually. Noting that passengers buy tickets from agents and the airline ends up paying one per cent commission to them, the Dholakia panel suggested shifting to the ‘zero commission’ norm as per the global practice and asking agents to charge a service fee. If the recommendations had been seriously perused by even an amateur observer, it would have been clear that there was nothing in the report that an airline with several decades of flying experience would not have already known. Most of the recommendations had, in fact, been implemented by the management headed by Mr Mascarenhas post-1997, after the airline had recorded its then-highest loss of over 297 crore after gaining from an adjustment of 94 crore as foreign exchange reserve. One can ignore the ‘reinventing of the wheel’ process, but the larger issues to be pondered over are: If the airline needed a panel of ‘experts’ to recommend cost-cutting measures, why was such a panel set up in 2013 and not 2009? Also, does it not conclusively establish that the board of directors has abdicated its functions to the mandarins of the government? There is no paucity of suggestions for Air India’s revival. In fact, there never really has been a dearth of suggestions on how to restore its former glory. But the question is why these recommendations made by committees, consultants and employees are never implemented and why, given that Air India has been teetering on the brink of disaster for several years, it has never been prodded into expeditious action. The Dharmadhikari Committee, for instance, should have been set up in 2008 when the human resource problem was clearly evident instead of 2011. Similarly, the leasing out of the Air India building in Nariman Point in Mumbai, which is now being contemplated, too should have been done in 2008 if not earlier. This would have given the airline some respite. The airline tends to brush aside such comments saying that its failures are largely on account of the external competitive environment and systemic weaknesses. There is, however, no explanation for the inability of the Air India management to take decisions on issues that are within its control and under its purview, especially during its most critical years. It does not help, therefore, to prepare turnaround plans; it is more important to institute a system that ensures their implementation. Still, we shall, in our final chapter, look closely at the plan and whether the government is finally on the right track with Air India or if it is still shooting in the dark. NOTES 1. http://www.businessworld.in/news/finance/the-time-for-talking-is-over/628941/page-1.html 2. http://www.businessworld.in/news/opinion/columnists/those-air-India-papers/384124/page-1.html

CHAPTER THIRTEEN

murder or suicide?

IN AGATHA CHRISTIE’S detective novel Murder on the Orient Express , investigator Hercule Poirot is initially nonplussed by a murder victim who seems to have died from several stab wounds. Some wounds are deep, while some are from barely minor blows. Some stabs seem to have been inflicted by right-handers and others by a left-hander. Before long, Poirot has 12 suspects—each with a motive, but all with convincing alibis—and a stalemate. It is only when he puts all the facts together that he arrives at an unusual conclusion: all of them did it. All of the 12 suspects were extracting revenge on behalf of a three-year-old girl who was kidnapped and killed by the gangster—the stab victim on the Orient Express. If one were to ask, ‘Who killed Air India?’ the answer would have to be something similar—perhaps all of them. Further, if we were to ask if it was murder or suicide, the answer would have to be that it was both. There were aspects of Air India’s steady decline that had elements of a deliberate abetment of murder, but others that suggest suicide—the people who could have prevented it just didn’t act. Despite the best of avowed intentions, several strategic plans and scores of revival blueprints, the airline has steadfastly refused to emerge from the intensive care unit. Apportioning the blame is an unending exercise, since there is so much of it to go around, and so many to anoint it with. Let’s go over the list of suspects. Should we blame the government of India, which, as owner, should have been more careful with policy making for the aviation business? Should the Ministry of Civil Aviation, as the administrative controller of the airline, be taken to task for failing to read the writing on the wall even as Air India gradually slipped into a state of coma? Should the board of directors, as the trustees of the airline’s interests and future, be made answerable for failing to draw up a coherent strategy for growth and being silent witnesses—or even active collaborators—to its destruction? Should the successive chairmen of Air India be brought to the stand for abandoning the airline in its hour of need and its senior management for looking the other way? Or what about the employees, including the union leaders, who made unreasonable demands on the airline? There was never a lack of grandiose plans. Year after year, the people in charge and the airline’s multiple stakeholders spoke about the need to transform the national carrier into a premier airline. But their plans, instead of taking Air India to the promised heights, brought it down. Some of the decisions impacted the financial health of the airline as the expenditures envisaged were way beyond the

airline’s means. Some decisions curbed the airline’s ability to meet the competition, while others crippled its revenue-earning potential due to the withdrawal of flights and resultant contraction of network and failure to operationalise strategic business units for ground-handling and engineering services. In some cases, good initiatives were killed simply because of inordinate delays in taking decisions or for implementing the same in a shoddy manner. What lessons do we draw from this? Air India failed to take action against the people who allowed its survival plans to fall by the wayside. It also chose to stay the course when the paths chosen were leading it nowhere. Why did an airline committed to growth let itself be hijacked by vested interests? And when its appointed saviours proved incompetent or uninterested, why did the government continue to let them hold office? The airline owner’s lack of interest in its well-being leads one to suspect that there was perhaps a deliberate plan to financially incapacitate Air India and marginalise it. THE LIST OF SUSPECTS FOR MURDER The question of whether it was murder does not seem so far-fetched when one looks at the comments and recommendations made by two parliamentary committees—the Standing Committee on Transport, Tourism and Culture, headed by Sitaram Yechury, and the Committee on Public Undertakings, headed by V. Kishore Chandra Deo—after they probed the Air India mess during 2008 and 2009. They were extremely critical of the way the airline had been managed and made several pertinent and remedial suggestions—all of which were ignored. The reports corroborate what I have believed for very long: the airline had been let down by the very people who had been entrusted with its care. The various chairmen who had moved in and out of office, particularly after 2003, were responsible for most of the damage done to the airline by either acquiescing with the unreasonable demands of the politicians and the trade unions or, in some cases, not resisting or opposing them strongly enough. Responsibility also rests with the ministry, which did not appoint the right people, and with the prime minister’s office, which refused to respond to pleas for help. Sunil Arora, the former chairman-cummanaging director (CMD) of the erstwhile Indian Airlines, for instance, wrote to Cabinet Secretary B. K. Chaturvedi in June 2005 complaining about the pressure being mounted on him to take a certain stance on leasing and purchase of aircraft for Air India. This was ignored either conveniently or deliberately. The Central Vigilance Commission displayed a lack of interest in holding persons accountable for acts of commission and omission. And when Air India Board member V. Subramanian asked some pointed questions at a board meeting, he was immediately transferred out of the ministry. All of this indicates a larger game plan, implying an intentional objective to destroy Air India once and for all. Let us look at some of the important decisions that should have helped Air India but didn’t. These were all decisions taken to make Air India a premier airline, but they were either abandoned or allowed to unravel even before they had reached a reasonable size and scale. Issues like the acquisition of aircraft in numbers that were far in excess of what Air India could afford or gainfully deploy, the leasing of aircraft in a manner that was certain to do harm, a recklessly implemented merger, and extravagant expenses incurred at a time when the airline was starved of working capital have been elaborately dealt with in the earlier chapters. But numerous other decisions have crippled

the airline; it is as if the strategic blueprint had been scripted to achieve the result that is evident now but was made to look like an attempt to transform Air India into a premier airline. Consider the role of the ministry. Was the decision to merge Air India and Indian Airlines taken by the boards of these two airlines or was it an agenda thrust from above by the ministry? And why has it failed to achieve the objective that it had set for itself—that of making Air India an airline that evokes pride in one’s countrymen? One suspects that the murder of the national carrier was achieved in a systematic manner through a series of motivated decisions. To begin with Indian Airlines – which had a well-established brand name and often voted as one of the most recognised brands in the country - was asked to change its name to ‘Indian’. The stronger brand name was lost forever. Changing the brand name was not an idea recommended by any committee or an external consultant. Neither did it originate from within the airline. Within a short time after this development, the merger was announced by creating National Aviation Company of India Limited – NACIL, for short. In the process, both brands - Air India and Indian Airlines - were destroyed completely. Though the merged airline is still called Air India, the process was so botched as to squeeze the value of the brand altogether. The ministry: the prime suspect The parliamentary committees have been scathing about the role of the ministry in Air India’s decline. They questioned the ministry about its inability to implement the merger of Air India and Indian Airlines and asked for details about the monitoring mechanism that had been put in place. The ministry indulged in bureaucratic doublespeak, and the committee admonished the bureaucrats for dishing out automated responses instead of addressing the points raised. The parliamentary committee also asked the ministry to state the specific steps that had been taken by the government to strengthen the merged entity, NACIL. Once again, the ministry skirted the issue. It said, ‘The NACIL’s Board was reconstituted with chairman and managing director, joint chairman and managing director, eight functional directors, one non-official director and two government directors with a view to provide professional guidance in the merger process. States were requested to exempt the properties of NACIL from stamp duty on the transfer from the original companies to the merged company. The ministry of finance was requested to amend section 72A of the Income Tax Act in a manner so as to extend the benefit of carry forward of the unabsorbed depreciation of Air India and Indian Airlines to the new merged entity to be set off against its taxable profits in the future. Government of India Guarantee was to be provided for acquisition of aircraft.’ Many of the steps that the ministry listed out in its response to the COPU queries raised by were pure administrative decisions. They were not meant to ease the post-merger operational issues. The ministry had merely created a common board for NACIL by combining the two boards of Air India and Indian Airlines. The parliamentary committee sought information about what the ministry had done with respect to: (i) route dispersal guidelines, (ii) route dispersal in non-profitable areas, (iii) fleet acquisition and management, (iv) leasing of aircraft, (v) capacity utilisation, (vi) passenger load factor, (vii) wage disparities, (viii) controlling of costs, (ix) code sharing, (x) ground handling services, (xi) maintenance and repair overhaul services, (xii) joint ventures, (xiii) performance of subsidiary companies and (xiv) various other issues relevant to the merger of Air India and Indian

Airlines. In response, the ministry said, ‘No specific instructions were issued. However, as per timeframe provided in the consultant’s report, NACIL was required to complete the process by 18/24 months.’The parliamentary committee asked whether the ministry had reviewed the implementation of the merger since the year 2007. The ministry said, ‘Apart from keeping a tab through government directors on the board of NACIL, implementation of merger process was reviewed from time to time at secretary/minister level.’ So the parliamentary committee asked, ‘With what effect, if any?’The ministry was silent. The ministry attempted to conceal its inaction by shifting its responsibility on to the board of NACIL. The responses established what many of us had suspected. The ministry believed only in setting the rules, but was interested neither in monitoring their final impact nor in their implementation. As far as management principles go, this attitude violates every single rule in the book. Having initiated the merger process, the ministry should have played a more responsible role. In response to a query about the impediments to the merger, the ministry said that there were multiple issues and that some, such as route rationalisation, insurance and fuel sourcing, had been resolved, while progress on IT, manpower integration and such other areas was slow. While the ministry’s reply suggested that routes were rationalised to ease the merger process, the objective of the exercise was not necessarily to aid Air India but to pave the way for allocating flying rights to be given to private airlines. It was a classic case of ‘suppressio veri, suggestio falsi’—a legal dictum that says that by suppressing the truth you suggest the exact opposite of the same. Some countries allow only two airlines from India to fly their skies. Thus, a private airline could not have entered the space if Indian Airlines and Air India had been flying under their old call signs. One airline had to withdraw, which is what happened after merger. As a consequence, six years after the merger, Air India is flying fewer international passengers than it did earlier. The point, once again, is not that private airlines should not have been allowed into the international skies but to question why Air India’s interests were never considered. Also, why were the recommendations for the airline’s revival selectively implemented? The committee had sought to apportion the responsibility for the state of mess within Air India, and asked for an explanation of the ministry’s action or lack of it. But the ministry parried all questions by deflecting the blame onto external circumstances. For a moment, let us accept the position that the merger failed because the aviation business changed and not because there was mismanagement or lack of direction. The ministry was the administrative authority in charge of the merger. Why was there no attempt to smoothen the process? For instance, as in most mergers, one of the biggest problems was creating a homogenous workspace so that employees of both airlines felt motivated and secure. But instead, the merger heightened the differences, with each party feeling slighted by the way things had turned out. It is a truism that people make all the difference in a merger, and given the history of acrimonious employee relations at Air India and Indian Airlines, HR was a critical piece. When NACIL was conceptualised, the ministry had assured us that manpower integration would be accorded priority. And yet, nothing had been done. Employees were not taken into confidence; the respective HR departments of Air India and Indian Airlines were not helped with the transition; and discontentment was allowed to fester till it broke out into prolonged agitations. The merger was meant to follow

orders. The two airlines worked with different HR policies. The pay grades were different, as were the promotion policies. And even six years after NACIL was formed, Air India and Indian Airlines continue to work as two distinct units. The employees are still at loggerheads over seniority issues, and so deep is the rift that when the Indian Pilots’Guild, the representative body of erstwhile Air India pilots, went on strike in May 2012, the pilots’ union of the erstwhile Indian Airlines (ICPA) went out of their way to extend support to the management in taking a tough stand against their counterparts. The Justice Dharmadhikari Committee was constituted more than three-and-a-half years after the merger was initiated to harmonise manpower issues, and that too, only after the Indian Airlines pilots went on strike in April–May 2011 seeking parity with their counterparts in Air India and after Praful Patel’s exit from the civil aviation ministry. Why did the ministry, the board, or the chairman not act earlier? When everyone had acknowledged that HR was going to make all the difference between success and failure, why was nothing done? Accomplices or suicide assistants? The ministry appointed Accenture as the primary consultant to study the potential and possible benefits of creating one organisation out of the two airlines. As evident from the mandate, the consultant was expected to justify the merger as the decision had already been taken. The team from Accenture said that the merger was an opportunity to ‘undertake a comprehensive transformation programme to improve the overall competitive and profit position’ of the two airlines. Overall, they were positive about the merger, which they said could help bring about: Clarity on the operating model for the airline business Integration and restructuring of the network Strategic cost reduction and productivity enhancement Fleet renewal and product revamp Significantly enhanced focus on service level Cash injection/liquidation of non-core assets Lead to reviewing of options of outsourcing non-core areas Targeted injection of best-in-class management skills Strong branding and communication campaign (at the right stage) Continued governmental support Regulatory support to prevent overcapacity and crowding Infrastructure to support growth Favourable negotiations on bilateral rights The ministry used the report to show why a merger was the best way forward for Air India and Indian Airlines, but it ignored the other recommendations that Accenture had made. For instance, a critical requirement for the merger’s success was the injection of fresh funds. It has taken the ministry almost five years to act on this suggestion. NACIL, in the meantime, has accumulated huge losses and is battling for survival. Why was this allowed to happen? Why did the airline not take control of the situation even when it was hit by falling revenues, rising expenses, shrinking market shares and

ballooning losses? The creation of NACIL presented a unique opportunity for consultants to oversee the merger of two public-sector giants. And as was expected, many well-known consulting companies pitched for a slice of the business. Consultants were also appointed for a host of other reasons and it will be an interesting exercise to track the total number of consultants that were appointed one after another for the purpose of increasing seat utilization, expanding the network, reducing costs and for fulfilling other similar objectives—all at the cost of the airline. In many instances, the ministry did not pay for most of the consultants since it would have meant having a clear and transparent approach to their selection, terms, and so on. It was always convenient to leave it to the company board to appoint the consultants, who were obliged to carry out the wishes of the minister Consultants were appointed, but their suggestions were not considered. Amitabh Malhotra, the managing director of Rothschild which was one of the consultants appointed, said, ‘We had several meetings with the top brass of the airline and the ministry; submitted our recommendations but got no response despite sending several reminders.’When I asked him, ‘Were you paid?’ he said, ‘Payments were linked to milestones but we weren’t paid even though we had attained the first milestone by the time discussions were abruptly terminated.’ Internally, employees were being kept in the dark about the true state of affairs, and political compulsions were being allowed to dictate terms when the market should have been given precedence. SINS OF OMISSION OR COMMISSION? The government played around with the post of chairman even in times of crisis, raising once again the issue of its seriousness in dealing with the entire problem. In the post-merger period of six years, the airline has seen four CMDs, not counting E. K. Bharat Bhushan, who was a stop-gap appointee for only a week: V. Thulasidas, who held the post at the time of the merger, was succeeded by Raghu Menon on 1 April 2008. Arvind Jadhav was appointed on 4 May 2009 only to be removed on 12 August 2011, when the current incumbent Rohit Nandan succeeded him. The government, despite its claims to the contrary, was behaving in a manner that appeared to disregard all norms of corporate governance. The Parliamentary Standing Committee on Transport, Tourism and Culture stated, ‘A company which is grappling with the problems relating to merger should have an element of permanency at the top level at this hour. Even the consultants recommended a five-year fixed period for the CMD. The committee has no hesitation to conclude that the frequent changes of CMD left the NACIL directionless and resulted in the present imbroglio.’ Instability at the top meant that it was impossible to fix accountability— the decisions of one chairman would be turned around by another and by the time the results trickled in, there would a third person in place. It was evident even to the disinterested observer that the airline was being run into the ground. The Parliamentary Standing Committee on Transport, Tourism and Culture further questioned the

logic of appointing bureaucrats to the post of the chairman and managing director of NACIL. It was direct and incisive in its observations and said, ‘An aviation giant such as NACIL should be run with the help of technocrats and knowledge experts at the helm of affairs. It is, however, noted that the CMDs, even after the merger, have been from the Indian Administrative Service. The committee, therefore, strongly recommends that experience in civil aviation industry or open market competition must be the main considerations for appointing CMD of NACIL. The company needs knowledge experts to deliver the results, especially at this juncture when it is to meet challenges of merger, recession, less traffic, and losses due to increased costs. The NACIL should be run by professionals and not by generalists.’The parliamentary committee reports stated what should have been obvious to any sensible person. How could non-aviation personnel be allowed to run an airline—especially when the market was at its volatile best? Even when this truth dawned on the presiding powers in the government, they messed up. In 2009, the ministry took more than nine months to select the incumbent after it made its decision to hire a professional to the post of chief operating officer public. Air India was bleeding so profusely at the time that the delay amounted to denying life support to a patient in the intensive care unit. They appointed Gustav Baldauf who had no experience in turning around an airline. He had never worked with the government and was not familiar with its ways and whims. So why was he chosen for the COO’s job? Mr Baldauf, appointed by a committee headed by the then secretary, civil aviation ministry, Madhavan Nambiar, had worked in the operations department of Jet Airways a couple of years earlier. The reason for his candidature will perhaps be hidden forever as the people who chose him have long moved out of their positions in the ministry. He lasted for all of eight months and quit in disgust citing governmental interference coming in the way of accomplishing anything significant. The Baldauf experiment did long-term damage as the government abandoned its quest for private-sector professionals to lead the airline. If NACIL has to emerge out of the mess, it is important that it brings in professionals not just for the post of chairman but also to head its different departments. It needs to be run very differently from the way in which the government has managed Air India thus far. Air India has also suffered on account of a weak board, which should have acted as a guide to the airline through its tough years and questioned the ways of a wayward ministry. Members could have prevented the cost overrun and revenue crash if it had been proactive and responsible. But in spite of the fact that the Air India board had a galaxy of luminaries from the Indian corporate sector, their contribution was negligible. Was it due to negligence or was it lack of commitment that led the board to abandon its role? The parliamentary committees had noted that the ministry should bring in professionals on the board. And the ministry had stated, ‘… NACIL board is going to be strengthened with eminent persons. In fact, we expect orders very shortly because that itself will give an image which is not just a few government officers but people with respect and dignity who would really bring a value added to the national board.’But to what effect? How does a celebrity board help if the people are not familiar with the airline business, lack commitment, and if their word does not count? Many of the eminent members on the NACIL board complained to the prime minister’s office in November 2010 on how the company was being mismanaged but no action was taken. Several other suggestions made by the consultants were also ignored. For instance, Accenture had

recommended regulatory support to prevent over capacity and favourable negotiations on bilateral rights. It said that the government needed to create an environment that would help the airline take advantage of emerging opportunities. In every other country, the government has taken into consideration the home carriers’ interests. But the government in India opened up the market indiscriminately. For Air India, this was like a double blow— the market was thrown open to a crowd of foreign carriers, but at the same time, its fleet was being expanded to take advantage of potential demand. In fact, the ministry increased the initial order of 10 long-haul aircraft to 50. In the circumstances, the incremental capacity generated by the bilateral agreements could not be utilised by the home carriers as the phased induction process of aircraft by Air India commenced only in July 2007, by which time the foreign carriers had launched new services and firmed their grip on the Indian market. Air India highlighted this issue in inter-governmental talks and also with the ministry in November 2008. NACIL, too, made the same argument before the Committee of Secretaries in July 2009, but no notice has been taken so far. The parliamentary committees observed: ‘The decision to open the highly lucrative international air markets to/from India may be probed by a suitable agency and all those bilaterals must be reconsidered and reviewed and responsibility may be fixed for giving away the national rights.’ FLIGHTS OF FANTASY AND BOTTOMLINE NIGHTMARES Over the years, Air India has been at the receiving end of the grand ambitions of its masters. Ministers and chairmen have imposed their decisions without doing a thorough check of the viability and relevance of their ideas with respect to Air India and the aviation business. A glaring example is the manner in which new routes were finalised and operationalised. The introduction of non-stop flights to the USA by Air India is a case in point. Praful Patel, while nudging (read ‘ordering’) Air India to revisit its fleet acquisition plan at the meeting of officials from the ministry, Air India and Indian Airlines on 2 August 2004 in Delhi had said that Air India should consider introducing such flights in response to what the Gulf and Southeast Asian carriers had done. Air India did eventually purchase eight B777-200sLR when Mr Thulasidas was the chairman to deploy them on the Mumbai–Newark, Delhi–New York and Mumbai–Chicago sectors. A common feature was that all these flights arrived in the USA in the morning and left late in the evening, after almost 12 hours of ground-time. Even as old-timers with enormous experience in the industry expressed shock at the underutilisation of capital-intensive aircraft, each costing over 600 crore, the management did not demur as the decision had been taken at the highest level. It should have been clear to anyone who was tracking the airline’s performance on the routes between India and the USA that the plans had gone awry. All that had been cited to justify the purchase of this particular kind of aircraft—such as commanding 5 per cent higher fares in economy class, 10 per cent higher fares in the premium classes and more people patronising the flight due to good arrival and departure timings for a US-bound passenger—had failed miserably. With every flight, Air India was losing at least 1 crore daily. If we had had a sound revenue monitoring system, the airline would have been able to take appropriate measures to control losses. But the Air India management was unperturbed by the huge drain on its resources. It was only in October 2011 that the ground-time at US airports was reduced from 12 to 8 hours, but this was still not good enough. The latest on this is that

the airline has decided to lease out these aircraft for an extended period or sell them because the aircraft are unlikely to help recover even operational costs—even at 100 per cent occupancy. The efforts to do so have thus far been in vain. Frankfurt folly Air India was in a deep financial crisis since 2008. Prudence required that all cost-bearing decisions be well deliberated before being given effect. However no such caution was exercised, and experiments continued unabated. Deepak Brara an erstwhile Indian Airlines executive director first made Frankfurt the hub for flights originating from Delhi and Mumbai to enable passengers to change aircraft at Frankfurt for proceeding from India to destinations in the USA and from the USA to various destinations in India. The fact that Frankfurt is amongst the costliest airports in the world and provides no business potential just did not seem to matter. Frankfurt has traditionally been such a losing proposition that in 1999, Air India temporarily ceased operations to and from Frankfurt when losses had to be controlled. Compounding the financial mess of Frankfurt as hub was the decision taken to launch an Ahmedabad– Frankfurt flight to provide a feed to US-bound flights originating from Delhi and Mumbai and likewise for the returning India-bound flights. As was only to be expected, both Frankfurt as a hub and the Ahmedabad–Frankfurt flights were discontinued a few months later, and Mr Brara was removed from his position by Arvind Jadhav, but not before Air India had lost over 300 crore as per conservative estimates on these experiments. There were several other instances of a route being sanctioned and flights being readied without a study of the market potential. Such incidents caused the airline to suffer a loss—not just in potential revenues but also on account of a burgeoning expenditure bill. The arbitrary manner in which routes were being discarded and sanctioned led to a lot of speculation. Many of us wondered if the route rationalisation at Air India was another way to open up the market to private airlines. Many a time, Air India was asked to withdraw its flights, but sometimes within weeks and months, a private carrier would launch flights on the very route that Air India had vacated. For instance, Air India was asked to stop operating flights on the Chennai–Colombo route because it was deemed unprofitable, but SpiceJet mounted flights on this route soon thereafter. The Bombay– Nairobi flight was given up by Air India for Jet Airways to utilise this slot. The ministry, when questioned about such occurrences, said that their decision was driven by the losses being incurred on the route. The parliamentary committees said, ‘There appears to be a nexus operating for surrendering lucrative routes to favour the private operators,’ and recommended an enquiry into the issue. The financial woes of Air India stemmed from many such projects, as also from the fact that the airline’s expenses were not subject to due financial diligence. Air India’s finances also took a hit as the government opened up the skies to foreign and private Indian players. It would have made imminent sense for the ministry, which forced Air India to buy 40,000 crore’s worth of aircraft, to inject more equity, but it required consultants from Accenture to suggest that the government should

inject funds and liquidate non-core assets to put Air India on a firm financial footing after the aircraft acquisition and the merger. For nearly two years after the merger, the recommendation was frozen in the files. Finally, when Air India was faced with an empty coffer, the management came up with a turnaround plan that required the infusion of funds by the government. The Committee of Secretaries had two meetings, one on 25 July and the other on 29 August 2009, and recommended the following: An equity infusion of 5,000 crore over a period of three years towards fleet acquisition A governmental guarantee for working capital of 10,000 crore The benefits package was way below what Air India had asked for while deposing before the parliamentary committees in 2009. It had sought the following concessions from the government: 1. A one-time equity support of 10,000 crore for the repayment of the aircraft principal. 2. A 10-year interest-free loan of 10,000 crore with a five-year moratorium to support working capital reduction. 3. Setting up of a group of ministers (GoM) to supervise the turnaround of Air India. 4. Support on bilateral routes suggesting freeze, roll back of sanctioned bilateral rights and curb on sixth freedom traffic, which allows airlines to carry passengers beyond the home country; and a review of access (number of cities served and frequency) for foreign carriers. 5. Support for preferred slot negotiation at key international airports (timing, quantum), especially at the Frankfurt hub. 6. Permission to defer or cancel part of the new aircraft order as well as pre mature return of old leased aircraft. 7. Ensure that government employees travel by Air India and can avail of commercial concessions/promotional offers (especially frequent flyer miles) 8. Aviation turbine fuel to be considered as ‘declared goods’, which would have brought down the sales tax to be charged to 4 per cent instead of the 25–30 per cent that was being charged by the different states at the time; and pricing to be brought into line with the international ‘basket’ price. 9. Amendment of the definition of ‘workman’ under the IDA 1947 to exclude pilots, flight engineers and aircraft maintenance engineers from the purview of the said act. (Also, Air India should be exempt from Contract Labour (Abolition and Regulation) Act of 1970 which would have allowed the airline to outsource certain functions. 10. Prudential norms to be applied by the banking industry on loans to the civil aviation sector. 11. Restructuring of the top management team and appointment of independent directors (finance, IT , hospitality, legal and economic disciplines). As far as we know, most of these pleas have not been accommodated till date, barring the commitment to infuse 30,000 crore by 2021. DEATH BY DELAYS

What was the ministry’s response to the consultant’s report and Air India’s pleas? Delays, delays and more delays. And finally, when it became impossible for Air India to pay its employees and vendors or meet mandatory expenses, funds were released on a piecemeal basis with a view to meeting shortterm operational expenses. At no point did the ministry take the long-term view and offer a viable financial package to the airline. But one expert group followed another; reports piled up everywhere; and the Cabinet Committee on Economic Affairs took inordinately long making up its mind on the suggestions given by hordes of consultants. It was as if Air India could afford to wait endlessly. A 30,000-crore package was finally approved in April 2012. But by that time, the injection of funds had become more like a financial bailout package that would last for over eight years, ending in 2021. And to ensure that the public did not erupt in anger over the large sums of money involved, Air India was set milestones to track the use and impact of the money being poured into its revival. The tragedy is that this could have been avoided. Air India knew what the problem was. The ministry was aware of its difficulties. And if the objective all around was to keep the airline on its feet, why has it been crippled for life? Star Alliance: an uneasy pact Consider this laudatory statement made by Glenn Tilton, the chairman and CEO of United Airlines, in Beijing on 13 December 2007:‘Having now come to an agreement with Air India makes us the first airline alliance to secure a member in India, which will enable our customers to receive more benefits when travelling to, from and within India in the future.’This statement was made after the CEOs of Star Alliance member airlines voted to accept the application of Air India to become a future member of the alliance. But in August 2011, the same group denied Air India membership on the specious plea that ‘Air India had not met the minimum joining conditions that were contractually agreed in December 2007.’ Star Alliance membership, with its global network providing a range of benefits, such as faster and smoother transfers, frequent flyer programmes and lounge access for a convenient, smooth and efficient worldwide travel experience, could have catapulted Air India into a different orbit. It would have helped generate at least 1,000 crore of additional revenue every year; besides, membership of the Star Alliance was cited as a major factor for merging Air India and Indian Airlines. We were told that it would make the organisation a strong contender for a place in the elite club. The Star Alliance press release issued on 1 August 2011, stated, ‘The member airlines of the Star Alliance network and Air India have jointly concluded that the integration of Air India into the global airline alliance will be suspended.’ If it had been jointly concluded following a review of the status of Air India’s application at a meeting held in New Delhi between the Ministry of Civil Aviation, Star Alliance CEO Jaan Albrecht and Air India CMD Arvind Jadhav, one wonders why the then Civil Aviation Minister, Vayalar Ravi, expressed surprise at the public pronouncement. The specialised team at Air India, which had worked tirelessly with Star Alliance and its member carriers on the integration process, was shocked at the development because all integration conditions had been complied with and the same had been confirmed by the Star Alliance team coordinating with them. Will those responsible for poor networking with Star Alliance members ever be taken to task? Passenger service system

The upgrading of the Passenger Service System (PSS) was critical both for complying with the technology conditions that were laid out by Star Alliance and for Air India to demonstrate the success of the merger by operating flights under a common code. The PSS is a set of applications and services that are provided in an automated environment for handling of passengers by an airline, which broadly includes airline reservations, fares, inventory management, ticketing (including e-ticketing), departure control system/check-in, boarding pass and baggage tag printing, baggage reconciliation system, automated boarding control, weight and balance and such others. But the upgrading of systems was inordinately delayed. Even after the procedural formalities had been completed and the contract was in its final stage of being entered into, a complaint by a Delhi-based company (Amadeus) that Air India was deviating from the conditions specified in the tender nixed the process. The problem with the complaint was that it appeared to be motivated. The deviation in process was inevitable because even though the tender had specified a period of nine months for accomplishing the work, the appointed company had wanted 13 months for execution after finding out the scale of work involved. There wasn’t any charge of any financial bungling on the part of any official in the complaint, but it was enough for those interested within and outside the management to abort the contract and re-tender the work. SITA and Amadeus, the company that had earlier complained, were in the reckoning. The committee that scrutinised the financial bids, after finding the two companies technically qualified to execute the work, recommended SITA as its bid was lower than that of Amadeus. While SITA was to cost Air India USD185 million over a 10-year period, Amadeus would have led to a bill of USD325 million. Even though it was an open-and-shut case, the ordering was delayed because the political dispensation in Delhi had wanted Amadeus. As no one had the temerity to tell the minister that the contract could not be awarded to a party that had quoted so much higher than the one that had been recommended. The proposal wasn’t put to the board for approval for several weeks notwithstanding its criticality and the fact that Star Alliance membership would remain elusive till its completion and Air India would not be able to operate flights with a common code. In the meantime, pressure was being mounted to find a way to favour Amadeus. When the proposal was eventually placed for the board’s approval, instead of giving it the go-ahead, it suggested that the committee visit Kuala Lumpur and Sydney to see the systems engineered by SITA and Amadeus technology once again. The committee, after undertaking the visit, reiterated its recommendation, refusing to change its stand. Perhaps left with no alternative, the contract was eventually awarded to SITA in 2010, and work was accomplished within the stipulated time of nine months despite several hurdles. Even though Air India finally introduced a common code for its flights in early 2011 and could confirm compliance on all of the 80-odd parameters, the delay, besides causing revenue loss due to non-operationalisation of the passenger service system, also led to Air India losing out on the opportunity of being part of the Star alliance. Whether this was part of a grand design or whether the delay was inadvertent, only a full enquiry can reveal. Low-cost disasters There are innumerable examples of decisions that were taken to help Air India but not implemented. One that stands out in my memory is the way we dithered over setting up a low-cost airline. The economic downturn of 2008 affected airlines worldwide. Most organisations, even Indian carriers, cut costs by either pruning down staff or pay or both. Air India failed to cut pay or reduce the number of employees because the unions would not allow any of that. As losses doubled, Air India had to find

a solution. What was the way out of the mess? Focus on enhancing revenues, if you can’t control costs. Even as the market trend showed that low-cost airlines were garnering increasing market share month after month at the expense of the legacy carriers and that Jet Airways had launched its low-cost airline JetKonnect and Kingfisher had Kingfisher Red so that they could cater to both segments of the travelling public to shore up their bottom lines, Air India acknowledged the need for a low-cost airline—even announced on more than one occasion its intent to start one—but, curiously, did not launch one. The first time we got to hear of it was when Arvind Jadhav shared his plans with the media on 7 August 2009 in Delhi. The next time it was mentioned was when Praful Patel held a press conference in Mumbai on 25 July 2010. The announcement came just after a board meeting that was attended by Anand Mahindra, Amit Mitra and Gustav Baldauf, besides the government directors. Presumably, the intention to set up a low-cost airline was serious, or else why would a minister talk about it to the media after he had met the board members? However, the low-cost airline never saw the light of day. Meanwhile, Arvind Jadhav, in a knee-jerk reaction to falling market shares month after month, transformed Air India into a low-fare airline. Flying Air India became a cheap option, almost as cheap as the low-cost airlines. But Air India’s costs were high; unlike other low-cost airlines, it could not keep its wage bill low or cut expenditures. This was a surefire recipe for disaster, and Air India ended the year 2011–12 with a record loss of almost 7,559 crore. The amount could have been higher but for a quirk of fate as Kingfisher had to reduce capacity deployment due to its inability to pay the airport operators, oil companies, aircraft lessors and employees, resulting in a bonanza for other airlines by way of higher load factors and enhanced revenues. THE DELHI AIRPORT CASE Air India has had its base for international operations in Mumbai ever since the first international flight was operated to London on 8 June 1948. However, when the new terminal at the Delhi airport, popularly referred to as T3, was commissioned in 2010, Air India decided to transfer most of its flights to that terminal. It therefore reduced its operations out of Mumbai, which meant that traffic originating from Mumbai and other cities in the western part of India were handed over to private airlines on a platter. This was despite the fact that Air India wasn’t ready for a shift to T3. It could not handle the increased number of flights from that terminal as it did not have enough people to run the operations. While the commissioning of T3 was a matter of pride, Air India’s first two weeks of operations were chaotic and an unmitigated disaster, with flight schedules going awry and passengers seeing their baggage misplaced, resulting in adverse news in the media day after day. Considering that almost 200 pilots, engineers and cabin crew had to be accommodated in hotels at substantial cost—at a time when employees weren’t getting their salaries on time and oil companies were randomly forcing suspension of flights—for operating the enhanced number of flights, one is left wondering who ordered the shift, and for whose benefit? Additionally, while Air India faced teething problems at the airport— like glitches in the sophisticated baggage software—that marred the T3 experience for passengers, the aviation authorities, taking a cue from the fiasco, asked Jet Airways and Kingfisher to adopt the opposite strategy: first shift only existing operations to T3, and wait for them to stabilise before increasing operations. Air India was clearly treated as a guinea pig for testing the new systems at the new airport. It was made to face customer wrath while private airlines were protected from a similar fate.

MERGER PLAN OR MURDER PLAN? The merger plan put forth by Accenture can’t be faulted on all counts even if it has run into several hurdles thus far. It had numerous salient features, including the setting up of strategic business units so as to fully leverage strong assets, capabilities and infrastructure of the two airlines and to develop them into profitable businesses. These included the ground handling services and the maintenance, repair, and overhaul services (MRO) to generate much needed additional revenues by undertaking third-party work. As the ministry picked up only the ‘convenient’ recommendations made by Accenture while ignoring other key changes, Air India has suffered enormously; these SBUs have been non-starters for six long years. Of course, the consultants will be in a position to wash their hands of the matter on the plea that the recommendations were justified but implementation was a problem. Incidentally, the foresight of J. R. D. Tata had helped Air India build a huge engineering infrastructure in Mumbai. Ground handling business evolved over the years as the airline began providing all the arrival and departure services at all the international airports in India to most foreign carriers, earning sizeable revenues. However, like all policy decisions likely to prove beneficial being ignored, the creation of SBUs too received no attention. Even though the subsidiary companies for ground handling (Air India Air Transport Services Limited) and engineering (Air India Engineering Services Limited) had been created as early as 2004–05 and the certificate to commence business was obtained in the case of AIESL almost seven year ago on 17 January 2006, no headway was made. With its large infrastructure, technically qualified workforce, the plan was to develop this subsidiary company into an MRO facility, with Air India providing the necessary initial support in terms of infrastructure and domain knowledge. As a matter of fact, the board of directors of Air India, at its meeting held in August 2010—a good three years after the merger—had approved the operationalisation of the Air India Engineering Services Ltd and submitted a note to the ministry to get the cabinet’s nod. It took the ministry over two years to get the government’s green signal, which was finally received on 6 September 2012. In fact, even though the fleet acquisition proposals of the two airlines had provided for joint ventures for the creation of a Maintenance, Repair and Overhaul Centre for Airbus and Boeing aircraft and an agreement to this effect had been signed by Air India with the European Aeronautic Defence and Space Company (EADS) in October 2008 for Airbus aircraft, no significant progress was achieved. The press release issued on the occasion said, ‘This new MRO centre, after it receives the approval of the government, will start its operations with effect from early 2009 at Indira Gandhi International Airport, Delhi. It would become a member of the Airbus MRO Network.’ There was naturally no urgency displayed, and one wonders if anyone, whether in Air India or the ministry, will ever be hauled up for this inexplicable delay. The release in October 2008 had further quoted EADS, ‘This is a new milestone in the long history of cooperation between India and EADS. For the last ten years, we have continued to expand our industrial relationship by launching several initiatives between different EADS’ divisions and the Indian Industry. EADS is keen to support the fast-developing aeronautical sector in India.’ The facility would also cater to the markets in the South Asia region and neighbouring countries. By

2013, over one hundred single-aisle aircraft and around 10 wide-body aircraft per year would be maintained, and the centre would employ 250 to 300 Indian technical personnel. Other Indian as well as foreign operators/airlines would also benefit from its services soon. India today has an expanding fleet of Airbus family in its aviation industry, and this MRO centre will contribute to the development of this market. Air India said, ‘This first-of-a-kind Joint Venture Airframe MRO in the country is of immense importance in today’s growing aviation market. With the setting-up of this facility in Delhi, NACIL will see an increased availability of aircraft following reduction in major maintenance check times through enhanced productivity. Besides, catering to our Airbus family aircraft, the facility will also be able to attract other airlines’ jobs, thus not only leading to savings, but also generate earnings for the company.’ Even though Air India foresaw an increased availability of aircraft due to a reduction in time spent on major maintenance checks, neither the engineering department nor the management pressed the ministry to get the cabinet’s nod, which took almost four years after the joint venture agreement was signed. The commissioning of the joint venture with Boeing in Nagpur is also slated for 2013, though we have seen many deadlines fixed and not honoured in the past. We can keep our fingers crossed and see if this deadline will indeed translate into reality. The opportunity for transforming Air India into a pioneer offering MRO and engineering services to all operators—domestic or international—through the SBU, with a staggering 9,000 engineers and technicians on its rolls, has thus been significantly delayed, if not lost. Ironically, even now the thrust appears to be on transferring manpower from Air India to the SBUs rather than on making these subsidiaries leaders in the business. One only hopes that the affirmation this time around of the process of the transfer of assets and manpower from Air India to Air India Engineering Services Ltd and the initial capital infusion by Air India will materialise, and that the subsidiary will be treated as a separate profit centre. The MRO company is projected to turn profitable during 2017–18. Civil aviation minister Ajit Singh recently said that the proposal to hive off the MRO business of Air India Engineering Services Ltd will allow the firm to tap MRO business of an estimated USD1.5-billion in the Asia–Pacific region. Aircraft maintenance and engineering contracts from Indian carriers alone are estimated to be worth USD400 million (around 2,182 crore today) annually by 2020 as the relatively young fleets of Indian carriers age. Let us hope that Ajit Singh’s optimism is not misplaced and that the MRO can deliver. If it’s a good idea, let’s wait Air India and Indian Airlines, between them, were monopolising the ground handling business by providing services at various Indian airports to foreign airlines. Whilst the business should have logically expanded manifold once unrestricted rights to operate services to metro and non-metro cities were allowed to foreign carriers, in Air India’s case, the reverse occurred. The revenues it was generating almost dried up. Ground handling was, in fact, an area where pre-emptive action had been taken, with Air India Air Transport Services Limited being registered as a fully owned subsidiary of Air India on 9 June 2003. With the government deciding to have at least three operators at each airport to ensure economical and efficient services through competition, Air India had begun hiring staff under AIATSL so that the two negatives of Air India—high cost of manpower and poor

productivity norms—could be eliminated. This was to be ensured by introducing an improved quality of services benchmarked to global standards, new work culture with customer focus, quick response to customer requirements, reduction in overhead costs, improved productivity on a low-cost platform, accountability for growth, and profits. The idea was to develop the business first and then consider getting into a joint venture agreement for the ground handling business of Air India. This was nine years ago, when the Air India Employees Guild, more concerned with serving its own narrow interests, thwarted the move even after over 100 employees had been hired. Hiving off is now part of the turnaround plan with which the infusion of funds is linked. Air India’s business prospects in ground handling were, however, compromised when the government allowed private airport operators in Hyderabad and Bangalore to make international experience mandatory for bidding. The ministry failed to protest, and Air India’s interests were ignored. Air India, under the circumstances, had perforce to tie up with Singapore Airport Terminal Services Ltd (SATS), Singapore. Once again, the experience has been unfavourable for Air India, with SATS having been delivered the existing business by Air India on a platter. With virtually no investment, the Air India–SATS tie-up has now been extended to a few other airports, thus edging out Air India’s revenue earning potential for all times to come. What is now left to be hived off under the turnaround plan? Another significant aspect of the government’s ground handling policy was that only three companies could provide services to airlines. Airlines were not permitted to use their own employees for these services. While initially the government kept deferring the implementation date on a six-month basis at the request of the airlines, it has now decided to allow individual airlines to handle their own flights. No one need complain except that Air India, instead of being a market leader in ground handling, will now be amongst the few carriers not exclusively handling its own flights, which will be catered to by the AI–SATS joint venture. Once again, a policy that was supposed to benefit Air India has in fact harmed its interests. DELAY IN MONETISING ASSETS, INCLUDING AIR INDIA BUILDING The turnaround plan considers revenues under two heads: operating and non-operating revenue. The latter includes income from monetisation of assets. The airline is expected to generate revenues worth 5,000 crore over a ten year period starting 2012 in this fashion. Air India has land and buildings in multiple locations in India and abroad. The annual report for 2008–09 reveals that land held by Air India was valued at 705 crore for freehold land and 6,353 crore for leasehold land. Moreover, AI had building assets valued at 1,535 crore at the end of the financial year 2009. Air India, having been in the airline business, knew very well that building premises were akin to aircraft seats. Just like an aircraft seat is of zero value once the flight has taken off, the rental income from building premises is also a dead loss once the month has gone by. AI has lost a few hundred crore of rupees for delaying the renting out of the AI building and other premises. Incidentally, less than one-fifth of the total area of the building was used when Air India was operating out of Mumbai and even less after it shifted headquarters to New Delhi. Most floors are lying vacant as tenants were asked to leave several years ago due to the fact that as rent, they were paying a pittance that did not even cover airconditioning costs. Even after five years of pathetic finances, the board, in 2012, only took a decision for the appointment of a consultant to advise the management as to whether the building should be sold or rented out. Air India finally issued a public notice in October 2012 inviting interested

companies to submit bids for taking space on rent, which elicited poor response, forcing the airline to repeat the exercise three months later. The airline further sought a high rent of 350 per square foot, much higher than the prevalent rate in Nariman Point at the time. It also stipulated through its advertisements that a tenant would have to rent a minimum space of a floor, but when it found no takers, it reduced the same to half a floor. It seems illogical that an airline that needed to maximise revenues would set so many hurdles in its path. However, as there is no accountability, no one can be asked as to why this rental income was sacrificed. With the core business of flying passengers and ferrying cargo not bringing in enough revenue, and the earnings from providing ground handling services to foreign airlines at various airports given a goby, the minister Ajit Singh has now spoken about putting Air India’s art collection, valued at several hundred crores, on sale. Going by the airline’s past behaviour, where off-the-cuff remarks of ministers were deemed as orders, one wonders if Air India’s management will put on sale the art collection because the honourable minister has opined that it should be so or preserve the heritage and concentrate on revenue generation from its main core businesses. NO ONE TO BLAME While the damage done by those heading the ministry and the airline is evident even if they can’t be held accountable, what is not as clear is the role of other individuals involved in the decision-making process. There were many in Air India who supported the chairman’s decisions, even when they knew it to be faulty. They would even laud his vision and approach, earning promotions and perks in return for their praise. I believe they are all responsible for the state Air India is in today. Similarly, those who were part of the governmental agencies and responsible for acquiescing to the minister’s wishes with haste are all to blame for the damage that these decisions have inflicted upon the airline. What also cannot be ignored is the fact that almost all the executives of Air India associated with most of the aforementioned decisions ended up being rewarded either by way of post-retirement jobs or by way of promotions, if still in service. This included those who helped purchase seats for B777 aircraft, the person who formulated proposals for the leasing of aircraft, the executive who justified aircraft purchases by concocting unattainable load factors and revenues based on imaginary fares, the executive who failed to correct systemic weaknesses in work practices and signed wage agreements when the airline couldn’t afford them, the official who bought merchandise at exorbitant rates, the finance executive who facilitated board approvals of various destructive proposals, those who manipulated the accounts to paint a rosier picture and the executive who planned Frankfurt as a hub. One can simply go on and on. And I am reminded of the following quote, which so aptly sums up the current situation: When you know that in order to produce, you need to obtain permission from men who produce nothing, when you see that money is flowing to those who deal not in goods but in favours, when you see that men get rich more easily by graft rather than by work, and your laws no longer protect you against them but protect them against you, you know that your society is doomed. (Atlas Shrugged, by Ayn Rand)

How well this applies to not just Air India but to all of India today! We know who killed Air India’s revival, but we don’t know why. The only question that needs an answer is this: should we say, ‘Air

India, RIP?’

CHAPTER FOURTEEN

looking into the crystal ball

I WAS AIR INDIA’S public face for more than two decades. In the course of my duties, I interacted with people from diverse strata of society, and while the airline evoked mixed reactions over its quality of service and performance, I never ceased to be pleasantly surprised by the deep connection with the brand that most Indian fliers had. Almost everybody I met spoke about the airline with varying degrees of fondness while bemoaning its waning dominion over the skies. Intriguingly, Air India’s decline from the heights it once commanded has been the concern of everyone except those who need to set matters right. Many have even begun to use the airline’s example to describe the declining state of different government-owned companies by classifying the phenomenon as ‘going the Air India way’. Mr Dinesh Trivedi, a former railway minister, said so in case of the Indian Railways after his budget was stalled, and the same has been said of the Shipping Corporation of India and BSNL. Air India’s fate seems to have become symbolic of all that’s wrong. Over the years, as my disillusionment with the airline grew, I felt that I was in some way answerable to all those who had reposed their faith in the airline. I hope that, to an extent, this book has been able to provide all those who have asked me ‘What went wrong?’ with some understanding of what led to Air India’s decline. But there is a question that I still have to address, and that is: is there a future for Air India? To answer that, let us look at what is being done to pull the airline out of its current imbroglio. MONEY, MONEY, MONEY… Air India’s pathetic financial situation was first made public by Arvind Jadhav in July 2009. He delayed the payment of salaries to employees by a couple of weeks to give the airline’s state of affairs a dramatic twist, and the crisis was blown into the open. The government was forced to act, and it did so swiftly, but instead of tackling the core problem—the lack of a strategic and operational direction within the airline—it decided to focus on a financial package. This is no solution at all, and if I had to use an analogy, I would say that it is like applying a fresh coat of paint to a crumbling house. We are being misled into believing that the airline’s survival

is but a mere matter of infusion of funds. The government and, in fact, all those involved with the decision are thereby oversimplifying a hugely complex issue. The reality is that Air India’s survival hangs on several pegs, most notably the induction of professional management with an effective leadership, a sound financial package that does not come with political interference in day-to-day operations, unions allowing changes in work conditions and pay packages, removal of all hurdles in the way of the merger and, of course, commitment, faith and prayer. To be able to fly again, Air India has to find the will to get back on its wings. If we look at the way the airline has performed and how the management reacted during the six-year period spanning 2007–13, the prognosis is not very hopeful. The management has been indifferent and the political influence has reached its zenith, making it impossible for any decision to be taken without ministerial approval. In fact, if we consider the period since 2005—a time for tough decisions as Air India found itself staring at an unfolding financial crisis—we see that the leadership team went about business as usual. At no stage was there a sincere and sustained effort to improve the airline’s performance on any of the key performance indicators—market share, load factor, on-time performance, network expansion and aircraft utilisation. Nor was there any attempt at winning over and reassuring the travelling public. While the last five years have been difficult for the aviation industry as a whole due to the global economic downturn, an unabated growth in capacity and a growing number of Indian carriers as international operators, Air India has performed worse than airlines that have far less experience. Even SpiceJet, which had less than 10 per cent of the market share six years ago, has caught up with Air India. The national carrier is oscillating between the third and fourth position among five Indian airlines, not counting Kingfisher, which used to dominate the market but has since fallen by the wayside for a host of reasons. One reason for why these airlines have been able to overtake the oldest carrier of the country is their focus on survival and profitability. And that has come about on account of a professional management. We saw Air India flourish when it was managed by a visionary leader and a dedicated and experienced management in the 1960s and the 1970s. Ironically, when the market conditions are far more hostile and Air India needs a set of experts at the helm, it has been saddled by a bevy of bureaucrats who are unfamiliar with the aviation sector and have not been in their posts long enough to bring about effective change. Worse still, it appears as though neither the government nor the management and the employees have realised the depths to which the airline has sunk. They are still focusing on peripheral and cosmetic changes to steer the airline out of the clouds. This is symptomatic of the manner in which the airline’s problems have been addressed over the years: in haste, with an eye on short-term gains and without understanding the multiple issues that have led to the airline’s decline. For instance, on 12 September 2012, while welcoming the first B787 Dreamliner aircraft in the fleet, Ajit Singh, the civil aviation minister, said, ‘The aircraft will help restore the glory of the Maharajah.’ On 19 June 2013, Rohit Nandan reiterated the same in his message to employees. He said, ‘The Dreamliner returns to the skies and with it our dreams are coming true as they bring Air India the strength to surge ahead and surpass the competition. The Boeing 787 with lower fuel and operating costs are at the centre of the plan to revive our fortunes and improve our performance.’ He was speaking after all the Dreamliners with all the airlines the world over, which had been grounded

by the FAA due to safety concerns, were pressed back into service. Evidently, the people in charge are cognizant of the need for efficient aircraft, but inexplicably, they are overlooking the need to improve efficiency in every other sphere of the airline’s operation. The naïve belief that the airline can be turned around through the mere induction of a type of aircraft would be amusing if the situation were not so grim. While the need was for Air India to be managed professionally, the government has been steadily increasing its stranglehold on the airline. Even the most routine decisions are being taken by the political establishment. It is Mr Singh who asked for a plan on increasing the market share. It is he again who has asked the management to ensure that the pilots and the cabin crew fly as per the guidelines of the directorate general of civil aviation (DGCA) on flight and duty-time limitations. It is he who decided on the strategy that the airline must adopt to deal with the striking IPG pilots, and it is his suggestion that Air India should set up a hub in southern India, and so on. Why has the management allowed its functions to be taken over? Or is it that the minister has no faith in the men that the ministry has chosen to lead the airline? Either way, this does not bode well for Air India. To come back to the question of whether Air India can pull itself out of the crisis, my view is that it can be done if and only if the management reclaims its decision-making powers. For that, the airline needs to be led by a different set of people because those who have managed its business since 2004 have done little more than acquiesce to the ministers’ wishes. Air India needs to focus on bringing its expenditure bills down, improving its service and thereby revenues and treating the airline like the business it used to be—not the fiefdom of a few—and that will be impossible without a team of aviation specialists and management experts at the top. Merely throwing money at the problem will not make it disappear. HALF-BAKED MEASURES The government picked and chose the recommendations made by the Air India management and those from the consultants to bring about the airline’s revival. It accepted the request on financial assistance by way of equity infusion, restructuring of debt to include a moratorium on interest payment for a year and a moratorium on repayment of loans for a couple of years, and allowing the airline to raise funds through the issue of bonds. But it did not accept the other critical suggestions: allowing the airline to defer or cancel part of the order for new B787 aircraft, restructuring the top management team, regulating the capacity of foreign airlines in India and appointing independent directors from finance, IT, hospitality, legal and economic disciplines on the board. Consider the refusal to back down on taking delivery of the aircraft. The airline has been forced to take in the entire lot of 27 B787 aircraft ordered in 2005, even though Qantas, which is much better placed financially, has deferred deliveries by two years. Why, if the objective was to revive the airline, was its plea unheard? And if the new aircraft fail to deliver the results or fails to, as the minister has been quoted in the media, ‘restore the airline to its former glory’, will anyone be held accountable? Also, the financial package was nothing but an old plan to infuse equity into the airline that had been recommended by accenture in 2006 and a request from Air India’s management for financial assistance in 2009 repackaged under a new name. Why did the government go slow? Minister Ajit Singh, when he announced the plan for Air India’s revival, said that the government

funding did not come for free. He said that Air India would have to attain the prescribed milestones to qualify for the funding. The question really is whether an airline can attain milestones when it has failed to improve performance in the past six years. Can the prospect of infusion of funds act as a catalyst when the threat of survival hasn’t in the 2007–13 period? It has been said often enough by the ministers of civil aviation that Air India has the capability to fly out of the red. It can. But only if it is run like an airline, not as a ministerial fiefdom. Rather than micro-managing the airline, the question that the government must seriously ask is how best this goal can be accomplished. Also, money alone cannot ensure Air India’s survival; its inherent weaknesses need to be addressed, and that needs focus and dedication from all those involved with steering the airline out of crisis. This is missing, and the government’s lack of commitment towards the airline is quite clear from the fact that it has never had the gumption to take tough decisions. The Economic Times summed up the implications of the bailout well in an editorial (14 April 2012): ‘It postpones the inevitable: the need to take some hard decisions about the publicly-owned airline that has suffered greatly on account of mismanagement, union blackmail and a warped, irresolute and incomplete merger, all underwritten by political interference. The package fails to address these structural and operational problems, stemming from lack of operational autonomy.’ In my experience with the airline and understanding of the way it has been managed, the only way forward would be to bring in a team of professional managers. The airline should look at picking out people who are considered to be the best in the business instead of restricting itself to insiders who are often too weak to resist political pressure and have not been groomed for the roles they are assigned to. Air India could draw a few lessons from IT behemoth Infosys, which not too long back was considered the bellwether of the Indian software sector. Its performance has sagged over the last two years and the company recently brought back its founder N. R. Narayana Murthy to helm its turnaround. Speaking at the annual general meeting of Infosys on 15 June 2013, Mr Murthy, who has been named executive chairman, said that the company’s loss of focus on its bread-and-butter revenue strategy of winning ‘highly competitive, large revenue-yielding outsourcing projects involving application development, maintenance, testing, BPO and infrastructure management’ had hurt the firm. Giving himself three years to help Infosys get back to its winning ways, he forewarned, ‘There will be some tough decisions resulting in pain as we move forward.’ Air India needs a leader like Mr Murthy. It needs someone who can recognize the problem and, instead of opting for easy ways to sidestep the issues, is not afraid to take the bull by its horns. The government too must let go of the tight control that it currently wields on the management for if it does not, it may soon be left with no airline to control. To invoke the title of a popular book What Got You Here Won’t Get You There by Dr Marshall Goldsmith, I feel that the same is true for Air India: the solution has to be different from what caused the problem in the first place. But the airline’s leaders seem to be intent on repeating their mistakes. Consider the recent exercise of appointing five non-official part-time directors on the board of Air India—Gurcharan Das; Prem Vrat; Air Marshal (Retd) K. K. Nohwar; Ravindra H. Dholakia and Renuka Ramnath. Similar experiments had been conducted in the past, with only the names of the appointees being different, but the impact on the airline had been negligible. The problem was and

remains with the airline’s work ethic and environment, which does not encourage even the most talented individuals to excel. While there is no doubt about the professional skills of the chosen team members in their respective areas of operation, few know the airline business or are aware of the peculiar problems of Air India. NO LEVEL PLAYING FIELD It has been a common refrain that the government should let all the airlines function in a level playing field. Many of Air India’s detractors have hinted that the private airlines have to deal with unfavourable market conditions while Air India gets preferential treatment for its status as a government airline. Such a view is not just erroneous; it could be dangerous for the future of Air India. Having worked with Air India for over two decades, it surprises me that the analysts and commentators who make a case for concessions for the private sector ignore the long list of social objectives that a government-run airline has to mandatorily fulfil. Air India has to operate VVIP flights for the president, the vice president and the prime minister, oversee and operate flights for the Haj, commission flights at short notice for national disasters and bail out Indians from international crises, apart from fulfilling other official duties. Even though the government compensates the costs incurred, the loss suffered by the airline due to consequent flight cancellations and passenger ire as the special flights are often summoned at short notice cannot be quantified. Additionally, Air India honours its commitment of ensuring adequate connectivity in the North Eastern region, unlike the private airlines, which operate less than their quota because the flights are not economically viable. Which private airline has to meet these and many more such conditions? As a public sector unit, Air India also has to meet the employment criteria of the government. It thus has far more people on its rolls than any private airline. Besides, many of its employees are forced to engage in unproductive functions such as dealing with the ministry, answering questions raised in the parliament, coordinating with the Rajbhasha Department for promotion of Hindi in the functioning of the airline and such other activities. More importantly, more the time the CMD spends on such matters, the less time he has to strategise and focus on steering the airline. M. P. Mascarehnas, who was the managing director during the period 1997–2001, says that 75 per cent of his time was spent in ‘non-operational work’. As a government-run airline, Air India is also forced to work within a bureaucratic operational framework. Decision making is slow, and that impacts the airline’s ability to counter adverse market conditions. For instance, Air India wanted to lease out three B777s in 2008–09 but failed because it was forced to follow long drawn out and mindless procedures for getting the decision approved. Jet Airways moved swiftly and managed to get around 325–375 crore annually for three years for its six aircraft which had been given out on lease. The situation hasn’t changed even in the wake of the current crisis. Recent attempts to lease out or sell surplus B777-200LR have been unsuccessful for more than a year now. When I drew Rohit Nandan’s attention to the problem and the need to do something extraordinary to succeed, he confirmed that they were struggling with procedures. When I suggested that he should follow the precedent set in 2005 and ask the ministry to set up an oversight committee and do as it had done while bypassing the system at the time of ordering new aircraft, I

received no response, and justifiably so, because the bureaucrat–chairman has severe limitations. Air India also has to follow the government-stipulated pay scales for its employees. Under the given structure, the airline pays its employees at junior levels emoluments that are higher than the market rate and its senior employees emoluments that are lower than the market rate. Thus, its wage bill is high, but at the same time, it is unable to attract the best talent at senior levels. The negatives therefore far outstrip the benefits that come Air India’s way on account of being a government-run airline. At present, the airline has very little say in matters that impact its bottom line —be it the acquisition and leasing of aircraft, the appointment of chairmen or entering into a strategic deal with a foreign carrier, like the one between Jet airways and Etihad. For instance, the decision to merge the airline was also taken by the government, but it did not take the responsibility of ensuring that the merger was a success and that all the recommendations made by the committees set up to look into it were implemented. Air India is also answerable to a larger constituency—unlike private airlines that are accountable only to their shareholders. Air India is vulnerable to complaints from ministers, politicians across the spectrum and the general public. THE ROLE OF UNIONS If I am allowed the luxury of dreaming that the government does pay attention to the plight of the airline and brings in a professional management team and adopts a hands-off policy, would the airline have a fair shot at recovery? Not really. Air India’s future hinges not just on bringing in better management practices but also on bringing in a change in the unions’ approach and attitude. Unions will have to cease their short-term and shortsighted way of functioning and agree to bury the old wage agreements that were drawn up when Air India was a near-monopolistic player. It is time for all to come to terms with the reality that the airline cannot effectively compete and hence survive with the various restrictive work practices enshrined in these agreements. The era of high pay and low productivity that has become the norm for almost all categories of employees in the airline has to come to an end. But that may be a pipedream, given the vociferous protests that have greeted the introduction of ‘Flight and Duty Time Limitation’ rules as per the DGCA guidelines and practiced by other airlines. The erstwhile Indian Airlines pilots’ union, the Indian Commercial Pilots Association(ICPA), has taken the management to the court in September 2012 on the issue. Likewise, the unions representing erstwhile Air India employees too has petitioned the court against their transfer to the subsidiary companies, Air India Air Transport Services Ltd and Air India Engineering Services Ltd. Their behaviour is indicative of the obduracy and ignorance of ground realities that continues to mark their actions. It is time for the unions to introspect on whether they want to be a part of a resurgent Air India or would rather take it down. In fact, when the airline’s cabin crew challenged the increase in working hours in the Delhi High Court in November 2012, the judge Justice Suresh Kait had this to say, ‘Since the airline is going through a crucial financial crisis, it becomes the duty of each and every person who is part and parcel of the institution to work as per the established industry practices to enable the respondent airlines to pull through from its present position.’ A timely homily, well delivered, but the employees drew no lesson from the statement.

It would be fruitful at this juncture for the management to draw some lessons from their global counterparts. Many global carriers have at some stage or other had to reduce manpower costs and radically change work practices. How did they do it? US Airways went bankrupt twice within three years of the 9/11 attacks on the USA. It was turned around by 2006 by David Siegel and Doug Parker, two strong leaders who not only established the necessary trust with the pilots’ unions but also negotiated salary cuts totalling USD1.5 billion. The duo also subsequently merged US Airways with America West successfully. The story of Thai Airways is no different. Piyasvasti Amranand, an economist from London School of Business with no aviation experience, turned around the airline when the government infused a billion dollars into the airline in 2008. Thai Airways achieved record profitability by 2010, with its share price increasing ten-fold. Similarly, Air New Zealand merged with Ansett and subsequently slipped into bankruptcy in 2001, but the government nationalised it (again) and poured in billions of dollars. Ralph Norris, a banker, was asked to take charge, and by 2005, he had successfully turned around the airline. Malaysian Airlines collapsed in 2005 when faced with severe competition from low-cost carriers such as Air Asia—a predicament similar to that of Air India today. Idris Jala, a former executive of Shell, was handed over the reins, and by 2007, he had it back on its feet. He implemented an aggressive restructuring of the airline and took Air Asia ‘head on’ in pricing. More recently, Japan Airlines witnessed a remarkable turnaround through the implementation of a restructuring plan that included a 30 per cent cutback in its global workforce. JAL did that by selling off its subsidiaries, and the revenues that accrued from such sales helped keep it in the air after it had filed for bankruptcy protection with a debt of more than USD25 billion. Other initiatives included dropping unprofitable domestic and international routes and retiring over a hundred aircraft. The financial support extended included a debt waiver of USD6.2 billion mainly from financial institutions and an investment of USD4.2 billion in JAL by the Enterprise Turnaround Initiative Corp. of Japan, the company appointed to oversee the turnaround. Chairman Kazuo Inamori, appointed to guide the destiny of JAL, said on assuming charge, ‘We must do our utmost to make sure that this does not end as just fantasy.’ All these airlines have one thing in common: a strong leader at the helm. Air India needs one too. The chairmen of the beleaguered airlines who managed to turn the tide in their favour dealt with the crisis in their own individual ways, but they could not have done it without their employees’ trust and support. The management could not have negotiated staff compensation and linked it with productivity, developed cost-effective strategies and brought about a radical change in work ethic if the employees had taken a belligerent and antagonistic stand. It is possible that when an empowered leadership is in place, Air India employees may open up to ‘reduced pay–more work’ type of negotiations and finally realise that their compromise will make a difference to the airline’s profitability and survival. The current scenario does not inspire confidence, as the unions are extremely reluctant to support the management, primarily because the leadership has neither been able to win their trust and confidence nor demonstrated that it means business. Without the employees’ cooperation, little can be achieved, because the government, in a bid to push through the merger proposal, has agreed to honour and protect all past agreements. This has lent legitimacy to unions’ insistence on adhering to all their agreements and refusing to change work practices. It is important for everyone involved in the future of Air India to understand that quite like the government’s desire to micro-manage everyday affairs, the unions’ insistence on past agreements too is an impediment to Air India’s survival. Moreover, it is inevitable that the government will be forced

to withdraw its financial support in the near future. The unions will then be left with just agreements but no airline to work for. Interestingly, not every leader in charge of a revival plan for the airlines was an aviation expert; instead, they had been chosen for their leadership and commercial skills because that had been the need of the hour. Air India, however, has continued to experiment with bureaucrats, which has been unfortunate for a host of reasons, as we have explained in the earlier chapters. Perhaps it is time for the authorities to take a hard look at the damage that this has done to the airline and draw lessons not just from global airlines but also from companies closer home, such as Satyam. The company, which faced a near-death situation after its promoter was hauled off to jail, has been revived by a new management that has taken some hard decisions and earned the trust of the employees. Even as the obstinacy on the part of the government to retain its stranglehold on management and of the unions to hold on to the agreements governing work practices and wages continues to lead to the airline’s imminent marginalisation, the external developments arising out of policy decisions of the government are set to pose even greater threat in the coming years, making the survival of Air India still more difficult. THE GOING WILL GET TOUGHER The growing challenges emanating from Indian competitors gaining muscle as a result of foreign investment, the entry of Air Asia India, the growth of low-cost carriers, the opening up of the international market in the form of bilateral liberalisation and the changing nature of global alliances will impact each of the three key areas of Air India’s operations—long-haul international, regional international, and domestic. This is set to happen any day now, with the proposed Jet–Etihad deal in place and the government already having doled out a 37, 000 additional seats per week in each direction on the India–Abudhabi sector. As per CAPA, the Emirates, Qatar Airways and Turkish Airlines are also waiting in the wings, seeking an expansion of bilateral access, as they have exhausted their current entitlements. Singapore Airlines has in April 2013 been already granted enhanced access. As most of the airlines seeking additional rights are sixth-freedom carriers, further liberalisation will place increased competitive pressure on Air India’s key routes. The historical weakness of international services by Indian carriers—largely the result of incoherent Indian policies —has already resulted in more than a third of Indian international traffic travelling to its final destination via an intermediate offshore airport, with the Middle Eastern hubs accounting for more than half of such traffic. As most of these airlines are significantly more efficient operationally and have aircraft that match market requirements, Air India’s long-haul and wide-body fleet issues will prove to be a major constraint. The new B777 fleet was being underutilized as it had been termed economically unviable. One cannot, however, gloss over the fact that this is primarily because Air India has not been able to generate the necessary traffic volumes and yields—particularly in premium cabins—to support the high operational costs of these large aircraft. Many global airlines are successfully deploying the same aircraft. Air India would do well to recognise its weaknesses rather than apportion all of the blame to the machines. But this is a tall order and seems way beyond the ability of the people in the government.

Air India is not preparing for the future; neither in terms of machines nor in terms of men. It has no plans for capacity augmentation. The airline’s aircraft pipeline will be dry once all the Dreamliners have been delivered by 2016 whereas other Indian airlines are adding to their fleet and foreign carriers are being allowed to increase their presence in India. Air India has been similarly unconcerned about its people requirements. For over two decades, there have been no fresh inductions into the senior management cadre. Positions that have fallen vacant have been filled up by promoting officers from the ranks but in a few years, even the internal pool of employees is going to run dry and unless the airline is looking at shutting down, it has to not only hire professionals but also develop a recruitment strategy for the rapidly changing market conditions. Clearly the only course of action the present policy makers believe in is inaction. Thus, the only way Air India can survive is if its operations are subsidised. But that cannot be a longterm solution; a day is sure to come when the government will pull the plug, citing financial constraints. The only way to describe the way the airline has been and continues to be handled is that it is preparing for harakiri. It will, therefore, be prudent for Air India’s friends and well wishers to act now. The first step should be to apportion responsibility for the current state of the airline. Employees who have been more concerned with their future—with emoluments, promotions and postings rather than the airline’s survival—and the unions, with their reckless propensity to go on strikes and stop work, are as responsible as the politicians and chairmen who have focused on their personal gains at the cost of the airline. The second step is to delve into the crisis and separate the strands of the current financial mess to arrive at a broad consensus on the losses accrued on account of government decisions and for being a public sector undertaking and those accrued on account of poor performance. For instance, the large number of aircraft ordered and the unplanned merger between the two airlines were government decisions, and these decisions have taken a huge toll on the airline’s financial health. The airline has also suffered for its poor service, low aircraft utilisation, poor on-time performance, dismal productivity norms, lack of revenue generation skills and unsatisfactory public perception. The government should compensate Air India to the extent of loss caused by it and let Air India face the consequences of its inefficiencies. If it can’t pay the employees, if it can’t pay the vendors, if it can’t expand operations, if it gets marginalised in such circumstances—so be it. By fixing accountability and identifying the issues that led to the current state, the airline can hope to emerge out of the crisis. Incidentally, there is a precedent for the government compensating an airline for its decisions: when A 320s were ordered to be grounded by the V. P. Singh government in the wake of the Bangalore air crash in February 1990, the government did compensate Indian Airlines financially and by transferring to it some of the profitable Gulf routes of Air India. We need to do this to dispel the myth that the government’s financial support has kept Air India afloat. And by apportioning responsibility, Air India employees who have still not recognised the gravity of the problem facing the airline will be forced to do so. Unfortunately, there is no one who can take up cudgels on behalf of the airline today—politicians are busy looking at their gains; the chairmen are keener on serving out their terms; and ex-Air Indians are focused on their post-retirement benefits concerning free tickets and medical care. The unions, who could have compelled the government to act, have lost all moral authority over the airline, and as for those who are currently employed with Air India, they are focused on receiving their salaries on time

instead of the airline’s future. Air India’s future is thus at risk by default and it is fast running out of all other options. Can Air India or the joint entity of Air India–Indian Airlines change track and turn over a new leaf? My outlook is not optimistic. There has been no sign of change from the management, the ministry, the politicians or the employee unions to indicate that they may be willing to mend their ways. It may well be the case that all those who are adamant about getting their way with the airline may not have an airline to hold on to at all. Jim Collins, an author of best-sellers, such as Built to Last, Good to Great and How The Mighty Fall, lists five crucial tell-tale signs of how even successful companies take the route to failure. In the successful phase, managements are driven by hubris and tend to overreach and expand beyond their core areas of competence; this leads to crisis. The next three phases to failure are: first, denial of risks; next, seeking snake-oil remedies; and finally sinking into irrelevance. Has Air India become irrelevant to Indian aviation? The answer, if we take a look at the airline’s diminishing market share with less than one in five Indian passengers patronizing it and receding esteem among travellers, is a resounding yes. It appears that the airline’s decline from a state of meaningful existence to meaningless survival is being fast tracked by its primary stakeholders, which is not only unfortunate but calamitous for India’s aviation sector!

the appendix

APPENDIX 1 (A letter from J. R. D. Tata to Raghu Raj, Chairman of Air India, dated 6 May 1981) Mr Raghu Raj, Now that I am once again a member of the Board, I propose to resume my practice of writing notes of impressions gathered on my flights on Air India and other airlines, which I feel might be of interest to the management. In the last few months I have made four long-range flights on Swissair, Lufthansa and BA, and three on Air India. The point that struck me and worries me most is the continuing fact that, whereas we hardly carry any first class passengers, their first class cabins are full, or nearly full, most of the time, despite the fact that their first class cabins have more seats than ours. I have consistently pointed out the importance of changing the policy we had wrongly followed in recent years of concentrating all our sales efforts on excursion and other promotional fare traffic, the yield from which is less than one-fifth of that of first class traffic. If we take also into account the fact that in addition to carrying five times the number of passengers, we also have to carry five times the baggage and cabin service loads, and proportionate additional cabin crew members and their baggage, the real yield ratio must be nearer to, or over, 6:1. I am satisfied that our first class service has always been, and is today, as good as, if not better than, that of other airlines. In fact, a flight in first class on Air India, with its outstandingly comfortable slumberette seats, is far superior to one on Swissair, and yet Swissair’s 22-seater first class cabin is always full. I could not get a seat on Swissair recently, even as a paying passenger. I must once again urge that top management give firm instructions down the line that first priority must be given to securing first class traffic, and that the performance of our various sales offices will be judged not by the total number of bodies put on board but by the proportion of the total which consists of first class and executive class revenue passengers. I am glad to say that our standards of food and service in first class continue to be fully comparable with those of our competitors. APPENDIX 2

(A letter from Jitender Bhargava to K. Roy Paul, Chairman, dated 22 October 2002) Subject: Marketing of First/Executive Class... After the Revamp In the meeting of some departmental heads convened by you on July 25 at Hansalaya Building (where Air India office was housed), you had sought comments on the new flight being introduced to New Jersey. I had, when asked to comment, stated that we will fail to derive advantage of the investment in installation of flat-bed seats in First Class and Slumberettes in Executive Class unless a proper marketing approach is adopted. I had also given specific instances of our consistent failure to take advantage in the past even when our product had been superior to competing airlines viz deployment of 747-400s on the India/London/New York route when other airlines were still flying the classic 747s. I do not know the seriousness that was attached to these comments for corrective action though a committee of five Directors was constituted as a follow up of this meeting. This committee hasn’t been able to address the various issues related with the introduction of the new flight as a result of which the conventional system associated with the launching of a new flight—hosting parties—is being followed, without a serious thought being given to the need for aggressive marketing, personal contact, etc. I would like to propose as under: 1. A dedicated core team within the Sales personnel in Mumbai, Delhi, Kolkata and Chennai be identified, and trained, for approaching passengers who travel on west bound destinations in First and Executive class to inform them about our revamped product. 2. A survey be undertaken at airports in metro cities to build a data bank of personnel who are presently patronising First and Executive class of British Airways, Lufthansa, North West, Delta, etc for their travel to Western destinations so that each one of them can be contacted and provided details of the revamped product. (This is considered essential as it takes years to erase memories of a failed product). 3. Senior Directors/GMs of the company, who are articulate, be drafted for individually meeting people of senior level viz Mr Ratan Tata, Ambanis, Birlas, Mahindras, Godrejs, etc. 4. The existing set up—wherein the Commercial Department looks after sales, inflight services department looks after the menus, champagne and wines served to First class passengers, General Manager-Airport decides the system of check-in and the Ground Services Department sets parameters for baggage delivery—should be replaced by a single unit so that the First Class product is looked at in its totality and benchmarked by this unit. Integration of various Department functions is imperative to evolve a top grade product and ensure implementation so that no department blames the other for any deficiency in the product. This core team should also be involved with advertising, direct mailers, marketing initiatives, etc. and should be fully accountable for enhanced revenues. While not wishing to sound as a pessimist, I would like to once again state that if we deal with the new product in a traditional manner, we are likely to achieve a not-so-very-different result from the past, which we all know cannot be described as good when judged by international standards. The

challenge before us warrants a change in our existing systems, procedures and practices. The above suggestion is being given so that we put our act together in time rather than six months later when we (hope not) fail to record higher load factors in high yield classes without the companion-free offer as a prop. The fact that many of the existing patrons who are using Air India today solely because of the companion-free scheme, and may not do so when the scheme is withdrawn and fares increased, should also be reckoned while devising our strategies for marketing the revamped First and Executive classes. APPENDIX 3 (A letter from Jitender Bhargava to M. P. Mascarenhas, Managing Director, dated 20 September 1999) Subject: Our First Class Product ‘Dom Perignon Champagne was discontinued some time ago as part of economy drive. Caviar has not been available in our First Class segment for quite some time. What’s our First Class product for the full fare paying passenger? While one can advance an argument that we don’t have very many full fare paying passengers on board as it is, as bulk of the seats are sold through our companion offer, we need to be conscious of the fact that we will lose even the ones who are today patronising Air-India, if we can’t maintain our product. The Commercial Department can perhaps be asked to analyse the First Class load; percentage of those travelling on full fare and those travelling under the companion scheme. The analysis will hopefully give us the answer whether we can afford to ignore the interests of full fare paying passengers by cutting down costs on first class service viz. Dom Perignon, gifts, etc, particularly when we already suffer from two major disadvantages vis-a-vis our competitors—lack of personal TVs and 180 degree reclining seats. My personal opinion is that we should enhance our standard; resume serving Dom Perignon; presentation of gift; and buy caviar from flight kitchens abroad even at a higher cost, if Stores and Purchase Department fails to make adequate stocks available. The ultimate solution of course lies in our getting genuine First Class passengers through innovative and more aggressive marketing, and not through companion scheme only.’ Submitted to MD for direction. APPENDIX 4 (A note from JRD Tata to senior management dated 9 May 1972) Subject: Labour relations We must face the fact that our efforts at establishing good relations with our employees in Air India have not met with full success up to now, at least in India. So far as employees abroad are concerned,

including those under local unions, the situation is, I believe, excellent. In fact, I have been surprised at the extent of loyalty and devotion to the Airline that prevails amongst some of our foreign employees, particularly the senior ones. Basically Indians are sentimental and loyalty-inclined people, and we must therefore look for the causes of unrest and lack of loyalty and trust. The trouble in India lies partly in the fact that we have to deal with seven craft unions, each of which is led by office bearers who are employees of the Company, have no basic training and experience in trade unionism, and feel it is their duty to their membership to show hostility towards the management as proof of their devotion to the members’ interests. As a result, even in the intervals of wage negotiations every three years, the pot is kept boiling with endless correspondence and circulars, usually couched in acrimonious terms and spiked with charges of deceitfulness. The result is that Management–Union relations never seem to settle down to a state of mutual understanding and cooperation, and tempers remain frayed. To the extent, however, that poor relations are due to mistrust and the existence of genuine grievances, it is up to the management to do more than it has done in the past to remove the sources of such mistrust and sense of grievance. I have no doubt in my mind that while basically our Management means to be fair and honest, there is still far too much of a rigid, bureaucratic or legalistic approach and far too little of a human approach to our handling of staff matters. I have at many times pointed out the lack of the human touch in our administrative offices in dealing with individual cases. Dealing with thousands of employees obviously requires the establishment of rules and regulations, but they have to be interpreted in practice. In Air India, when there is some doubt as to the correct interpretation of a rule, it is invariably interpreted against the employee, whereas the benefit of the doubt should be given to the employee and not to the Corporation. It is a matter of great concern to me that year after year I have made no headway in instilling in our officialdom, a realisation of the tremendous importance of morale. If management would only take the trouble to find out what the rank and file of the employees feel about it, they would understand why it seems so easy for the unions to create and sustain anti-management agitation whenever they want to. If, instead, we had created amongst the mass of individual employees and workers the belief that, apart from wage negotiations, management deals with individuals cases with sympathy and understanding, and shows genuine interest in their individual problems, I have no doubt whatsoever that the unions would have found it far less easy to arouse and maintain anti-management feelings amongst the rank and file. We seem far too inclined to fear that any sympathy in dealing with labour will be interpreted as a sign of weakness which will be exploited against us. This can be true only if weakness is shown in dealing with clear cases of misconduct, deliberate non-cooperation, laziness, insubordination, etc., or meeting unreasonable demands on the part of the Unions. There is no such risk when dealing with individual cases of requests, applications or complaints in which there is no question of any such offence on the part of an employee. There are two simple and yet significant requirements which, I have noticed more than once, we regularly fail to meet: one is to reply quickly to a letter or application from an employee and the other is to couch a refusal to agree in sympathetic terms, and giving a reason for rejection. While we must

pursue our scheme for joint consultation, we must not forget that however well-conceived such machinery may be and however well-intentioned the Management, only a very small number of staff members will be directly involved in it. Unfortunately, they will inevitably consist largely of union office bearers who, as I said earlier, have a vested interest in keeping up an atmosphere of agitation and dispute. I am more and more convinced that we shall never create the right atmosphere and climate or minimise mistrust or resentment, until we learn to deal in a human way with individual staff members as distinct from unions.’ APPENDIX 5 (A letter from Jitender Bhargava to M. P. Mascarenhas, Managing Director, dated 14 October 1997) Subject: Refining the system for better decision making The criticism of the time-bound promotion policy by all Departmental Heads in the meeting held on October 8, 1997 has many lessons for us to learn in the art of decision making, if we sincerely wish to avoid a repetition of what we have gone through on more than one occasion in the recent past, with devastating consequences. Notwithstanding the fact that in the meeting of Departmental heads held on 16 February 1996, when the new promotion policy paper was first introduced for discussions and I was the sole Departmental head to have strongly criticised the concept and modalities and all other departmental heads had maintained a stoic silence thus giving tacit support, it was heartening to see everyone express their views freely this time. This is a major change that we are witnessing and we would like to suggest that free and frank participation in meetings must be encouraged for better and flawless decisions in future. In our considered opinion, a policy should be laid down clearly stipulating that all major decisions which have long term repercussions, impose substantial financial liabilities and are irreversible in character should be first discussed threadbare in the Departmental Heads meetings and only then be presented to the Board for approval. Comments, particularly critical ones, of the departmental heads should be enclosed with papers presented to the Board members so that they are aware of various apprehensions and points expressed by the Departmental Heads before taking a decision. This will lend greater transparency to the process of decision making. This is considered all the more important as the Board, in its present form, has only the managing director as a representative of the Company and Board members are generally bereft of various long term effects of the issues on which they are taking decisions. Some of the policy/issues of recent years which can be dubbed as not having been taken in Company’s interests are—corporate identity change; agreement with IPG, promotion policy, etc. All these plans and decisions can be identified as having been philosophies and plans of individuals occupying the Chair of Managing Director. The draft policy should also provide for a redressal system so that no departmental head has any fear of being penalized for airing views, which though not to the liking of the incumbent managing director, may be in the Company’s interests. If this redressal system had been in vogue, we may perhaps have had more than one individual expressing view on the promotion policy and the organization could have possibly been spared the need for reviewing a policy which almost all departmental heads have now termed as ill-conceived and having grave consequences for the airline in the long run. The policy, once drafted,

should be approved by the Board so that no individual, even if he happens to be the MD, can tamper with the system and take decisions which are not necessarily in Company’s interest. In the aftermath of what we have unfortunately gone through, we firmly believe that emphasis should be laid on development of systems which usher in professionalism and at the same time make it difficult, if not impossible, for an individual to treat the organization as his personal fiefdom. Introduction of new systems, based on the above, will besides improving the quality of our decisions, also broaden the horizons of departmental heads wishing to occupy senior positions in the future. Moreover, many departmental heads presently believe that the agenda for meetings of Departmental heads should not only be circulated in advance with all connected papers for them to peruse before coming to the meetings but also include all majors issues that confront the company from time to time. APPENDIX 6 (A letter from V. Thulasidas, Chairman, to employees of Air India, published in Magic Carpet, February–March 2005) Subject: Let’s prepare for new challenges ahead Dear Colleagues, I am sure all of you are aware of the Central government’s decision to allow domestic airlines—Jet Airways and Sahara—to fly abroad. This decision of the government, coupled with that of phasing out commercial agreements, will impact Air India in two ways. While on one side we will have greater competition, on the other side we stand to lose almost 400 crore of income per annum that accrues to us on account of commercial agreements we have with various international airlines. There is no denying the fact that Air India has, for several decades, been operating in a highly competitive market and therefore, the entry of these two airlines should not pose any significant challenge to us. This trend of thinking is, however, fraught with danger. The reality is that the new phase of competition will be very, very different. Our USP of being the only Indian carrier and therefore the natural choice of very many Indian nationals in India and abroad and of foreigners wanting to have a feel of Indian hospitality while travelling to India will no longer be exclusive to us. Jet Airways and Air Sahara will offer all that we give viz. And Indian ambience on aircraft, Indian cabin crew, Indian food, etc. Besides the fact that they are also airlines of India. We have, for years, enjoyed cost advantage vis~a~vis international carriers. These domestic carriers will now enjoy a distinct edge over us in terms of costs due to their operating on a lower cost platform. In anticipation of the gradual liberalisation of India’s civil aviation policy, Air India in recent years has expanded its network by taking aircraft on dry lease. The induction of a sizeable number of aircraft has been possible largely due to the cooperation of the employees. We are in the aircraft market even today to lease a few more aircraft to further expand our business, so that by the time these new players enter the fray, we have a greater hold of the market on various routes. We have concurrently initiated steps to upgrade our product. The expansion and upgradation of the product will cost the Company several hundred crores of rupees at a time when the income that was accruing to Air India on account of commercial agreements would be getting phased out. This income, incidentally, has been subsidising our operating losses over the years. Controlling of operational costs would thus be a greater challenge before us, because if losses mount beyond our control, we would be compelled to curtail our

services, as was done in 1997–98, when we withdrew from several international destinations. However, this time, other Indian carriers will be waiting in the wings to fill in the void. We have all been accustomed to a certain work culture over the years. The two new private airlines enjoy vastly advantageous working conditions and greater flexibility in decision making, giving them a clear advantage over us. There is, therefore, an urgent need for all of us to enhance our product quality to enhance revenue earnings and manpower productivity so that the cost disadvantage that we suffer is neutralised to the extent possible. I would welcome suggestions from all sections of the employees on areas that can be identified for effecting savings in costs and improving productivity. While there have undoubtedly been efforts in the past to restructure our cost platform, I must state in all sincerity that the need this time is far greater than ever before. It would not be an exaggeration to state that our ability to survive in the new environment would largely depend on the extent of savings that we can generate and enhancement in revenue earnings. The latter is feasible only if we can significantly upgrade our product to meet our passengers’ expectations. As a passenger will now enjoy numerous options for his travel, we will be able to retain our existing passengers, regain the ones that we may have lost in the past, and attract new passengers only if we can be competitively superior. It is therefore imperative that we put our best foot forward and provide service that matches the very best in the industry. Every one of you, my fellow Air Indians, can make a difference in the way we do our work. As Air India has a glorious past, with demonstrative ability to overcome challenges through enormous collective experience, I am confident that we will rise to the occasion once again to successfully counter the new threat arising out of enhanced competition, the inherent constraints notwithstanding. APPENDIX 7 (A letter from Jitender Bhargava to the heads of departments in Air India, dated 28 September 2006) Subject: Monitoring for smooth induction of new aircraft 1. This is further to CMD’s letter No. HQ/81-3/2280 dated 23 August 2006 identifying areas in various departments that need to be monitored for smooth induction of new aircraft in Air India and Air India Express. 2. As there are only a few weeks left before the first of the 18 737-800s is delivered, and just about 5 months remaining for the arrival of the first B777 aircraft (the actual delivery, however, got significantly delayed), action on various aircraft induction-related activities needs to get into the final phase at the earliest. 3. In view of the large number of aircraft being inducted in quick succession, accomplishment of all preparatory work much before the arrival of the aircraft as per delivery schedule is imperative. This would be particularly true for activities which can either hamper smooth induction of aircraft (non/under utilisation), or have a bearing on service to passengers. Close monitoring of all activities on a regular basis will thus be essential. 4. To avoid a situation of our witnessing failure on any count, in any department, it would be rd

imperative for each department to formulate a detailed time-bound plan, at micro level, for each of the aircraft induction-related activities. 5. Attached is a format in which we would like various activities to be listed with relevant details, so that any slippage in implementing any activity can be observed in advance, and necessary action initiated for rectifying the same. To begin with, the plan could include specific and detailed information regarding activities for the induction of the first of the six B737-800s and six B777s. Rolling plans, which can be updated on a monthly basis and fine tuned as date of their induction gets closer, may be prepared with regard to the induction of the next batch of six aircraft of each type. This would enable us to effectively monitor various activities for smooth induction of aircraft. A copy of the plan may kindly be sent to us latest by October 10, 2006. APPENDIX 8 (A letter from Jitender Bhargava to V. Thulasidas, Chairman, dated 21 August 2009) Dear Shri Thulasidas I hope this letter finds you in the best of spirits and health. Your participation in various television programmes does give an impression that you have been following the developments in Air India closely, which is only to be expected considering that you were part of Air India not very long ago. I am sure you would be as agonized as we are with these developments. I am personally a little more peeved and upset than most others because I could see it coming. I am enclosing a scanned copy of your signed message to employees, which I had drafted, and was published in Magic Carpet, February-March 2005, in which the need to reduce the cost platform, improve work culture, etc. was emphasized. With my retirement only a few months away, I am bound to be asked by people outside the organization as to how could Air India sink to such depths even with me around considering that I enjoy a public profile of being a competent officer. I would therefore be extremely grateful if you could offer your views on the following: When you joined the organization in December 2003, you had my VRS application transferred to you by your predecessor. When you asked me as to why I had submitted my application for VRS, I had explained to you that Air India had been gradually sliding down over the years and that I did not foresee a future for Air India because the prevalent work culture would never allow Air India to offer a good product in a competitive environment. I had also singled out our inability to deal with the Unions in changing work practices, which was imperative for bringing about any possible change in Air India’s fortunes. You had, after giving me a patient hearing, then assured me that with you at the helm things would change and that you would do everything possible to bring about change in work

culture. On the assurance held out by you, I did not pursue my VRS application. As subsequent developments were contrary to your earlier affirmations and the industrial relations climate was allowed to deteriorate to such an extent that unions got what they wanted and the management was seen failing to even get crew hotels changed in company’s interest, I am naturally interested in knowing as to what were the factors that could have possibly led to your changing of plans for revitalizing Air India, and when? Many of AI’s current problems can be traced back to lack of corrective action, when it was needed most? Would you like to comment on the above? You had, on numerous occasions, after assuming charge and perhaps till the end of 2005 or early 2006, publicly stated that you would make Air India one of the top 5 airlines in Asia. Post 2005–06 no such statements were made. What made you lose confidence that Air India could not be transformed as one of the top 5 airlines in Asia? I am sure you would have had reasons that brought about change in your thought process. Would you like to share the reasons for this change and specify as to when you gave up on the objective of making Air India one of the top five airlines in Asia? A presentation was made to the Hon’ble Minister, Secretary-Civil Aviation and other senior officials of MoCA in the last week of July 2004 (at the time of JRD Tata’s centenary celebrations) to seek Government’s approval for initiating wage negotiations with the Unions. As per the presentation, it was clearly stated that the Agreements would be signed only after ensuring that no additional financial liability would be imposed on the company and that the additional amount of Rs.101 crores payable to various categories of employees would be offset by savings through enhanced productivity. The amount quoted for productivity savings in the presentation was 160.04 crores. (If you wish, I can send a copy of the presentation). Why was this commitment, on the basis of which Ministry’s approval was obtained, not honoured and why did the airline, with you at the helm, continue to sign Agreements with various Unions in disregard to our ability to absorb additional costs? From where was the management expecting a windfall to meet these additional liabilities? Would you like to comment or state your compulsions as we are today paying a heavy price for having doled out huge sums with little or no returns by way of enhanced productivity or savings? I will be extremely grateful if you could share your thoughts with me. I am seeking answers to these queries because I wish to put these and many other questions/issues relating to Air India in the public domain post my retirement and I would naturally like to incorporate views/comments of persons who had something to do with the issues. (Reminder mail sent on March 1, 2010 also did not elicit any response). APPENDIX 9 (A letter from Jitender Bhargava to V. Thulasidas, Chairman, with a copy to Praful Patel, dated 9

July 2004) The Joint Action Committee of all Trade Unions has addressed a letter No JAC/CAM-PF/04/32 dated July 6, 2004 to the Hon’ble Minister of Civil Aviation, which has also been released to the media. As the contents of the letter are factually incorrect and present a distorted picture, I would like to place the facts in the proper perspective. The letter begins by describing my conduct as anti-labour and anti-union. No instances of anti-labour and anti-union policies, alleged to have been followed by me, have been spelt out. They are perhaps referring to the following actions of mine. My decision to roster new cabin crew on our flights, after providing them inflight service training, but awaiting flight safety training, after obtaining due approval of the DGCA for doing this. This decision has naturally affected the earnings of the members of the Air India Cabin Crew Association. It is worth noting that because Air India was operating short of the agreed cabin crew complement, the company has been paying compensation of the order of approximately USD 700– 1000 to each cabin crew per flight for operating on the India/USA/India sector, in addition to their normal earnings of USD 700 per crew for each flight on this sector. My decision to roster inflight-service trained, but flight safety untrained crew, after ensuring that all doors are manned by safety trained crew and obtaining approval of the DGCA, has naturally enabled Air India to roster the crew close to the agreed crew complement, thereby saving the company huge sums. If helping save crore of rupees for the company is anti-labour and anti-union, I stand by my decision. Further, if this decision had been taken by the head of Inflight Service Department in company’s interest, instead of me, I would not have become the devil in the eyes of AICCA. I have acted as a catalyst for ensuring that we induct manpower in our subsidiaries viz Air India Charters Limited (AICL)/Air India Air Transport Services Limited (AIATSL) at various airports, so that Customer Service, which has suffered immensely due to lack of adequate manpower, can be improved. Induction of additional manpower will affect some employees owing allegiance to the Air India Employees Guild (AIEG), who are earning huge amount of overtime, on many occasions even without working. The total overtime bill at Mumbai Airport alone is close to 25 crore per annum. If my decision, intended to help improve customer service and reduce overtime payments, is viewed as anti-labour and anti-union by any Union, I reiterate that I have done no wrong. The JAC have further alleged that there appears to be a systematic and sustained campaign to decimate all the Unions. This is in the realm of speculation, as their own letter says that “there appears to be......” While they have stated that the Director-HRD has publicly declared his intention to finish all the Unions/Associations/Guilds of Air India, no evidence has been cited, as to when was the intention stated, to whom was it stated and where was it made.

I emphatically deny having any such intention, as I duly recognize that in any organization, there will be unions to represent the employees and management will have to deal with them, to take the company forward. I only do not allow the union leaders to dictate terms and also back seat driving. If this is anti-union and anti-labour, I find nothing wrong in it. It is amazing that our unions still maintain that they have been “very cooperative, positive and pragmatic in their approach”. If this is so, why has the AICCA filed a Writ Petition in the Mumbai High Court, challenging our decision to roster crew trained in inflight services, on board our flights, over and above the numbers required for flight safety, when it is intended to be in the interest of the Company and it helps save money for the company, helps improve services on board, helps restore are curtailed passenger services on our flights. Likewise, the case of induction of Customer Agents in AIATSL, who have not been allowed to join duty by the AIEG, only because the overtime earnings of some of their members will get affected. AIEG’s precondition for allowing this first batch of Customer Agents, spelt out in the draft MOU is indicative of their thinking, notwithstanding their public posturing. AIEG has also not allowed Loaders recruited in AICL/AIATSL to join duty in the Ground Services Department, where there is an acute shortage. This is notwithstanding the numerous meetings held for operationalising of AIATSL over the past one year with the AIEG. In the Cargo Division, the AIEG earlier this week, has not allowed rostering of employees in three shifts, which would have helped improve Air India’s Cargo handling. Mrs H. Rana, Commercial Manager-Cargo, Mumbai Airport, has this to say “although five working days plus two offs are shown in the Loaders’ and Traffic Assistants’ roster, in actual practice conditions are created for working on the 6th, 7th, 8th and 9th day to avail of the benefit of 7 hours afternoon overtime. Further, all the above staff on overtime, finish the work by 17.00 hours, but claim overtime upto 22.00 hrs. On the next working day, they report at 09.00 hrs instead of 06.45 hrs due mandatory minimum rest of 11.00 hrs.” The quantum of unwarranted overtime paid is around One crore per month in the Cargo section. This specific instance is being cited, because the entire issue was not handled by me, and thus shows that union leadership attitude is the same, irrespective of who is dealing with them. There can be several other examples that can be cited, to show that even though Unions are coming in the way of Air India’s growth plans and progress, they continue to maintain a public stance that they are “progressive, positive and very cooperative”. The letter has further stated that “Director-HRD is going about dismembering and restructuring the company in a tearing hurry thereby violating all Public Sector norms and CVC guidelines..........” They are perhaps referring to the creation of the subsidiary Air India Air Transport Services Limited and Air India’s decision to set up a low cost carrier, Air India Express. It is amazing that these Union Leaders, who have worked in the company for several years, believe that an individual, working as

Director-HRD, can take decisions of such ramifications and significance, when there exists a Chief Executive, the Air India Board and the Ministry of Civil Aviation. Even if this is conceded, for the sake of argument, Unions do need to explain as to which of the PSU norms and CVC guidelines have been flouted by me. The JAC has placed the responsibility of wage revision not having taken place in the past eight years, also at my doorstep, knowing fully well that Air India cannot initiate any discussions until it has received the approval of the Ministry of Civil Aviation, which you are well aware, is pending with the Ministry. The statement of the JAC once again fails to give any instance of efforts being made to promote inter and intra-union rivalry by using illegal, unethical and undesirable means. I have, over a period of time, earned a reputation of a “Doer” in spite of the PSU culture, red tape, etc. A recent instance is that of our Los Angeles flights. While in November 2003, the then DirectorInflight Services Department had stated, in writing, that flights to Los Angeles can commence only in January 2005, due to non-availability of cabin crew; the Operations Department had also stated that they will not be able to provide adequate Pilots for these flights. It was my resolve and my initiative, which made me give a categorical assurance to Commercial Director, that I, as Director-HRD, would make available the required cabin crew and operating crew, to commence our Los Angeles operations on schedule in June 2004. While the cabin crew was made available through speedier induction, a new initiative for the first time in Air India’s history was taken for induction of foreign pilots, to meet the requirement, which has of course additionally helped us, in making more productive use of Pilots—through dispensation received from the DGCA—once again, with my playing a key role. As the letter has been released to the media and the resulting news reports have harmed my reputation and public standing, I seek your approval to issue a public statement clarifying the position with respect to each of the charges made in their letter. APPENDIX 10 (Excerpt from a letter from Jitender Bhargava to V. Thulasidas, Chairman, after his removal from the department of HR, dated 7 August 2004) Dear Mr Thulasidas, Your brief telephone call to me on the afternoon of August 5, 2004, to inform me that I have been relieved of the HRD charge has shaken my faith in the management. As this decision is flawed and based on distorted information furnished to you, I wish to go on record with the evidence to establish my point of view, particularly as no opportunity was given to me to explain my position before the issuance of the transfer order. I have over the years earned, through my performance, a reputation of being an efficient, innovative

and result-oriented officer. This is acknowledged even by my detractors. I am not one who allows himself to be manipulated or pressurized by the Unions. I work with a clear conviction—take decisions that are in the best interest of the Company. In a working environment in which most people are afraid of taking bold decisions or simply bide their time, I naturally get singled out. My recent decisions to see that our new subsidiary company, Air India Air Transport Services Limited, is operationalised as per your and Board’s directions; getting cabin crew to operate flights after getting trained in in-flight service aspects but before going through the flight safety training— with the approval of the DGCA, have naturally not been taken kindly by the Unions affected by these decisions. If Air India Employees Guild felt that induction of contract manpower, which, incidentally, is as per the decision of the Board, would affect their huge overtime earnings. Air India Cabin Crew Association saw reduction in their short crew earnings, because we were, thanks to my decision, able to roster more crew per flight than before. Incidentally, when a flight is operated to United States with five crew members short, not only is the service to passengers badly affected but each cabin crew on the flight also gets USD800–900 as compensation, in addition to his/her normal earnings of USD700. The Company has saved several crores since this decision was put into effect. I can understand the anger of the Unions against me as my decisions have affected their unjustified and unwarranted earnings but what I fail to understand is as to why is the management not supporting me against their crusade when the company is reaping the benefits arising out of my decisions. I therefore cannot understand the unceremonious manner in which I have been transferred under pressure from the Unions. If my decisions are indeed wrong, they should be withdrawn, as the company cannot be seen reaping advantage of my decisions and also punishing me at the same time. What has also pained me enormously is that a whole gamut of achievements in HRD field has been overlooked. Some of them are enumerated here. • Documents will establish that while Director-IFSD and Director-Operations were both stating in December 2003 that cabin crew and pilots would not be available for our Los Angeles flights and that the launch should be deferred till early 2005, I went ahead and assured the Commercial Director that both the operating crew and cabin crew will be made available, and they were. • For the first time in Air India’s history the induction of pilots from abroad was visualised and their possible induction made a reality by me. • Sought dispensation from DGCA for facilitating optimal utilisation of operating and the cabin crew. • Asked Inflight Service department to roster yet-to-be flightsafety trained crew after ensuring that a minimum of 14 flight safety trained cabin crew are on board. All approvals of the DGCA were obtained by me personally. This has led to savings of several crores for the company by way of reduced compensation to cabin crew. A decision of this nature will only earn the wrath of a union and not bouquets. In retrospect, I feel I shouldn’t have taken a decision of this kind and left it entirely to the department, whose main responsibility it was, even it meant that company was poorer by several crores. When AICCA threatened legal action and intimated their desire to write to FAA against our rostering of yet-to-be flight safety trained cabin crew, it was again me who sought clarification from FAA through our US office. Our stand was vindicated by FAA. The decision to explore possible use of HR solution companies for manpower in new subsidiaries is again mine.

The above are only a few of my many achievements. I have done my best by being innovative, by working long hours, by working in company’s interest. It is sad that the work has not been appreciated and those conspiring have been allowed to succeed. This is a small price for me individually. It will, however, be a bigger tragedy for the Company if HRD Department officials, with their kind of past track record, now fail to get good agreements with Unions during wage negotiations on which will hinge the future of Air India. Having compromised their positions with the Unions so blatantly for achieving their goal of getting me out of HRD, how can they be expected to negotiate from a position of strength? APPENDIX 11 (A letter from Jitender Bhargava to Raghu Menon, Chairman, dated 5 July 2008) Subject: Perform or perish time to take a hard look. I have over the years written several letters to the incumbent CMDs regarding our work practices and suggested what needs to be done to make Air India a premier airline. It is unfortunate that no heed has been paid to suggestions as a consequence of which the circumstances/situations in which these letters were written years ago are still relevant. The state of the airline has in the meantime only worsened. A quotable quote that I have very often used is: the fact that a third of the country is illiterate is a tragedy but the bigger tragedy is that those who can read can’t read the writing on the wall. If only we could, the airline wouldn’t have been in the sorry state that we have landed this great institution in. I would therefore like to suggest the following— one last time: 1.1. We must set an agenda for the company viz what we wish to achieve. Simply put, each departmental head must have a task cut out with time frame for him/her to achieve. Considering the current situation, each department must be given no more than four weeks to draw out an action plan and implement it to be the best, when benchmarked against competition, in their respective fields. 2.2. As employees at various levels seriously believe that it is the wrong management decisions that are a cause of our present state and management personnel believe that unions/employees are coming in the way of transforming Air India as a customer-friendly airline, this issue needs to be conclusively settled through due introspection before corrective action can be initiated. 3.3. We have been taking a soft approach on various issues with the result that our work culture has over the years remained more or less the same, if not deteriorated, whereas there should have been a radical change for the better since we now operate in a highly competitive environment. Whether a soft approach will help us make Air India a better airline or a hard approach is imperative for effecting a change needs to be decided. We can’t be seen taking a soft path endlessly even if it is not showing results. 4.4. With due apologies to my colleagues, we also need to come to a firm conclusion as to whether the team that we have for shaping the company’s destiny is good enough. It is possible

that some may have reached their current positions due to sheer luck, seniority, external factors, sycophancy, by default and not necessarily merit. Can they deliver? This issue needs to be settled before it is too late. 5.5. Can we hope to transform the airline when most employees work only from 9 to 5, five days a week, without realizing the challenges before the company? Long working hours with enough work and clear-cut company goals should be made mandatory. If we don’t have an agenda, can’t decide on the approach for effecting changes in work culture, we will head nowhere, but gradually sink as we have been for over the years. Submitted for consideration and a healthy debate on the subject since it concerns the future of the airline and its stakeholders. APPENDIX 12 (A letter from Jitender Bhargava to Manmohan Singh, Prime Minister, dated 27-5-2011) Subject: Is the airline being sabotaged? Dear Mr Prime Minister, It has almost been two years since you reassured the nation from the ramparts of the Red Fort while addressing the nation on the occasion of the Independence Day that requisite help will be extended to Air India for its survival. We in Air India were particularly relieved at those assuring words. I am not sure how updated are you about the real state of the national carrier now. As the condition of Air India has gone from bad to worse on all key performance parameters since your statement, I wish to share the facts so that at a later stage no one in the prime minister’s office can say that the real facts were not brought to your kind notice in time for your intervention. REALITY CHECK ON AIR INDIA’S PERFORMANCE • Air India’s market share is going down month after month. • Air India’s losses have been on the rise and the airline has now begun to default even on interest payments. All other airlines in India and abroad have seen their losses going down in the same period. • The much talked about turnaround plan has been a non-starter. • Passengers’ perception of the airline is at its nadir with most having given up on Air India. • Air India has been luring passengers only by offering low fares, adversely affecting financial viability. • The airline has been low on productivity of men and machines, nowhere close to industry benchmarks or even its own past track record. • The employees’ morale is virtually non-existent. Simply put, the airline is in the pits with more and more people losing hope regarding the airline’s ability to survive. Whilst some have in their wisdom already concluded that the airline is gradually

heading towards an imminent closure by looking at the way in which the airline is being managed, I would like to go a little further and aver that the airline is being systematically killed in broad daylight by those administering it, and possibly even those who are monitoring the airline’s performance. I wish to elaborate on this for better understanding of the harsh realities. Given the critical situation of the airline one would have expected the airline to be administered efficiently, steps being taken to upgrade the services at all customer interface points, concerted efforts being made to enhance revenues, seriousness being reflected at all levels of management—Board to the lowest level of employees—so that the imminent financial bankruptcy staring the airline could be averted. It is shocking to see that no such efforts are being made by the management, as a consequence of which the airline is sinking, and sinking fast. Why is this being allowed? Somebody needs to answer this question! If we keep attributing this to global trends and ignore the ground realities, I am sorry to say that we will only be hoodwinking ourselves. Anyone with even a modicum of economic sense would know that to be on the path of recovery, the gap between income and expenditure has to be gradually bridged, not widened. Two valuable years for turning around the airline have gone by since your statement but there is no sign of efforts for revival on the horizon by increasing revenues. The entire thrust seems to be on cutting costs and seeking aid from the government which while giving a short term relief just cannot be a permanent solution to the woes of Air India. It is common knowledge that for generating higher revenues and igniting hope for any revival, the product quality has to match that of the competition. Notwithstanding the new fleet, the product is nowhere close to that offered by either private airlines operating in India or the international carriers with which Air India is competing globally. Sadly enough, product quality does not seem to be a priority or an essential requisite for turning around as is evident from the way customer services– related departments are being managed or mismanaged, knowingly or by default. LACK OF VISION In the airline industry, the product quality is to a significant extent constituted by the ground experience i.e. When a passenger checks in for a flight and after he disembarks; the on board experience i.e., food, wines, warmth of service, inflight entertainment besides a neat and fresh ambience in the aircraft. I wish to apprise you of the total lack of efforts on these fronts which compels me to conclude that Air India as a product is not suffering by default but the future of the airline is being deliberately and systematically sabotaged. Please look at the factual position as it exists in Air India. Ground Services Department and the Customer Services Department, responsible for ground services and on board services respectively, are being neglected like never before. If these two departments are regarded to be having no significant role to play in refurbishing the product, it only shows that the management has no clue of what the airline business is all about. INEXPERIENCED & PART-TIME HEADS FOR KEY CUSTOMER-RELATED DEPARTMENTS

The ground service department after seeing multiple changes in the past two years at the Departmental Head level is today headed by an IPS officer, Mr S. C. Mathur, on deputation to Air India for looking after Security Department. Can you believe this! Besides the fact that he has no experience in the field of customer services how can a part-time head (in addition to security department) do justice to the demanding job for ensuring good quality experience for passengers? Why has the department been subjected to such frequent changes under the present Chairman and finally entrusted to an IPS officer? To improve or destroy? Likewise, the Customer Services Department has witnessed four changes in two years—Manjira Khurana, Capt. A. K. Sharma, Chitra Sarkar and is now headed by Director-Operations, on part-time basis, who besides being in charge of administering the Operations Department also undertakes international flights and is hence away from headquarters. How many hours can the incumbent Captain A. S. Soman devote, besides the fact that he has no experience of what inflight service is all about? Instead of upgrading on-board services to match competition, the services have deteriorated considerably in the past few months. These two illustrative examples of how key customer-oriented departments are being managed should convince anyone that the management is not at all serious in ensuring a good product for getting more passengers to fly Air India, which will eventually translate into higher revenues. While enhancement of revenues ought to have been the top most priority for an airline in deep financial crisis, what we are witnessing today is just the opposite—the management is paying no attention and is having the departments managed by inexperienced officers on part-time basis. Am I not therefore correct in my analysis that Air India’s future is being sabotaged? What surprises me even more is that there is no one to question the management about such absurd placements defying all logic and sense. HUMAN RESOURCES DEPARTMENT, THE WEAK LINK—MANAGED BY HEADS WITH NO HR BACKGROUND In a service industry, employees have a key role to play. Human Resources Department therefore has to perform a major role in motivating employees, introducing innovative work practices and ensuring teamwork in a challenging situation that Air India faces today. The HR department has been virtually destroyed in the past two years. Whilst the airline had Anup Srivastava as Director-Personnel, selected by the Public Enterprises Selection Board, till a few weeks ago, he had been sidelined with no work entrusted to him. The Personnel work was first given as an additional charge to the Head of Medical Services Department, an MBBS doctor—yes, MBBS doctor—and later to Mr V. Srikrishnan, who belonged to the Materials Management cadre. The incumbent, having no managerial accomplishments to boast, has only strictures from Chief Vigilance Commission on record for flagrant violation of tendering procedures and causing loss to Air India. Why such experimentation unless of course the objective is to hasten the pace of Air India’s demise? With no proper thinking on HR policies how does one get the best out of the employees, most of whom are as it is a demoralized lot? There is no dearth of similar examples involving other departments; they are also in a state of total disarray as a consequence of which the aircraft utilization is much below industry standards, passengers are being lured through ‘attractive’ (please read ‘low’) fares with no marketing schemes or efforts to get passengers to patronize Air India. The softer option of seeking more and more financial aid to tide over the current crisis can’t be the ultimate solution.

Air India has to work towards generating higher revenues. IS ANYONE ACCOUNTABLE FOR SINKING AIR INDIA? With this kind of a shoddy performance on all fronts being allowed to go unchecked, even though the airline’s performance is said to be being monitored by the Committee of Secretaries, how else can one infer but to state that Air India’s existence is being sabotaged with the government, as its owner, unfortunately being a mute spectator? It is therefore my earnest plea that lest Air India becomes a further disgrace for the nation and the blame for the same is placed at your doorsteps, there is a need to act with a sense of extreme urgency and getting the Chairman of Air India to perform for Air India’s survival and not otherwise; and to also hold those responsible for wayward decisions affecting Air India’s fortunes accountable. I would while looking forward to your response like to reiterate for your satisfaction that I stand by every word that I have stated in this earnest plea to you for your urgent intervention.

acknowledgements

WRITING A BOOK is always a challenge. For me, it was doubly so, since I had stepped away from the world of writing several decades ago when I turned in my journalistic career for a corporate job. But disillusioned as I was with the manner in which an airline such as Air India had been run into the ground by a group of individuals, I felt that this was a story waiting to be told. This book, however, would never have been possible without the help of my friends, the support of my family and the encouragement of my former colleagues in the airline. To all of them, I offer my deepest gratitude and thanks. The book is the fruit of my experiences, which would never have been as rich and diverse if I had not been given the opportunity by Chairmen Y. C. Deveshwar and Managing Directors, M. P. Mascarenhas and Sunil Arora—to contribute on a larger canvas. My secretarial staff at Air India, Marina Paul and Prema Chandrasekhar, who assisted me with my numerous letters, and knew that I would write a book one day. My former colleagues, who helped me with my research for the book—I know that it could not have been easy to find the time and to dig up material from days long gone. Kapil Kaul, CEO-South Asia, Centre for Asia Pacific Aviation (CAPA)—your help with data and figures was invaluable. My friends, who were very enthusiastic about my efforts from the very beginning, and asked me to ‘go ahead’ when I went to you with my idea for the book—you have been unflinching in your banking, and your advice has been invaluable. My family, who greeted my decision to write the book with mixed emotions, but was never a hurdle in the completion of the book—I owe all of you a lot of credit for your patience. Some of you felt that it was the right thing to do, but some others were not so sure. You were worried that I would be hounded by those I was writing about, and for the rest, your faith is what has seen me finish the book. To write, I retreated to the Sivananda ashram in Rishikesh on the banks of the river Ganga where there was no access to television or newspaper. Without the peace and isolation that the environment provided, I would never have been able to conceptualize the characters of the book. Finally, my editors were extremely helpful and provided valuable feedback, which has helped create a book that I hope brings out the real story behind the descent of India’s national carrier.

Table of Contents Copyright Dedication Contents Prologue 1. Take Off 2. Clipped Wings 3. Living in the Past 4. All the Government’s Men 5. A Flicker of Hope 6. Change of Guard 7. A Tale of Lost Opportunities 8. The Politics of Flying 9. A Saga of Financial Mismanagement 10. Flight from Reason 11. Troubled Alliance 12. The Critical Years 13. Murder or Suicide? 14. Looking into the Crystal Ball The Appendix Acknowledgements