Air India pilot's strike: Same old story. Taxpayers left holding the bag

Air India and members of the striking Indian Pilots Guild (IPG) appear to have reached an "agreement". For more than 58 days, the pilots have defied the courts and struck work.

After causing hundred of crores (billions) worth of additional losses to the national carrier, that is already on life support with taxpayer money, the pilots decided to call off their strike after airline management assured the court that it would consider the grievances of the pilots "sympathetically".

Through the strike, the airline management, backed by the civil aviation minister Mr. Ajit Singh took a hard stand and sacked 101 pilots. The IPG, led by a political lackey Jitendra Awadh of the NCP, had lost all public sympathy and support. Even a desperate move of a "fast undo death" did not produce any results.

Justifying the calls of analysts for the airline to truncate and re-jig its network, Air India reported performance improvements during the strike.

The strikers were all but beaten into submission, but they insisted on the sacked 101 pilots being taken back before calling off the strike.

Now comes the politics. The NCP of which Mr. Awadh is a member, is a very strong component of the ruling UPA coalition with former civil aviation minister Praful Patel and the formidable Maharashtra strong-man Sharad Pawar as its stalwarts. Mr. Ajit Singh with his small RLD party are but minnows, in a pool full of sharks. You do not need to be experienced in skullduggery to see how public money is being squandered with the political influences at work in support of the labour aristocracy that rules Air India.

The Air India management needs plausible deniability. As per news reports

The pilots decided to call off their strike after AI management assured the court that it would consider the grievances of the pilots "sympathetically". "Serious efforts have been made to settle dispute and the counsel for the parties have assured the court that their respective clients would be extending full cooperation in this regard."

"The AI management shall sympathetically consider the grievances of the pilots including the aspect of reinstatement of those pilots who were terminated as a consequence to their strike," Justice Khetrapal said while disposing of the pilots' plea for a direction to the management to take back the 101 sacked pilots, including the 10 office-bearers of the Indian Pilots Guild.

After 58 days of misery to everyone, and billions of rupees being lost, where are we?

The airline will take back all the pilots including the sacked ones. The politicians and their labour aristocracy will remain emboldened and will hold the airline, and through it, we, the taxpayers, to ransom at their whim and fancy. The management will remain emasculated. Our money will continue to be ploughed and squandered.

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Opinion Poll: The on-going pilot's strike at Air India; share your views

The topic of the week is the on-going pilot's strike at national carrier Air India by members of the Indian Pilots Guild (IPG) which began last month on the 7th making this strike almost a month old.

The strike has caused estimated losses exceeding Rs.350 Crore ($64 million) to airline. This at a time when the airline is on life support, receiving a desperately needed equity infusion of Rs. 1,200 Crore ($219 million) just to pay long pending salaries and critical vendor dues (oil companies, airports, etc.)

In a bold move the airline has sacked over 100 striking pilots and even the courts have ruled the strike illegal. The civil aviation minister Ajit Singh has held out an olive branch saying pilots concerns will be addressed. Now the IPG is continuing the strike demanding that all sacked pilots be re-instated by the airline before they stop striking. To read the view of the IPG, please see this article by Aeroblogger Rohit Rao.

In addition to requesting your comments, this week we have an opinion poll, allowing you to share your views. Please vote in the survey. The other option is provided with a text box to explain your choice, if other than yes or no.

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Air Canada in talks to lease 5 Air India Boeing 777-200LRs... Huh?

Late last week, reports emerged that beleaguered Indian national carrier Air India, which is in the midst of a crippling strike by its international pilots union, was in discussions with Canadian airline Air Canada to lease out 5 of Air India's Boeing 777-200LRs to the Toronto based airline. The news broke as Air India continues to operate less than half of its international network due to the strike by the IPG, but it is actually just the logical extension of continuous Air India efforts since 2009 to lease out 5 777s as well as 2 Boeing 747-400s.

 In the previous instances, it was reported that Air India was looking to lease out these aircraft for 8-10 years. However, given their inability to place these aircraft with any carrier for 3 years, perhaps Air India has realized that it must be more flexible. As Air India continues to take delivery of the all-new Boeing 787s, the necessity for the 777-200LR in Air India's fleet, which has almost been miscast by Air India as a regional widebody to and from Asia, all but evaporates. Air India currently operates 8 777-200LRs, most of which are grounded due to the strike.

Air Canada on the other hand, operates a fleet of 6 777-200LRs, primarily on long range routes between Canada and Asia. The carrier recently moved to convert 5 options for the larger Boeing 777-300ER into firm orders for delivery in 2013 and 2014, ahead of the first delivery of its own Boeing 787s. As Air Canada continues to hemorrhage money on its short haul network in the face of heavy competition from more nimble domestic rivals like low cost carrier WestJet, it appears to be doubling down on its more profitable long haul network; especially important given that Air Canada is having labor struggles of its own.

Even with this rationale, it's hard to see the merits of the deal for Air Canada. The Boeing 777-200LR is a hard aircraft to make money with, though Delta and Emirates appear to have made a go of it. Moreover, while they do need additional international capacity, Air India's 777-200LR might not be the best choice. There are a number of differences between Air India's 777-200LR and Air Canada's that will increase the costs of such a long term acquisition. Firstly, Air India's 777-200LRs are equipped with the General Electric GE-115B engines, which deliver 115,540 pounds of thrust whereas Air Canada's 777-200LRs are equipped with the GE-110B engines that deliver 110,100 pounds of thrust. While this difference might seem irrelevant, having two different engines on the same aircraft increases operational complexity (due to slight differences in operating performance) and makes scheduling more complex. It also increases maintenance costs as an airline's MRO workers must now be trained to handle both types of engines, or separate workers brought in to handle each. These costs are not insignificant; American Airlines famously sold off many of TWA's 757s due to engine incompatibility earlier this decade. Air Canada would also be forced to retrofit Air India's 777-200LRS, which are configured in a 238 seat (8F/35J/195Y), 3-class configuration, into their own 2-class 270 seat (42J/228Y)configuration. The cost of retrofitting 5 aircraft would likely run into the millions of dollars, increasing the true cost of acquisition.

So it makes little sense to me that Air Canada would be actively seeking to lease Air India's 777-200LRs, unless Air India was practically giving these birds away with super-low lease rates. And if that is in fact the case, then even leasing out these 777s would do little good for Air India's abysmal finances.

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Editorial: Time to Eliminate Unions at Air India

When the Indian Pilots Guild, one of two pilot unions at national carrier Air India, began a strike around 2 weeks ago, it once again illustrated the deep fallacy of the employee situation at Air India. Coming on the heels of a $5.8 bailout package over 8 years offered by the Indian government, IPG’s industrial action marks just the latest in a series of missteps from India’s beleaguered national carrier, which lost Rs. 7,853 Crore in 2011-12, or more than Rs. 20 crore per day. However, the situation had improved (it went from being a gigantic financial black hole, to a smaller financial black hole) since private carrier Kingfisher shrank by more than 50% earlier this year, with Air India losing just Rs. 10 Crore per day. But this strike by IPG has once again cast doubt on Air India’s ability to move forward.

For such petty grievances as non-exclusivity on 787s and marginally different work rules between the IPG and their former Indian Airlines counterparts the IPCA, 10-12 of Air India’s 20 Boeing 777 aircraft have been grounded, and the carrier has been forced to all but cancel most of its international network. As of right now, 7 European and North American services are mostly cancelled (Delhi-Paris-New York JFK, and Delhi-Frankfurt-Chicago are still quasi-operational), while 12 routes to the Gulf and 6 Asian routes are cancelled as well. These international cancellations and the general strike have cost the already near-bankrupt airline more than Rs. 230 Crore over the first 13 days of the strike, with no apparent respite in sight.

The new civil aviation minister Mr. Ajay Singh, who is apparently far more pragmatic and sensible than his predecessors, has threatened to withdraw Air India’s bailout package. "This is bailout is not without strings. They have to meet strict standards. If they meet these standards, then we will release public money. We can't keep pouring public money. This is the last chance for them to perform." He also urged the pilots to return to work, even offering an olive branch to downplay fears of reprisal, "Strike is not an answer to solve your grievances,” he said, “All the grievances will be heard unconditionally. [Pilots] must come to talks unconditionally ... please go back to work….Air India management will in no way be vindictive towards any employee .... a lot of young people have just joined (as pilots). But the first priority should be that passengers are not inconvenienced."

There is a hint of legitimacy to IPG’s claims and grievances. After all, the Aviation Ministry made a remarkable hash of things by failing to properly integrate Indian Airlines and Air India pilots on basis of seniority. By keeping the two unions separate, Air India has created an environment in which the pilots of the respective unions are continually thinking in terms of an “us versus them” sort of mentality; each seeking to enrich itself as opposed to the company as a whole. To be sure, it is unlikely that IPCA members would have ever operated 787s or any widebody aircraft for that matter, had Indian Airlines remained a standalone carrier. And the disparities in work rules are tangible for IPG’s pilots. The following two graphics (from the Economic Times) will give a good overview of the issue.
But in a broader sense, most of what IPG is asking for amounts to nothing more than holding Air India and the Ministry of Civil Aviation ransom. Notice in the first graphic above that ex-Air India (IPG) commanders make a whopping 8-9 lakhs per month. This is roughly $190,000-$210,000 per year; levels not reached at most (profitable) Western and Asian airlines until 15-20 years of service. Meanwhile, they also have the audacity to ask to be shuttled in first class. Forget pilots, most executives at private airlines don’t get to fly first class, yet IPG insists on forcing its pilots into taking up such seats which could instead be sold as upgrades or used to improve frequent flyer loyalty (through free upgrades). These pilots are, by some measure, the highest paid in the world, yet they keep asking for more and more pay and benefits. Clearly, there is a disconnect between how IPG views the Indian airline scene and the current market reality.

To be fair to the IPG, they alone are not at fault here; as in most cases of labor strife, the blame is shared between management and the unions. But the continual labor strife at Air India brings up another question… Why does the IPG exist in the first place, and should it? Generally speaking, government-run corporations (especially prestige projects like an airline) have dismal financial performance, because there is no incentive to be profitable. Company leaders (and employees) know that even if the airline is poorly run, bloated, and offers horrid service quality, they will keep their jobs (the government will fund their operations and debt).

The thing is, public sector unions understand this as well; they know that even if their demands would bankrupt a normal carrier, the Sugar Daddy (Government of India) will pay for it anyway. Secondly, public sector unions play a large role in choosing who their bosses will be (both by directly voting and manipulating public opinion); when you can pick your bosses, the quality of your work tends to decrease. What this creates is a perverse scenario where unionized Air India workers can get cushy pay and benefits, yet have almost no incentive to do their jobs – to provide good service, be productive, or even do their jobs properly. They are also able to throw out any boss who dares to challenge their demands. Thus the combination of a public sector company and unions creates a toxic cocktail of reverse incentives that prevent Air India from becoming a successful company.

While the profit motive may not appear at Air India for some time, at least the unionization scourge can be removed. This strike not only affects Air India, but each and every Indian as well (at least those that pay taxes). And every time Air India’s unions ask for wages and benefits above the market rate or go on strike, they are robbing you, the taxpayer, of your hard earned money. When pilots at Jet Airways strike (as at Air India), they ultimately harm the shareholders of the company (private citizens for the former, the taxpayers of India for the latter). But the difference is that Jet Airways’ shareholders voluntarily invested in that the company; they went in knowing the risks. Meanwhile, you pay taxes that support Air India regardless of whether you want to or not. Stop allowing Air India’s unions to rob taxpayer money… ban unions at Air India.

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