Riding the Elephant

UPDATED INTRO SEPT 28:    What a disastrous start for Arvind Jadhav, the new chairman and managing director of Air India, who has firm ideas of what he wants to do to turn round the country’s financially destitute national airline. a senior member of India’s civil service, he’s been in charge since May and last week announced productivity pay cuts of 25-50%, starting last month, for top pilots and management personnel.

That brought pilots out on strike-oriented “sick leave” over the weekend, stopped flights,  and led the management immediately to set up a committed to re-examine the decision.

This does not bode well for Jadhav’s new regime. The AI board should have foreseen trouble when it reach its decision on the cuts on September 23 and should have approached the cuts more cautiously.

Brashly announcing tough decisions and then having to retract them is bad management – and smacks of the weak Indian governments a few years ago where ministers of finance would allow opponents to hack away at their annual Budgets within days of announcing them!

Arvind Jadhav

I spent an hour with Mr Jadhav a few days ago, following my recent post on how Praful Patel, India’s aviation minister since 2004, failed to implement change after he nominally merged Air India with Indian Airlines last year into the National Aviation Company of India (NACIL) and an airline called Air India.

Jadhav’s job is to pick up the pieces with a three-year $1bn rescue plan. He wants to:

–   Hive off by next March more than half the airline’s operations into four separate engineering, ground handling, cargo, and training NACIL subsidiaries that will take 18,000 to 20,000 of the 32,000 current employees and do contract work for other airlines as well as for AI, thus cutting costs and increasing revenues.

–   Cut out unprofitable routes – maybe 20% of the total 246 – and build customer loyalty by boosting flight frequency on routes that make money.

–   Restructure flight schedules and ease airport transfers through the main hubs of Delhi and Mumbai so that both domestic and international travellers want to use the airline, especially at peak times.

–   Retrench staff, and restructure salary levels which, says Jadhav, are currently 20% to 200% above general market levels, and cut and change productivity payments (this has already started with 25%-50% cuts announced on September 23 –  and now challenged – for pilots and other senior staff) so that they reward achievement not just hours worked.

–   Move towards a lower-price airline, with some single-class aircraft, once costs have been cut – and complete the actual merging of operations (which has scarcely begun) so that it AI works as one, not two, airlines.

“If you want to sort out a problem, disaggregate it and tackle it at the first point where it occurs,” says Jadhav. Then “monitor and incentivise on the right parameters”, and question teams that regularly fail to meet targets. He gives, as an example, how he has tightened up timings for closing passenger check-ins and shutting aircraft doors so that flights are ready to leave terminals for departures on time.

In a Business World interview, which I mentioned in my earlier post, Jadhav mentioned how 750 business class meals used to be ordered for flights from Delhi when there were only 400 travellers – and that “no-one knows” where the other 350-400 meals went. The answer of course, is that they were presumably eaten or taken away by staff. Jadhav says the meals provided have now been cut to 2% above seat bookings, but the staff “are not very happy about it”. I asked if there were many other examples of unaccounted expenditure – “you bet……everywhere – it requires tight monitoring”, came the answer.

This all means overcoming massive staff resentment and lethargy. “There’s opposition from NACIL employees because they think the merger was not the right thing to do,” says Jadhav. That opposition is stronger – as many commentators said it would be– from old Indian Airlines employees, who resented being subsumed into Air India that was in a far worse state.

As Jadhav said in the Business World interview, “had this merger not happened, Air India would have died” – and he didn’t mean the newly merged entity, he meant the old elite and doomed international player that few travellers wanted to fly.

Old Air India dominates

So in addition to inevitable resistance to change, job shedding and salary cuts, there is a culture problem that stems from the old badly run Air India regarding itself as superior to the more efficient Indian Airlines, and having its name used after the merger. On the airline’s website there’s a page called the Air India Brand, which lists all the former chairman of the old Air India. Nearby are other details such as aircraft flown down the years. No-where is the history of Indian Airlines similarly recorded, and an Indian Airlines webpage morphs itself into AI. If I was an Indian Airlines executive, I’d resist being subsumed by such a merger implemented at the insensitive diktat of Patel’s aviation ministry.

The plan to hive off the engineering operations into a separate revenue-earning subsidiary, which will have joint ventures with Boeing and Airbus, illustrates the potential that Jadhav sees to cut losses. Currently there are 7,500 engineering and other technical personnel in maintenance teams for each of the combined airline’s eleven aircraft types. This costs Rs2,000 crore (approx $400m) a year, including a Rs750 crore ($150m) wage bill, but is only servicing about 100 or so aircraft, even though it could do 200. Servicing 100 aircraft from other Indian carriers that currently send their fleets to high-cost operators in South East Asia, the Gulf and Europe for major overhauls could, Jadhav hopes, save half the wage bill and bring in Rs1,500 crore ($3.75m) annual revenue.

This, and the other hiving-off plans, were put to staff and unions two months ago. “They see the advantages,” says Jadhav. He believes there is a will to survive inside the airline. “I’m saying ‘do you have a choice?’ They agree there is no choice but are not agreeing to the size of the (productivity) cuts because they are not yet confident the government will support them”

The airline is hunting for a chief operating officer – but with what seems to be to be a rather forbidding advertisement that doesn’t give the impression of a constructive environment. And is not being backed up by an executive search firm, which surely is essential for such a challenging job.

Many of Jadhav’s ideas have of course been aired before, and drip-fed as sound bites by Patel to a largely unquestioning media. Now Jadhav is determined to implement them. He seemed, in my hour with him, to mix sufficient charm, toughness and analytical logic to know what he wants to do and to have a chance of seeing it through.

His career in the Indian Administrative Service has been based in the state of Karnataka, where he was principal secretary in charge of sorting out Bangalore’s creaking infrastructure among other things for a year before joining AI. Aged 53, he was previously chief vigilance officer at GAIL, the government’s successful gas corporation, which gave him experience of how public corporations operate, and before that spent several years in the power ministry. In the mid-1990s, he ran a state minerals company in Karnataka.

Past airline chairmen have of course been just as able, but have been tripped up by self-serving motivations of the aviation establishment, as well as internal intransigence and opposition. Unlike many of his predecessor however, Jadhav has not spent years dealing with aviation, so brings a fresh mind uncluttered with close-knit egos, loyalties and favours that need servicing.

There’s an added advantage that monitoring is no longer under Patel and his ministry, but a broader-based committee chaired by the cabinet secretary.

Incidentally, the AI website calls the airline “India’s finest flying Ambassador”, which of course is rubbish. Private sector Jet Airways deserves that title, with Kingfisher Airlines as a runner up. Jadhav’s job is to win back the title.