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Corporate Sep 12, 2012

Will a reluctant govt fund Air India’s ambitious VRS plan?

By Sindhu Bhattacharya

Air India is looking to say bye bye to 5,000 people through a Voluntary Retirement Scheme (VRS), for which it wants government to fork out Rs 1,100 crore. This is over and above the total package of Rs 10,600 crore the airline has already sought from the Government for this fiscal!

But with the finance ministry showing its reluctance on providing a sovereign guarantee to AI for a non-convertible debenture float (which was earlier agreed to), will it release another Rs 1100 crore for the airline to trim its workforce? The airline's board of directors cleared this ambitious VRS proposal at its last meeting but now, it may have to rework the math on both, number of employees to be brought under the scheme as well as monetary support from the government.

Fighting for money. Reuters

The VRS offer, in its current form, will apply to any Air Indian who has served the airline for 15 years or is 40 years or above. The plan is to offer compensation for 35 days of each completed year of service and for 25 days each year of service which remains.

AI's total employee strength exceeds 27000 and it has one of the highest aircraft to manpower ratios among airlines anywhere in the world.

The senior official in the Ministry of Civil Aviation confirmed the plan to retire 5000 people and said the VRS scheme would be open to Air India employees as also those who will be transferred to the two subsidiaries (MRO and Ground Handling) which are being created. This official said all category of employees except pilots and engineers would be eligible to take VRS.

But will the government actually release Rs 1,100 crore more for an airline which has seen many missed deadlines on the parameters needed to achieve a turnaround? Already, of the Rs 4,000 crore budgetary support (remaining Rs 6,600 in non-Budgetary) which was allocated for AI, only Rs 2,900 has been released till now. The official quoted above admitted that the government is now not in a mood to squander so much money on the ailing airline and it has been asked to rework some of its demands.

Already, with the arrival of the Dreamliner (Boeing 787 medium haul aircraft) and return of almost all pilots to work, operational parameters of AI have improved. This official said some targets (the airline's on time performance, load factors etc) were being reworked and will be presented afresh to the finance ministry soon.

As per the airline's latest statistics, its On Time Performance (OTP) has reached 85% (perhaps the best ever and among the highest in the industry), its cash losses have come down to Rs 38 crore in the June quarter versus Rs 530 crore in the same quarter last year and it turned in a cash profit for the first time in 60 months (5 years) in the month of June at Rs 48 crore. Besides, it load factors (number of occupied seats versus total seats in an aircraft) has risen to 73%.

It is interesting to note that AI's proposal to offer VRS to 5000 people is quite at variance with the recommendations of the Dharmadhikari Committee. This committee has recommended that AI be listed on the stock exchanges and employees be given stock options as part of a VRS scheme! Also, this panel suggested that 7,000 AI employees be brought under the VRS scheme instead of just 5,000.

by Sindhu Bhattacharya

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