The wage cut figure is being discussed after plans to reduce salaries of AI employees failed, including a proposal to cut performance-linked-incentives (PLIs) by 50% in September 2009.
The civil aviation ministry is likely to propose a 20%, across-the-board wage cut for Air India (AI) employees. It is in the process of preparing a cabinet note on AI, which will include cost-saving measures and a roadmap. The wage cut proposal may figure in this communication. The note may be submitted by mid-April.
The wage cut figure is being discussed after plans to reduce salaries of AI employees failed, including a proposal to cut performance-linked-incentives (PLIs) by 50% in September 2009.
Having faced roadblocks in implementing wage cuts, the ministry had decided earlier this year to refer “painful” decisions to the cabinet and it is likely that civil aviation minister, Praful Patel, will discuss this and other proposals related to AI’s turnaround informally with finance minister Pranab Mukherjee and cabinet colleagues before submitting the note.
The wage cut proposal is being mooted despite criticism by the parliamentary committee on public sector enterprises (Copu) on this matter. In its report, which was submitted to Parliament recently, Copu said manpower-related costs account for only 16.2% of AI’s cost structure. “More than extra emphasis has been given to rationalising manpower cost. The structure shows that around 34% of cost is from fuel, and manpower cost has, in fact, gone down over the previous year to 16.2%. So, by rationalising on manpower cost, how much can you optimise when in an operational company like Nacil, manpower is a crucial element in keeping your planes flying?”
Besides wage cut, the ministry is likely to suggest up to 49% equity divestment in favour of a strategic investor. Its logic? The airline needs a very large cash infusion, which is unlikely to come from government coffers unless it shows tangible cost reduction. But alongside cost reduction, it needs to drastically improve the debt-equity ratio by reducing debt which stands at Rs17,000 crore.
A strategic investor can come with much-needed cash and bring in professionals to improve the airline’s functioning.
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