Tata’s Air India buy: Restructuring of wages, VRS may be key to plan

Talace Private, a wholly owned subsidiary of Tata Sons, which won the bid for sale of equity shareholding of the Central government in Air India, will look to change the past by setting the airline on a glide path similar to the two other airlines the group runs and manages — Vistara Airlines, and AirAsia India.

The government has since 2009-10 to date put in Rs 1.1 lakh crore in Air India.

Written by: Aashish Aryan, Karunjit Singh

5 min readNew DelhiOct 9, 2021 06:32 AM IST First published on: Oct 9, 2021 at 06:32 AM IST

The journey of privatisation of Air India has had more turbulence over the last two decades than an average domestic carrier in India, having hit air pockets such as mounting debt, unsuccessful voluntary retirement schemes, and high wages.

Talace Private, a wholly owned subsidiary of Tata Sons, which won the bid for sale of equity shareholding of the Central government in Air India, will look to change the past by setting the airline on a glide path similar to the two other airlines the group runs and manages — Vistara Airlines, and AirAsia India.

The government has since 2009-10 to date put in Rs 1.1 lakh crore in Air India. This includes Rs 2,268.99 crore and Rs 2,215.50 crore allocated to Air India Assets Holding Limited (AIAHL), the special purpose vehicle to which a majority of Air India’s debt had been transferred in 2019. Despite that, Air India has between 2007-08 — when it merged with Indian Airlines — and 2019-20, accumulated losses of Rs 70,280 crore.

Fall in revenues, owing to the worldwide lockdowns to prevent the spread of Covid-19, are likely to have added an estimated Rs 9,779 crore to the losses of the airline last fiscal, according to government estimates. As of August 31, Air India’s total debt was Rs 61,562 crore, including Rs 46,262 crore debt being taken over by AIAHL. Meanwhile, of the Rs 18,000 crore winning bid by Tata Sons, Rs 15,300 crore has been kept aside for debt-servicing. The rest is upfront cash payment.

Going ahead, Tata Sons is likely to look into the airline’s wage bill.

As of date, Air India has in total close to 13,000 employees. Of these, nearly 9,000 are permanent employees, 4,000 are contractual, and another 2,800 on deputation from other companies. Though Tata Sons will get additional help as the Centre will clear the pending Rs 1,332 crore owed to the airline’s employees, it might come out with a voluntary retirement scheme (VRS) to further pare the wage bill. This might be one of the biggest challenges for Tata Sons.

As per the norms of the bid, Tata Sons will have to compulsorily retain all employees for at least one year from when they start operations, following which they can offer VRS to employees.

Other than that, roughly 1,000 employees will be retiring naturally every year for the next five years, which will also help Tata Sons bring down the wage costs. The bid condition, however, mentions of continuing the medical and other benefits to already retired employees. This is, however, not the first time that VRS has been planned for Air India.

For more than a decade now, the government as well as the airline have been trying to offer VRS, but with marginal to no success. In 2011, when its annual wage bill was roughly Rs 3,600 crore, a Group of Ministers led by the late Pranab Mukherjee had asked Air India to offer an attractive VRS, which would be in part funded by the government. Though the plan never saw light of the day, it had aimed at taking off at least 4,000 staff off the company rolls, with a cost of up to Rs 400 crore.

Also, only less than 1 per cent of the total staff had opted for the VRS announced prior to 2011.

In 2009, when the airline tried to cut its staff wage bill, it had to face a week-long strike from its pilots, ground staff and other workers. The 2011 plan was finally approved in July 2012, as part of which all permanent employees who had till then served for 15 years or had attained 40 years of age were to be given the VRS option. However, it was shelved by the government in January 2014, citing high attrition rate and its disinclination to provide committed funds to Air India. Three years later, in 2017, reports of Air India drawing up another VRS being planned to offer voluntary buyouts to just over a third of its 40,000 employees resurfaced.

In 2018, however, following the Union Cabinet’s in-principle approval for disinvestment of Air India, the then chairman and managing director of the airline, Ashwani Lohani, had assured the employees that the government and the management would “safeguard” the “genuine and valid interests” of the employees, while ensuring that “suitable measures to this effect” are put in place. Lohani had then also dismissed reports about any VRS scheme.