Air India to send section of employees on leave without pay to stem losses

“AI needs some kind of non-equity support from the government to stride over the current financial stress,” a senior AI official told FE.

With losses further mounting in the aftermath of Covid-19 outbreak, Air India has decided to send some unspecified number of employees on ‘leave without pay’, mirroring a recent global trend to cut costs as planes have been grounded due to pandemic.

According to a scheme approved by the board of directors in its meeting held on July 7, employees can opt to take leave without pay ranging from six months or for two years and the same can be extended up to five years.

“The scheme also authorises CMD to pass an order on behalf and in the name of the company whereby an employee would be sent on leave for six months or for a period of two years extendable up to five years,” according an AI office memorandum. Employees will be shortlisted for leave without pay based on factors such as suitability, efficiency, competence, quality of performance, health of employee, instance of non-availability of the employee for duty in the past, as a result of ill health or otherwise and redundancy, it said.

Departmental heads at headquarters and regional directors of the national carrier are required to assess each individual on the above mentioned factors and identify the cases where option of compulsory leave without pay can be exercised, it said. Names of such employees need to be forwarded to general manager (personnel), headquarters for obtaining necessary approval of CMD, it added.

The company, which has been making daily losses for last several years, has reported increase in daily losses from March last week due to virtual grounding of the carrier due to Covid-19 (except some domestic operations and evacuation of Indian from overseas). “AI needs some kind of non-equity support from the government to stride over the current financial stress,” a senior AI official told FE. The board of the carrier will likely to take a decision on the nature of support required for the company, the official added.

Some estimates suggest that AI making a daily loss of over Rs 30-35 crore during the pandemic due to virtual grounding of the airline, up from about Rs 20-26 crore in December 2019. While fuel costs are minimal, the company is still incurring full expenditure towards salaries and allowances, lease rentals, maintenance, interest payment. Air India’s salary expenditure is estimated to be about Rs 250 crore/month while the aircraft lease rentals outgo is around Rs 225 crore/month.

The staff reduction also comes an opportune time as the government has initiated the process for privatisation of the loss-making carrier. The staff strength of AI is 9,426, 36% of which were to retire in the next five years. For the third time, the Centre has extended the last date for submission of expression of interest (EoI) for strategic disinvestment of Air India to August 31, in view of prevailing situation arising out of Covid-19. Despite severe stress in the aviation industry, officials said there is some interest from prospective buyers for AI.

“AI has joined other airlines world-over, which are reducing manpower and other costs to survive as they are flying fewer planes and passengers after the outbreak of pandemic,” said Jitendra Bhargava, former executive director of AI.

After a failed attempt in 2018, the government for the second time (on January 27 this year) invited bids for privatising state-owned carrier, Air India. Learning its lesson after the 2018 failure, the preliminary information memorandum states that 100% stake will be offloaded unlike 76% offered in the previous attempt.

Besides AI, the government is also offloading its 100% stake in its low-cost subsidiary, Air India Express (AIXL) and 50% of AISATS, which provides cargo and ground handling services at major Indian airports. The debt of AI and its low-cost subsidiary has been reduced to around Rs 23,286 crore from Rs 60,000 crore. In addition, to the debt of Rs 60,000 crore, the airline and its subsidiary have liabilities worth Rs 25,000 crore.

Of this, the prospective buyer would have to take over only Rs 9,700 crore backed by assets. This way, the buyer would have to take over debt and liabilities worth Rs 32,986 crore against around Rs 85,000 crore. This means that the prospective buyer would now have to take over only 39% of the total debt and liabilities, unlike 61% in the 2018 bid document.