It was not an ideal way to mark an important occasion. The 55th anniversary of the amalgamation of Hindustan Aircraft Limited and Aeronautics India Limited, which gave life to a single national aviation entity, Hindustan Aeronautics Limited (HAL), fell on October 1, exactly a fortnight before a call for indefinite industrial action by the All India HAL Trade Unions’ Coordination Committee (AIHALTUCC) on the issue of “Wage Revision of Workmen” effective from January 1, 2017. The committee is an umbrella entity representing the trade unions of HAL units spread across nine locations and the entire unionised cadre of around 18,700 workmen.
HAL, a Defence Public Sector Enterprise (DPSE), has recorded a turnover of Rs.19,400 crore in the financial year ending March 31, 2019, a growth in revenue of 6 per cent over the previous year. The last financial year saw HAL produce 41 new aircraft/helicopters and 98 new engines, and carry out the overhaul of 213 aircraft/helicopters and 540 engines.
At the core of the dispute is what the HAL management is willing to offer to conclude the pending wage revision exercise and what the representatives of the recognised unions are demanding. After a series of 11 meetings, the management, in what it calls the “best revised wage package” and one that is “reasonable, fair and in conformity with the wage agreements finalised by other DPSEs”, has offered to enhance allowances under the “cafeteria plan” (a flexible employee benefit arrangement where, like individuals selecting their choice of food at a cafeteria, employees, given today’s increased diversity within the workforce, can choose, according to their preferences from a variety of 30 to 40 pre-tax benefits) by 22 per cent for workmen in the 1 to 10 pay scales and by 20 per cent for workmen in the “special scale”, as against the uniform 19 per cent rate that had been offered earlier. The management had also assured the workmen that they would benefit in terms of allowances on account of the cafeteria plan, which is being introduced for the first time. After a series of negotiations and deliberations on the contentious issue of fitment, the management offered a revised rate of fitment benefit at 11 per cent (after basic pay and dearness allowances are merged).
C.B. Ananthakrishnan, HAL’s Director Finance and Chief Financial Officer, said the hikes being offered would vary between 9 and 22 per cent, with the average being around 15 to 16 per cent, which according to him, “is quite substantial in today’s environment”. He said that since the wage revision being negotiated was for the next 10 years, the company needed to base it on how it would perform over the next 10 years and not merely on today’s cash flow or order book situation. The unions have rejected the management’s offer outright. They want a hike that is in line with what the executives have been given—a 15 per cent hike in fitment and a 35 per cent hike in the cafeteria plan.
According to Suryadevara Chandrasekhar, chief convener of the AIHALTUCC, the management’s offer is neither “fair nor reasonable”. He said the wage revision being offered would result in some workmen receiving “lower pay than what they are drawing today”. “A union cadre employee in the special scale [there are hardly 2,000 such employees] or those in the higher 9 or 10 scales with decades of experience [hardly 300] may gain by 15 to 17 per cent, but those in the middle category and lower scales will hardly get an increase of 10 to 12 per cent. Some employees may also end up on the negative side. The majority of the union cadre workers—around 14,400—are in the 4 to 8 scales; there will be no substantial benefit for them if the hike in perks that the management is offering [22 per cent] is accepted by us.” The management’s offer of an 8 per cent assured increase [protection] for those who will take a perks cut is finding no takers.
Said Chandrasekhar: “We have lost in many ways. For instance, the 2007 wage agreement was signed with the management only on August 1, 2010. Since there was no retrospective clause in the agreement, we lost 43 months’ enhanced perks/allowances. Similarly, the 2012 agreement was only signed on September 19, 2014, so we lost 33 months’ arrears. And we lost 21 months’ enhanced/continuity of HRA between 2012 and October 2013. As for the pension scheme devised by the management, while executives, starting from 2007, were given a 7 per cent pension contribution from the company, we got a 5 per cent contribution and that too only from 2012.”
The management’s stand is that while executives were given a 30 per cent hike in their fitment in 2007 and a further 15 per cent in 2017 (a cumulative hike of 45 per cent), the unionised cadre were given a 22 per cent hike in 2007 and another 16 per cent in 2012 and now they have been offered an 11 per cent hike, making it a cumulative total of 49 per cent. The management is also of the view that in many instances, even without the hikes, workers’ salaries have exceeded that of executives, causing a lot of discontent.
(According to sources in the AIHALTUCC, there is very little chance of the management accepting the demand for a 15 per cent hike in the fitment and a 35 per cent hike in allowances. What they expect is an across-the-board increase of 11 per cent in fitment and a fixed percentage increase in allowances/perks.)
Said a director: “If we agree to hand out what the unions are asking, many workmen will get salaries that match or even surpass the salaries of deputy general managers. That will not make for a good working environment. Executives have much more responsibility thrust on them. A few years ago many senior-level workmen were offered executive posts, but most of them rejected the offer as they did not want to shoulder the responsibilities that come with such posts. Workers also get overtime wages and job-related allowances.”
Another point of contention is the base date for the hike. The workers want it to be from 2007; the management is for 2012. An HAL board member explained: “There is no scientific basis, justification or rationale in the demand of the unions that workers be extended the same hikes in fitment and allowances that executives are drawing simply because salary revision of executives was effected from January 1, 2017, after the stipulated 10-year-period, whereas workmen have had two wage revisions of five years periodicity during the same period. The revision needs to be settled keeping in view the increases derived by the officers from their 2007 scales to the 2017 scales, while for workmen, from their 2007 scales to the 2012 scales and again from their 2012 to the 2017 scales.” But the AIHALTUCC is adamant that 2007 and 2012 were Part A and Part B of the 2007 wage revision and hence 2007, not 2012, should be the base year for any calculations.
Chandrasekhar, who is prepared to lead the strike “for a period of three months if need be”, said: “The management is misleading the people and the government. It is not two wage agreements but two parts, Part A and Part B, of the same agreement. The management’s stand has led to discontent among the labour force. Also, there are too many executives.”
Office-bearers of the AIHALTUCC aver that HAL is the only organisation where there is one general manager for every 252 employees, one assistant general manager for every 64 employees, one deputy general manager for every 50 employees, one chief manager for every 18 employees, one senior manager for every seven employees, one manager for every 6.4 employees, one deputy manager for every 13 employees, one senior engineer for every six employees, and one engineer for every four employees. The latest strength of the HAL workforce is 19,304 workers and 9,375 officers.
Senior members of the HAL board admit that the workforce pattern is skewed, with too many executives recruited, especially during 2006-11 when HAL took it for granted that projects such as the $30-billion Indo-Russian fifth generation fighter aircraft programme (HAL had forked out $295 million for a preliminary design contract in 2010 just before negotiations went into a tailspin), the intermediate jet trainer and the 126-multi-role medium combat aircraft would fructify.
But the directors feel the unions’ demand for higher wages was “unreasonable”. A senior member of the board said that given the precarious condition that the company found itself in and the uncertain business scenario, with HAL “no longer having a monopoly on the aerospace sector”, the demands of the unions were unviable and untenable.
Said V.M. Chamola, Director, Human Resources: “We are negotiating for more orders, but to do so we need to be competitive. We have to be very prudent in labour costs.”
Ananthakrishnan explained: “The intermediate wage revision (2012) is not being captured by the labour unions. Call it Part A or Part B or whatever you like, ultimately it is cash received by employees, gross salary has gone up, and crucially, it is cash outflow for the company. The unions should also keep in mind the fact that there is a sea change between the scenario in 2007 and what is prevalent today. Today, the customer (the armed forces) is cost conscious. No more can HAL bank on the time-tested ‘cost plus basis’ model. The customer insists on target pricing. HAL is trying to (re)establish itself in this changed scenario. We are also answerable to many stakeholders not just the employees.” He did not mince words when he said that labour costs in HAL were “a cause for serious concern”.
According to the Director, Finance, and other sources in the company, labour costs in HAL total 24 per cent of the company’s revenues, way above the industrial average of between 16 and 17 per cent. The proposed hikes would further push the DPSE’s wage bill by around 16 to 17 per cent. Ananthakrishnan said that HAL was hoping to bring down labour costs to below 20 per cent of its revenues.
Union leaders, however, contend that the HAL board had been talking with a forked tongue when it came to the company’s financial condition and prospects. One worker lamented: “When we ask for a hike, the management says the company is going through a rough phase. But at the shareholders meet in September, the Chairman and Managing Director, R. Madhavan, boasted that a number of orders were in the pipeline and the future of HAL was rosy. Why this doublespeak? The union has suggested ways to reduce costs—by curbing the indiscriminate use of vehicles by the senior management, reducing the grossly unjustified furniture allowance and minimising flying in business class.”
One director said: “For salaries to go up, sales have to go up. On the contrary, the number of platforms we had has been reduced drastically. The government is not prepared to give projects just like that. We have to be competitive.”
Government interventions have not helped HAL. It had over Rs.20,000 crore in cash reserves in 2011 and Rs.17,671 crore in cash reserves in 2015. The figure dipped to Rs.700 crore in the third quarter of 2017-18, forcing HAL to borrow (for only the second time in its history, the last being in 1990 before securing the Su-30 order) to pay salaries.
Dividends and equity buy-backs
Successive governments, between 2003-04 and 2017-18, forced HAL to give out Rs.8,996 crore in dividends; more than 50 per cent of this amount was paid during the previous term of the Bharatiya Janata Party-led National Democratic Alliance dispensation. In the 10-year period between 2003-04 and 2012-13, HAL paid the government Rs.4,366 crore as dividend. But in the subsequent five years (2013-14 to 2017-18), Rs.4,630 crore was distributed as dividend. In 2015-16, in a first in HAL’s history, the Narendra Modi government ordered it to participate in an “equity buy-back scheme” forcing the DPSE to transfer in two tranches Rs.6,393 crore to the government while buying back its own shares. The two buy-backs coming within three years of each other—Rs.5,265 crore in 2015-16 and Rs.1,128 crore in 2017-18—financially singed HAL.
Over the past six years, HAL has coughed up dividends and taxes worth Rs.5,293 crore—Rs.1,041 crore in 2013-14, Rs.576 crore in 2014-15, Rs.755 crore in 2015-16, Rs.963 crore in 2016-17, Rs.1,295 crore in 2017-18 and Rs.662 crore in 2018-19. In the past six years, HAL has paid the Modi government Rs.11,686 crore by way of dividends, taxes and equity buy-back.
HAL’s primary customer, the Indian Air Force (IAF), still owes it around Rs.20,000 crore for aircraft delivered and overhauled. The simple truth is that the company is going through a turbulent phase. Its order book position stands at Rs.58,000 crore. For a company of its size, it is an amount that will hardly provide its workforce work for even three years. The long-running build under licence programme of the twin-seater, multi-role, long-range Su-30MKI at its Nashik plant will end this year. So too will the order for 73 Dhruv advanced light helicopters (ALHs). HAL is keenly looking to quickly sew up orders for 83 Tejas light combat aircraft in the Mk1A configuration and 15 light combat helicopters (LCHs), which together total around Rs.30,000 crore. Other projects, such as those relating to the five LCHs, are either in the request for proposal (RFP) or acceptance of necessity (AoN) stage. Projects in the RFP or AoN stage could take years to materialise and may never fructify.
While the HAL management is of the opinion that the disruptions on account of the strike will be made good over a period of time, the AIHALTUCC believes that it will cause serious disruptions. Basing his estimates on last year’s financial results, Chandrasekhar said that HAL was looking at a loss of Rs.53 crore a day and that the damage would lead to delivery delays, forcing the company to pay liquidity damages to customers.
While union leaders voiced their concerns, many workers told Frontline that the fact that the union leaders were seen hobnobbing with former Congress president Rahul Gandhi—who addressed a section of HAL workmen in Bengaluru in October 2018 when the Rafale controversy was at its height—may be hurting the company. Also, Chandrasekhar, who chiefly campaigned on wresting from the management “a wage increase that would be equal to what executives got” and led his “Hammer” faction to victory in the last union elections, may have bitten off more than he could chew. Said an employee: “He has no room for manoeuvre now.”
Industry watchers averred that the ongoing strike would only serve to strengthen the opinion in many influential quarters, not least the armed forces, that the DPSE was incapable of delivering in time, on contracted cost, and with quality. It would also strengthen the government’s keenness to dismantle the public sector, they remarked.
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