IA's bid to set its house in order

By V. Jayanth

Even as the process of selecting a professional Chairman-cum- managing director for Indian Airlines (IA) is under way, another Joint Secretary from the Union Civil Aviation Ministry has taken over as acting CMD.

It could take another two months to get the next full time chief for the airline, but the Centre has initiated the process of disinvestment in the meantime.

According to current indications, ANZ Grindlays, has emerged as the front-runner to become the global adviser/consultant to the Centre on its disinvestment in IA.

However, the airline's financial problems and the need to finalise its fleet replacement and augmentation plan cannot wait till a strategic partner is identified. So, all these processes are proceeding in tandem, causing more confusion and creating more problems.

IA sources say that wage arrears due from 1996 will mean an outgo of Rs. 300 crores. Simultaneously, plans to firm up an aircraft acquisition programme are being discussed with the Ministry - smaller 50-seater aircraft and Boeing or Airbus versions.

The management appears to have finalised a plan to acquire 39 aircraft by 2005 while a wet-lease for meeting immediate needs of capacity.

As such, the airline is toying with the idea of coming out with an initial public offering to mop up funds. For the employees, it would like to wrap up an ESOP (employees stock option). But that raises basic questions on putting a value on the share and deciding on the premium. Will the employees accept shares in lieu of arrears? Airline sources argue that before any private partner can be enlisted, the financial health of IA will have to be substantially improved. A Comptroller and Auditor General report for the last five years has come down heavily on the IA management for not being honest with figures and for its faulty manpower policy.

The CAG noted that 271 executive category posts (senior managers to directors) were created ``in an arbitrary ad-hoc manner without any scientific analysis of the requirements''. IA created six Directors posts, wanting to upgrade the position of general managers. But the management ended up filling the posts of the general managers as well. And the worst part of it is that there were no norms or educational qualifications prescribed for these ``arbitrary'' promotions and posts, when clear qualifications have been laid down for all categories of recruits, up to officers.

On top of it, 132 retired employees were taken back on a contract basis for routine manner of work, in contravention of guidelines laid down by the Department of Public Enterprises.

The CAG came down heavily on the productivity linked agreements with various unions, noting that the parameters were based on performance of employees represented by particular unions, instead of on the basis of overall performance of the company.

In the end, IA ended up paying Rs. 666.73 crores under these agreements, when the airline suffered a loss of Rs. 66.93 crores for the period 1995-96 to 1998-99

Though no Government action was forthcoming even after the CAG reports, the former Aviation Minister, Mr. Ananth Kumar, finally sacked the entire IA board in December 1998 and appointed a Joint Secretary from his Ministry as the new CMD.

It was expected that the new management would cleanse the administration and initiate a comprehensive plan to downsize the top-heavy airline, which had nearly three dozen directors at that point of time.

After 18 months, only a handful of those directors have retired, with the lowering of the retirement age to 58. The accounting procedures, faulted by the CAG, have not been fully corrected. These were `window dressing' techniques to create what was fashionably called ``operating profits''. Sale of aircraft, engines, reserves for pension and a few other heads were conveniently brought into the profit and loss accounts to bring the airlines out of the red. Now, it has managed to `show' a profit for three years and therefore qualify for an IPO.

As a result of these `management practices', the shareholders' value and fleet image have been eroded. Analysts feel that the Centre must first set the IA house in order, restructure its management, put in place a compact and professional Board and improve its public image before proceeding with the IPO or the disinvestment. Only then will it be profitable and productive.

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