The Pre Merger doom
The year 2003 is noteworthy in the history of Air India due to a plethora of reasons. The competition was rising as more foreign carriers were expanding their operations. Air India’s load factor dipped to 70.5% in 2003-04 from 73.1% in 2001-02. Fortunately, it turned out to be the year of revival. Under the stewardship of J.N Gogoi and Sunil Arora, Air India managed to stay afloat. The management of Air India and the Ministry of Aviation worked in unison for the first time in decades. At that point, Air India’s functioning was regularly crippled by the overwhelming number of labor unions. The lack of competent leaders in the past had built the bargaining power of these unions. During the outbreak of SARS, the Indian Pilots Guild placed forth a directive that demanded the halt of the operation of flights to all SARS-affected countries in Asia. If there was a crew member or a passenger who had traveled to a SARS-affected country in the past 10 days and if they were now in an Air India flight flying to a non-SARS-affected country, the flight would be grounded. Their demands were more severe than the prevailing rules in SARS-affected countries. Air India’s business was being impacted. Despite negotiations, the Indian Pilot Guild(IPG) didn’t seem to budge. Thus, 12 officers were fired and IPG was derecognized by the management of Air India. This was a point of inflection as Air India could now focus on reviving its crippling business rather than dealing with unions and their unreasonable demands.
In 2003, the Air India Airport Transport Services Limited (AIATSL) was set up and was ready to be operationalized. Providing ground handling services to foreign airlines was an integral part of the revenue model of several airlines. Air India initially enjoyed a monopoly there when the aviation sector hadn’t opened up yet. But, in 2003, Air India was faced with competition for tenders to provide ground services for foreign carriers. The private airlines had lower operational expenses and were able to employ young staff for the ground services and Air India was unable to compete as the government had imposed a recruitment freeze at that point. While this lucrative model of revenue-making was slipping away from Air India, AIATSL came to the rescue. With the establishment and operationalization of AIATSL, Air India would protect annual business worth Rs 600 crores from foreign airlines. However, as Gogoi and Arora left, Air India also went back to the way it was and the setting up of AIATSL was not processed.
In 2004-05, the company was to sign and renew the overdue wage agreement. The unions and the support of various departments in the company amplified their bargain. Due to the increasing bargaining power, the salary bill had gone up by 30% over the period of ten years. However, there was no increase in productivity. Before signing the bill, Air India presented to the aviation ministry that the new wage bill would bring about liability of INR 101 crore per annum which would soon be covered through the betterment of productivity. But, due to failed negotiation with the unions, the extra cost incurred was about INR 400 crore per annum. The 2004-05 wage agreement caused a huge setback for the airline. In 2006-07, the combined losses of Air India and Indian Airlines were INR 770 crores.
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