Organizational Dowsizing and Restructuring with reference to Air India

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Human Resource Management St. Andrew’s College T.Y. B.M.S – ‘B’ Group No. 1

1. Downsizing

1.1 Introduction:

Downsizing is the act of terminating, laying off employees, or offering early retirement to a

group of employees, generally higher than 10% of total workforce, in an effort to boost equity

value in a company by increasing profit margins for the fiscal term. In a strategic plan,

downsizing can produce immediate results in a profit/loss situation, as well as hold shareholder

appeal. Downsizing is a commonly used euphemism which refers to reducing the overall size

and operating costs of a company, most directly through a reduction in the total number of

employees. When the market is tight, downsizing is extremely common, as companies fight to

survive in a hostile climate while competing with other companies in the same sector. For

employees, downsizing can be very unnerving and upsetting.

There are several reasons to engage in downsizing. The primary reason is to make the daily

operations of a business more efficient. For example, a company may be able to replace

assembly line employees with machines which will be quicker and less prone to error. In

addition, downsizing increases profits by reducing the overall overhead of a business. In other

instances, a company may decide to shut down an entire division; a car company, for example,

might decide to stop making sedans altogether, thus cutting an entire department. In some cases,

it becomes apparent that a business has too many employees. This may be because there has

been a decline in demand for the company's services, or because a company is running more

smoothly and efficiently than it once was. Many offices are heavily bloated with support staff

and redundant departments, and these businesses may refer to downsizing as “trimming the fat.”

Numerous terms accompany downsizing. Employees may be terminated, fired, laid off, made

redundant, or released. A business may be optimized, right sized, or experiencing a reduction in

workforce. Some of these terms have different legal meanings depending on where one is in the

world; a layoff, for example, may refer to a mass temporary release of employees who will

brought back in once business picks up, while a redundant employee is one who is asked to leave

permanently. It evokes images of mass lay-offs, of jobless workers in a stagnant market, of

emotional trauma, fear and insecurity. It brings with it the shame of defeat. The shame of

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despondency that haunts the future of many loyal workers, suddenly sent home with a pink slip

in their hands and pin money in their purses. From the organisation's point of view however,

there is another side to it. Downsizing helps a company cope with enormous economic pressures.

It increases the operational efficiency and productivity of the organisation. Labour costs, which

account for a lion's share in internal expenses are greatly reduced, allowing valuable funds to be

channelized to areas they are most needed. In addition, organisational re-engineering, simplified

hierarchy, and importantly, a significant reduction in the number of employees may well

strengthen the company as a whole, justifying such head hacking. But the people who survive the

pink slip cataclysm often suffer from what is termed the `survivor syndrome'. The fear of

persecution, inner tension, loss of self-esteem, lack of initiative, apathy and burnout torment

them. They may feel paradoxically guilty about continuing with the company, when so many of

their friends and colleagues have been given the axe. Originally lay-offs were reflections of

fluctuations in demand for a product. If a product was not in high demand, fewer workers were

needed to produce that product. Now downsizing may be used as a strategic tool to improve

shareholder value, even in times of high profit, rather than reactionary to market demands.

1.2 Definition:

Downsizing is defined as a “purposeful reduction in the size of an organization’s workforce”

(Spreitzer& Mishra, 2002). Brockner (1988) categorically states that it refers to permanent,

involuntary separation of employees. According to Freeman & Cameron (1993) also, downsizing

is not something that happens to an organization, but is something that some of the organization

members (top management per se) undertake purposively. The key attributes of downsizing

given by Freeman & Cameron (1993) are as follows:

a) It is an intentional endeavor

b) It usually involves reductions in personnel

c) It is focused on improving the efficiency or effectiveness of the organization

d) It affects work processes

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1.3 Steps to Downsizing:

1. Before deciding who stays and who goes, make sure there are justifiable business reasons for

the layoff in the first place and that you have a clear picture of what your business will look

like moving forward. The staffing decisions that you make need to be consistent with these

business reasons and the end result you're seeking.

2. Choose a layoff selection committee, ideally consisting of diverse individuals in terms of age,

race and gender. The individuals you choose to act as decision makers should be people that

are most likely to remain with the company so that they can be available to help defend the

layoff decisions should there be any litigation in the future. Include members of management

who understand the business needs and have first-hand knowledge of employee performance.

3. Remind your selection committee of equal employment opportunity issues to ensure they are

making sound decisions.

4. Check with your legal counsel to see if your layoff will trigger legally required notice

obligations, such as the WARN Act (read more about the WARN Act at

instanthrsolutions.com) or other issues, such as terminating an immigration visa and

repatriating foreign workers.

5. Identify selection criteria you will use to make decisions.

Using seniority only can mean you retain your highest-paid workers, and lose some of

your newer star performers.

Performance is the most common selection criterion, but it's the most subjective. Review

past performance evaluations to help make the decision. If you don't have written

performance reviews for your employees but decide to use performance as the deciding

factor, it will be virtually impossible to defend against a claim of unlawful termination or

discrimination, so you'll need to consider other factors.

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If you're restructuring jobs, make sure to update job descriptions. In the event of

litigation, you'll need to show that the individuals you retained have the skills to fill those

positions.

Analyze the jobs and responsibilities within your business and determine where you have

the most redundancy. Look for ways to shift responsibilities or reorganize processes so

you can eliminate redundant positions.

Look at your management vs. staff ratio. Being top-heavy during a recession is pretty

much a guarantee that you'll burn through your cash more quickly.

No matter the size of your organization, all companies need to think like a small business

during an economic downturn. Make sure the people that you retain are the ones that are

most flexible and agile, with the ability to multi-task.

Hang onto your top performers. Human capital is your most valuable asset even in a

difficult business cycle, and your competitors will quickly grab up your key talent if

they're available.

6. Once you have a list together, review it for any potential discrimination claims. Compare the

demographics of the current workforce against the workforce you plan to have moving

forward and make sure that any protected groups (based on age, gender, race and other

factors) have not been disproportionately impacted. If you find there are potential issues,

revisit your selection criteria or at least make sure you have legitimate, nondiscriminatory

reasons for the selections made.

7. Decide what benefits, if any, you will provide to laid-off employees. If you offer a severance

package, you should obtain a release of claims from the employee. (Read more about what

you are legally required to pay employees at termination and check out survey results to see

what other companies are providing at instanthrsolutions.com.)

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1.4 Effects of Downsizing:

The Short Term Effects of Downsizing:

The short-term effect of downsizing is something that is immediately experienced by business

and organization. There may be fewer people now, a smaller office or factory; less cars in the

parking area, there might even be a sudden peace and quiet. These are the short-term external

effects. However, underneath the sudden change of the business or organizational environment

comes a different kind of outcome. People in the organization now have more time for what

many call the thinking process. Management can now see things in a clearer and different

perspective due to the fact that many tasks have been given over to the outsource partner.

Management can also notice a sudden change in cost behavior. If calculations are accurate, the

business or organization will now be experiencing a lowering of its operating costs and an

increase in the bottom line as well as an increase in its cash flow. Other factors might be a

sudden change in values and percentages; the sales per employee might suddenly increase and

the cost per employee might suddenly decrease. But corollary to all of these, there will also be a

sudden change in priorities. Since the counterpart of downsizing is outsourcing, the outsource

partner now become a priority in lieu of the employees who have been terminated due to the

downsizing. There will now be monitoring of the outsource partner in all aspects: product

quality, timely delivery schedules, delivery channels and a host of things.These things have to be

taken into account in the strategic plan. Although it does not affect the core strategic plan of:

what to become in the future, the different set-up and relationship with the outsource partner

does affect how the business or organization moves well into the future.

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The Long Term Effects of Downsizing:

The long-term effects of downsizing are things that business and organization must never ignore.

A thorough understanding of the long-term effects of downsizing can help management steer the

business and organization through the maze of our ever-changing business environment. Since

downsizing results in outsourcing, the long-term effect of downsizing has more to do with the

outsource aspect than with the company organizational aspect. Some probable long-term effects

of downsizing, which might become pitfalls, are the following:

The outsource partner will know your secrets in the long term and may have you by the

throat.

This is a legitimate long-term effect of downsizing. So part of the strategic plan is to

prepare way ahead before this unfortunate event will happen. Business and organizations

should include as part of the strategic plan, an advance search of more and better

outsource partner on a continuous basis.

The outsource partner will learn your business and expand and be your direct competitor.

While this may be possible, part of the strategic plan should be stringent outsource

partner selection, real investment in the partnership, clear plans and goals with the

outsource partner.

The outsource partner may not become loyal in the long haul and breaks off to outsource

for your competitor.

This is another possibility, but again part of the strategic plan is to enhance the outsource

partners profit and loss orientation. Business and organizations must prove to the

outsource partner that they have more to lose than gain if they break off and run after

your competitor.

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1.5 How does one cope with the after effects of downsizing?

A few pointers:

Acquire insight: In all fairness, the company might have justifiable reasons for the

downsizing exercise. Acquire an insight as to why the downsizing was carried out

through forthright and honest communication.

Face reality: Instead of procrastinating and hoping things would get better, face reality

with courage. Figure out what needs to be done. Is your job in the company really secure

or is it a stopgap arrangement? Would you like to continue working with the company?

People who were your friends and colleagues till yesterday have gone. How are you

going to cope up with their absence? These are aspects that need to be dealt with quickly.

Cope with courage: Perceive the changes brought about by downsizing as an

opportunity for advancement of your career. Seek out rather than merely accept work. Be

conscientious and vigilant. Be prepared for additional responsibility and meet change

with hard work and ingenuity.

Be accountable to yourself and your job: The insecurity evoked by a downsizing

exercise often leads people to blame others for their own mistakes. Be accountable,

committed and decisive. Meet the requirements of your job with unyielding integrity.

Banish insecurity: The root cause of most problems is insecurity. Being insecure about

your job, your future or your place in the company can make you perceive change as a

threat. It may drive you to compromise. You need to build up your self-confidence and be

competitive.

Prioritise: Set priorities for yourself. Concentrate on the more important tasks. With

fewer people working on the same number of tasks, the less important tasks may be left

undone. Train yourself to become faster, focused and more purposeful.

Don't get discouraged: Downsizing has been a global phenomenon. Millions of others

are in the same boat as you are. It is a depressing and demoralizing process for both the

organization and its employees, but it is a necessary evil. The very fact that you have

outlasted the nemesis proves that you have got what it takes to survive.

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2. Restructuring

2.1 Introduction:

Restructuring is the corporate management term for the act of reorganizing the legal, ownership,

operational, or other structures of a company for the purpose of making it more profitable, or

better organized for its present needs. Alternate reasons for restructuring include a change of

ownership or ownership structure, demerger, or a response to a crisis or major change in the

business such as bankruptcy, repositioning, or buyout. Restructuring may also be described as

corporate restructuring, debt restructuring and financial restructuring.

Organizational restructuring has become a very common practice amongst the firms in order to

match the growing competition of the market. This makes the firms to change the organizational

structure of the company for the betterment of the business.

Executives involved in restructuring often hire financial and legal advisors to assist in the

transaction details and negotiation. It may also be done by a new CEO hired specifically to make

the difficult and controversial decisions required to save or reposition the company. It generally

involves financing debt, selling portions of the company to investors, and reorganizing or

reducing operations. The basic nature of restructuring is a zero sum game. Strategic restructuring

reduces financial losses, simultaneously reducing tensions between debt and equity holders to

facilitate a prompt resolution of a distressed situation.

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2.2 Features:

Regrouping of business: This involves the firms regrouping their existing business into fewer

business units. The management then handles theses lesser number of compact and strategic

business units in an easier and better way that ensures the business to earn profit.

Downsizing: Often companies may need to retrench the surplus manpower of the business. For

that purpose offering voluntary retirement schemes (VRS) is the most useful tool taken by the

firms for downsizing the business's workforce.

Decentralization: In order to enhance the organizational response to the developments in

dynamic environment, the firms go for decentralization. This involves reducing the layers of

management in the business so that the people at lower hierarchy are benefited.

Outsourcing: Outsourcing is another measure of organizational restructuring that reduces the

manpower and transfers the fixed costs of the company to variable costs.

Enterprise Resource Planning: Enterprise resource planning is an integrated management

information system that is enterprise-wide and computer-base. This management system

enables the business management to understand any situation in faster and better way. The

advancement of the information technology enhances the planning of a business.

Business Process Engineering: It involves redesigning the business process so that the business

maximizes the operation and value added content of the business while minimizing everything

else.

Total Quality Management: The businesses now have started to realize that an outside

certification for the quality of the product helps to get a good will in the market. Quality

improvement is also necessary to improve the customer service and reduce the cost of the

business.

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2.3 Steps in restructuring:

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2.4 Need for organizational restructuring:

New skills and capabilities are needed to meet current or expected operational

requirements.

Accountability for results are not clearly communicated and measurable resulting in

subjective and biased performance appraisals.

Parts of the organization are significantly over or under staffed.

Organizational communications are inconsistent, fragmented, and inefficient.

Technology and/or innovation are creating changes in workflow and production

processes.

Significant staffing increases or decreases are contemplated.

Personnel retention and turnover is a significant problem.

Workforce productivity is stagnant or deteriorating.

Morale is deteriorating.

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3. Air India

History of Air India:

Air India is India’s national Airline. Air India’s history can be

traced to October 15, 1932. On this day J.R.D(Jahangir Ratanji

Dadabhoy Tata). Tata, the father of Civil Aviation in India and

founder of Air India, took off from Drigh Road Airport, Karachi, in a tiny, light single-engine de

Havilland Puss Moth on his flight to Mumbai via Ahmedabad. Air India was earlier known as

Tata Airlines. At the time of its commencement, Tata Airlines consisted of one Puss Moth, one

Leopard Moth, one palm-thatched shed, one whole time pilot, one part-time engineer, and two

apprentice-mechanics. Tata Airlines was converted into a Public Company under the name of Air

India in August 1946.

On March 8, 1948, Air India International Limited was formed to start Air India’s international

operations. On June 8, 1948, Air India started its international services with a weekly flight from

Mumbai to London via Cairo and Geneva with a Lockheed Constellation aircraft. In early 1950s

due to deteriorating financial condition of various airlines, the Government decided to

nationalize air transport. On August 1, 1953 two autonomous corporations were created. Indian

Airlines was formed with the merger of eight domestic airlines to operate domestic services,

while Air India International was established to operate the overseas services. The word

'International' was dropped in 1962. With effect from March 1, 1994, the airline has been

functioning as Air India Limited.

Air India's worldwide network today covers 44 destinations by operating services with its own

aircraft and through code-shared flights. Important destinations covered by Air India are

Bangkok, Hong Kong, Jakarta, Kuala Lumpur, Osaka, Singapore, Tokyo, Seoul, Dar-es-Salam,

Nairobi, Frankfurt, London, Paris, Birmingham, Abu Dhabi, Al Ain, Bahrain, Dammam, Doha,

Dubai, Jeddah, Muscat, Riyadh, Kuwait, Los Angeles, Chicago, Newark, New York, and

Toronto. Air India’s fleet consists of 38 aircrafts. These include 12 Boeing 747-400, 1 Boeing

747-400 COMBI, 2 Boeing 747-300 COMBI, 19 Airbus 310-300, and 4 Boeing 777-200

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4. Research Methodology

A survey was conducted on the employees and the employers of Air India to find out the main

reason for downsizing in the organization and also the restructuring process selected by the

organization to overcome this problem. The sample size of the employees interviewed from Air

India was 20 employees and 5 employers.

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5. Analysis and Interpretation

5.1 Analysis and Interpretation for Employees:

1. Number of years worked with Air India

Out of 20 people interviewed 60% of employees were working for more than 7 years, 25% were

working between 5-7 years and the remaining 15% were working in 3-5 years and less than 3

years category.

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2. Reasons for downsizing in AI

According to the information gathered through the survey conducted the main reason for downsizing is:

Excess manpower in the organization and less number of aircrafts.

The employees also felt that the downsizing was due to union and political interference and mismanagement.

3. Other areas affected due to downsizing

According to the information gathered through the survey conducted every area/department was

affected but the frontline departments like the engineering, marketing and operations have been

affected the most.

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4. Do you think lay-offs of employees were the only measure that could be taken to

cope up with downsizing?

As per the above graphs 95% of the employees feel that lay-offs was not the only measure,

employees were also given VRS (Voluntary Retirement Service) for two

years.

N o . o f E m p l o y e e s

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5. Do you think downsizing has affected the compensation structure and it

payment?

According to the above graph 45% of the employees feel that downsizing has affected their

compensation structure and the remaining 55% feel that it has not affected their compensation

structure.

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6. Has there been restructuring taken place due to downsizing?

According to the above graph 70% of the employees say that restructuring is still taking place

due to downsizing in the organization but at a slower pace.

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7. Was there change in the management practices of the organization due to

downsizing?

As per the above graph 70% of the employees said that there has been change in the management

practices in the organization due to downsizing.

. o f E m p l o y e e s

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8. Contribution of trade unions

After the downsizing of AI the trade unions were crushed and the

employees felt that there was no contribution by the trade unions.

9. Do you think the ongoing restructuring processes benefitting you?

According to 75% of the employees restructuring has benefited the organization but not them.

o f E m p l o y e e s

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5.2Analysis and Interpretation for Employers:

1. Main reasons for downsizing?

According to the survey conducted the main reason for downsizing was because of the

merger of the two airlines, i.e., Indian Airlines and Air India there was excess of staff over

availability of aircrafts.

2. Departments affected by downsizing?

According to the interview of the senior manager all the departments were affected in its

own way, but Human Resource Department and Operations Department was affected the

most.

L e v e l o f E ff e c ts

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3. Methods AI used for downsizing

L e v e l o f U s a g e

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As per the above the above graph the most effective method used during downsizing was

Voluntary Retirement Service(VRS). Whereas, transfers and lay-offs were used in less

proportion.

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4. Problems AI faced during downsizing

As per the above graph Air India faced financial problem the most during downsizing

followed by Political interference in the organization.

5. Did AI manage to overcome the downsizing?

As per the survey conducted at present AI hasn’t managed to overcome downsizing.

They are still in the process of restructuring.

The organization is trying to overcome downsizing by reduction in remuneration, pension

and other financial benefits.

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6. Improvements in the remuneration structure of the employees

As per the above graph there has been no improvement in the remunerations structure

according to 80% of the employer. Whereas, the remaining 20% feel that there has been

nominal improvement.

N o . o f E m p l o y e r s

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7. Is AI adding to its fleet despite the down turn?

As the above graph shows that all the employer’s felt that AI has been adding to its fleet

despite the down turn. This was possible because the fleet acquisition was decided before the

turnover.

8. Method/Style of restructuring adopted

As per the survey conducted with the senior managers most affected method used by AI for

the redevelopment of manpower to optimize their utility.

. o f E m p l o y e r’ s

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9. Were the current employees re-positioned due to restructuring?

As per the above graph 80% of the employer said that they had re-positioned the positions of

the employees due to restructuring.Whereas, the remaining 20% were not re-positioned.

o . o f E m p l o y e r’ s

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6. Conclusion

6.1 Conclusion from the group’s point of view:

After the research conducted on the topic organizational downsizing

and restructuring with reference to air India we have come to a

conclusion that the main reason for downsizing was excess of staff with respect to the staff

required per aircraft and also another reason which was pointed out to us was excess political

interference which gained a lot of importance during managing such problems during hard times.

We also found out, there could have been other alternatives to lay-offs such as TRANSFERS,

VRS, ETC. The compensation structure has benefited some of the employees but most of the

employees have not been benefited from this. We also found out that the pension provided to the

retired employee was reduced to a considerable amount.

We also found out that the trade unions, guilds and associations were passive in their approach,

but without their constructive corporation downsizing would not be possible. The trade unions

could have been more supportive to the employees during such hard time.

Due to the financial issues within the organization, the salary which the employees used to

receive on the 1st of every month they now receive it on the 7th of every month. According to the

directors the reason was insufficient funds.

The ongoing restructuring process of air India is being carried out at a very slow pace. The

employees also feel that the current restructuring process will benefit the organization in the long

run. But as of now the restructuring process has been at a standstill.

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6.2 Conclusion from organizations point of view:

The main reason of downsizing as per Air India was the excess of manpower over the

availability of aircrafts. AIR INDIA has posted losses to the extent of Rs.15,000 crores. The

Government of India has directed AI to resort to cost cutting measures to reduce the fiscal

deficit. Downsizing is one of the decisions taken to reduce staff cost. The purpose of downsizing

is to reduce the wage bill.

Around 2000 employees have been directly downsized and around 10,000 employees have been

indirectly downsized from Air India by hiring off activities earlier undertaken by Air India to

joint venture companies.

Air India offered the employees with the option of going on “Leave Without Pay” for a period

from two years to five years. Further, a Joint Venture company has been entered into with

Singapore Air Terminal Services (SATS) and new employees will be inducted in to the Joint

Venture Company on lesser emoluments and lesser service conditions. The departments which

were most affected by downsizing were Human Resource department and the Operations

department and no recruitment has been carried out against the retired staff. There is a freeze on

recruitment.

Even though downsizing is still being continued, the process of restructuring has been started at a

slow pace. The remuneration structure as well as the compensation payment has been reduced,

also there has been transfers as the Indian Airlines managers are now recruited and the managers

form air India are transferred to Delhi and Pune.

Air India has also started recruiting employees only on contract basis, they do not have normal

employment since contract employees work at cheaper rates which help in the restructuring

process of the organization.

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7. Bibliography

www.google.com

www.wikipedea.com

www.managementparadise.com

www.humanresources.com

www.wisegeek.com

www.investopedia.com

www.timesofindia.com

www.hindustantimes.com

www.ndtv.com

www.moneycontrol.com

www.economictimes.com

http://www.economictimes.com/

http://www.moneycontrol.com/

http://www.ndtv.com/

http://www.hindustantimes.com/

http://www.timesofindia.com/

http://www.investopedia.com/

http://www.wisegeek.com/

http://www.humanresources.com/

http://www.managementparadise.com/

http://www.wikipedea.com/

http://www.google.com/

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8. Annexure

Questionnaire

Questionnaire for Employees

St. Andrew’s College

Subject – Human Resource Management

Topic – Organization downsizing and restructuring

Name ______________________ Position ______________________

Location ______________________ Gender _____ Age _____

For how long have you been working with air India?

Less than 1 yr

1-2

2-3

3-5

More the and 5yrs

What do you think is the main reason for downsizing in Air India?

________________________________________________________________________

______________________________________________________________________________

What are the other areas of the organization that has been affected through downsizing? ________________________________________________________________________

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Questionnaire for Employers


Subject – Human Resource Management

Topic – Organization downsizing and restructuring

Name ______________________ Position ______________________

Location ______________________ Gender _____ Age _____

What are the main reasons for downsizing?

________________________________________________________________________

________________________________________________________________________

Which are the departments affected by downsizing?

Human Resource Department Materials Management Department Operations Finance Other ____________________

What is the method Air India is used for downsizing? Transfers Layoffs Voluntary Retirement Scheme (VRS) Reduced Pay Structure

What problems did AI face during downsizing? Financial Cultural Political Economical Other __________________________________________________

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Did AI manage to overcome the downsizing? If yes, then how?

________________________________________________________________________

________________________________________________________________________

Were there any improvements in the remuneration structure of the employees? Yes No

Is Air India adding to its fleet despite the down turn, if yes then how? Yes No

Which method/style of restructuring have the organization adopted?

____________________________________________________________________

____________________________________________________________________

Were the current employees re-positioned due to restructuring? Yes No

Signature __________________

Contact No. __________________

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Articles:

1. Air India to cut employee costs by Rs 500 cr

New Delhi Air India is working on plans to reduce its expenditure on employees by Rs 500 crore per annum, with a newly formed Committee re-examining wage and other agreements in consultation with the Unions.

The cash-strapped airline's employee cost currently is over Rs 3,000 crore annually, a company spokesperson said, adding that the airline was now targeting a reduction in employee cost to the tune of Rs 500 crore per annum.

At present, the merged carrier has around 31,000 employees.

One of the six panels set up recently is the Cost Rationalisation Committee, comprising officials of HR and Finance Departments.

The Committee has been directed to discuss cost rationalisation and reduction of wasteful expenditure with employees' unions and submit its report by July 15.

The spokesperson said that the Committee would examine the wage agreements, including those relating to flying allowances and productivity-linked incentives.

The five other Committees that have been formed are the Committee on Integration, Committee on Green Initiatives, Committee on Safety, Committee on Customer Feedback and Route Rationalisation Committee.

The management has held at least two rounds of talks with various Air India employees’ unions in this regard, with the union leaders coming up with several suggestions to cut costs.

2. Our pay isn't the problem, retort Air India staff unions

BS Reporters / Mumbai/delhi June 24, 2009, 0:45 IST

Air India’s staff unions, faced with strong management pressure for pay cuts, retort that 80 per cent of employees take less than a third of the yearly Rs 3,500 crore wage bill.

Put another way, when National Aviation Company of India’s (Nacil’s) wage bill is described as impossible to sustain, the unions say it is due in large part to the salaries paid to the same brass

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which is wanting pay cuts, apart from other creamy layers such as pilots and engineers, who get quite a bit through productivity-linked incentives.

Hence, say the unions, it is these sections which need to take the hit in salaries, not their members. “We represent 80 per cent of the total employees which belong to the low pay category, with average salaries of Rs 15,000 a month. This 80 per cent takes away only 30 per cent of the wage bill. Licencedenginners get productivity incentives which are three times their salary, even though they are not in short supply. The pilots also get huge variable emoluments. The company should look at them, as there is hardly any scope of (pay) reduction from our members,” says DinkarShetty, president of the Air Corporation Employees Union (ACEU), the largest union. Other unions representing non-managerial staff spoke likewise.

Meanwhile, cash-strapped Air India today made a presentation before Civil Aviation Minister Praful Patel as part of its efforts to seek a financial package from the government to bail it out of a major resource crunch. The national carrier, which is working on plans to cut cost on employees by at least Rs 500 crore, came out with several proposals to enhance savings over the next few years. The airline’s cost on its 31,000 employees currently stands at around Rs 3,000 crore per annum.

The presentation, made by Air India CMD ArvindJadhav, which lasted almost three hours, was attended by Patel and Civil Aviation Secretary M MadhavanNambiar, among others. Jadhav is understood to have briefed Principal Secretary to the Prime Minister T K A Nair yesterday on the airline’s financial position, apart from its growth plans for the next few years. Unions are however willing to cooperate on reduction in productivity-linked incentive schemes. “We understand the tough financial situation of the airline. We are not rigid and ready to cooperate with the management. But we will not accept any salary cuts. We may compromise on the productivity-linked incentives, which includes various allowances and overtime payments. We are ready for a fresh review of our service agreements. It’s time for the civil aviation minister to take a stand,” said Aviation Industry Employees’ Guild (AIEG) president Y I Reddy.

Insiders say the unions have very limited scope to go on a strike, considering AI’s declining market share, both in the domestic and international skies. The company has a domestic market share of only 17.1 per cent (in March) and only a 23.5 per cent share of total capacity of airlines which fly to international destinations. With the airline industry facing passenger load factors of around 65 per cent, there is enough surplus capacity available to absorb passengers in case of a strike in Air India. “

All officials were tight-lipped about today’s meeting, which came less than a fortnight before the presentation of the general Budget amid expectations that the government may take some steps to ease the national carrier’s financial problems. Air India has already approached the government for urgent infusion of funds by way of equity, soft loans and grant.

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3. Air India on a firm path to recovery: Patel

TNN, Jul 26, 2010, 12.03am IST

MUMBAI: Air India (AI), will look at expanding its low-cost arm to more domestic destinations. The airline on Sunday discussed its turnaround plan with various unions, board members and civil aviation minister Praful Patel.

Patel told reporters that the national carrier is on a "firm path to recovery" and the new turnaround plan (2010-2014) will look at restructuring the company's debts and reach out to capture a bigger expanding market.

One of the highlights of the plan is to expand the network of the low-cost-carrier (LCC) arm, AI Xpress, to more domestic destinations. TOI in its July 23 edition had already reported about AI's plan to expand its low-cost flights on domestic routes.

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Interview of George Abraham


Subject: Human Resource Management

Topic: Organization downsizing and restructuring

Name: GEORGE ABRAHAM

Position: GENERAL SECRETARY, AVIATION INDUSTRY EMPLOYEES’ GUILD (AIR INDIA),

Location: OLD AIRPORT, KALINA, MUMBAI 400 029

Gender: MALE, Age: 53 YEARS

1. What has been the main reason for downsizing which has been taking place in Air India recently?

AIR INDIA has posted losses to the extent of Rs.15,000 crores. The Government of India has directed AI to resort to cost cutting measures to reduce the fiscal deficit.Downsizing is one of the decisions taken to reduce staff cost. The purpose of downsizing is to reduce the wage bill.

2. What are the measures taken to solve the current situation of downsizing in Air India?

The employees have been offered the option of going on “Leave Without Pay” for a period from two years to five years. Further, a Joint Venture company has been entered into with Singapore Air Terminal Services (SATS) and new employees will be inducted in to the Joint Venture Company on lesser emoluments and lesser service conditions. There is a freeze on recruitment.

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3. Is the process of restructuring affected the positions of the employees in Air India?

YES. As part of restructuring, the Company will now be divided into five companies. Ground Handling is now a separate company having joint venture with SATS. As a result, all employees working in the airport have now been transferred from a Govt. company (Air India) to a private company since SATS has 50% share in the Joint Venture Company. Similarly, the Engineering Department., Cargo Division, IT and Catering Services would enter into Joint Venture with private companies.

4. What is the approximate number of employees downsized from Air India according to you?

Around 2000 employees have been directly downsized and around 10,000 employees have been indirectly downsized from Air India by hiving off activities earlier undertaken by Air India to joint venture companies.

(George Abraham)

Organizational Dowsizing and Restructuring with reference to Air India

Documents

group of employees

downsizing increases

key attributes of downsizing

car company

s b group

total number of employees

assembly line employees

justifiable business