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Tension in the air

Print edition : Nov 07, 2008 T+T-

Jet Airways attempt to retrench 1,900 employees is a signal of the bad times in the Indian civil aviation industry.

in Mumbai

THERE were no warning signs or even a hint of a rumour. On October 14, in one fell swoop, Indias leading private airline, Jet Airways, terminated the employment of 800 probationary staff. It also announced that the services of an additional 1,100 staff would be terminated in the next few days. This move sent shock waves through the company and the industry and across the country.

Two days later, following massive protests and clearly under a fair amount of political pressure, Naresh Goyal, the chairman of the airline, said he would reinstate the sacked employees and apologised for the agony they went through.

Jets attempt at retrenchment is obviously a sign of the financial trouble the airline is in; more importantly, it is a reflection of the dire situation the aviation industry in India is in today.

Soon after Jet made its dramatic announcement, state-owned carrier Air India (AI) announced that it had decided to introduce a scheme whereby 15,000 employees in non-operational areas would be given the option of going on a two-to-three-year leave without pay. This would help cut operational costs for the airline, which is incurring enormous losses. AI losses for 2007-08 were being pegged at Rs.2,144 crore, said an AI spokesperson. He, however, clarified that employees were not being laid off or forced to go on leave. In fact, their names would continue to be on the rolls. The move would give the airline a breather as its total wage bill amounts to Rs.6,500 crore.

It is believed that Goyal struck a deal with the government and was therefore able to reinstate the sacked staff. Speaking to the media, Goyal said, I cannot see tears in their eyes it is not under political pressure and I have not met anybody. It is my personal decision as the father of the family. He said he had a 19-year-old daughter and as a father could not bear to see the trauma and agony the retrenched employees were going through. Many of them are his daughters age, he said.

Some believed that the retrenchment was a consequence of the Jet Airways-Kingfisher Airlines alliance. Kingfisher Airlines, the second biggest private airline after Jet, is also, according to industry reports, facing massive financial problems. Goyal, however, dismissed speculation that the alliance was responsible for the retrenchment. He said the tie-up was for operational convenience, and not for financial reasons. Both Jet and Kingfisher lose between Rs.2 crore and Rs.3 crore every day mainly on account of the hike in aviation turbine fuel price. Industry analysts speculate that Jets net losses amount to Rs.700 crore.

Goyal, we all know, is much smarter than he lets up. Is it just a coincidence that Kingfisher and Jet announce their tie-up and then this (retrenchment) announcement is made? said an analyst. Both are in big financial trouble and the alliance was inevitable. When a merger takes place, there is excess staff and jobs have to be axed. It is a universal phenomenon.

Goyal and Vijay Mallya, chairman of Kingfisher, are veterans in business and know exactly how to play the game. This was pure emotional blackmail, said Vinod Shetty, a lawyer and labour activist in Mumbai. Jet and Kingfisher together owe the public sector oil companies upwards of Rs.2,000 crore as fuel tariff. The mass sacking was therefore a ploy to get a reaction from the government and ease the financial pressure on them.

According to Shetty, Jet, Kingfisher and other private airlines have been singularly responsible for killing Indian Airlines and Air India. Now when they are in trouble, they are asking the government to bail them out. And on whose money will they be bailed out? Us tax payers, said Shetty. They were clever enough to sack probationary staff, as there is little legal recourse for these employees. But technically the company should have served notices to them, he said.

Justifying its action, Jet Airways chief executive officer Wolfgang Prock Schauer said: The aviation industry in India, a $6 billion turnover industry, is expected to lose $2 billion in 2008-09. The economic viability of the industry has been severely affected by the record-high fuel prices and, more recently, by the crisis in the financial markets globally and the downturn in traffic.

He added: Jet Airways expects these difficult market conditions to continue for some time. Jet has been watching the situation for some time in the hope that it may turn around, but has now reached a stage at which some hard decisions are inevitable. As a consequence, personnel hired for the expansion, probationers and unconfirmed personnel, will have to be released.

Most of the 800 released were cabin crew. Their ages ranged from 18 to 23. Led by some senior staff, around 300 of them protested angrily for two days outside the Jet Airways headquarters in Mumbai.

A delegation of the sacked staff, which went to ask Maharashtra Navnirman Sena leader Raj Thackeray for help to get them reinstated, came back hopeful. The younger Thackeray assured them of his support and threatened that he would not allow Jet Airways to fly in Maharashtra if they did not reinstate the sacked staff.

We believed that a career in the airline service industry is very lucrative. Many of us did not pursue college degrees because we applied for jobs in airlines and got selected. We come from small towns and this kind of money and glamorous lifestyle is very enticing, said Rahul Patel, 22, a purser, who joined Jet six months ago and who was handed a pink slip.

Those sacked had many tales of woes and commitments to narrate of steep house rent deposits paid for a year, of marriages in the offing, of repaying loans taken for training at flying academies, and so on. How were we to honour these financial commitments? they shouted during the protest. Entry-level staff are paid around Rs.33,000 a month, including flying allowance. Rahul Patel said that because the retrenched employees needed the money badly, they were willing to work for the basic pay of Rs.10,000.

These are youngsters who come to cities like Mumbai and Delhi with dreams and aspirations. This is their first job. The tragedy of this action is that Jet has dashed their hopes. The airline could have done it in a better manner. It is unfair not to give them some warning, said a permanent cabin crewmember who took part in the protest.

Workers unions from all parties came out in protest and said the sacking was illegal and unjustified. Smelling a good controversy, politicians jumped in. Union Labour Minister Oscar Fernandes called for a report on the retrenchment while Union Petroleum Minister Murli Deora said that though Jet had to do something about its bad debt to fuel companies, this move so close to Diwali was bad timing.

Civil Aviation Minister Praful Patel initially said that human resource issues within a private airline were not the Ministrys responsibility. He later backtracked and said that he would hold discussions with Jet to ease the financial tension on the airline and thus protect jobs.

The aviation industry in India appears to go through these spectacular boom-or-bust phases. Until 1994, India allowed only Indian Airlines and Air India to operate. As part of the liberalisation process, it opened its skies to private airlines. Half a dozen airlines started that year and the industry seemed set to ascend. But only Jet and Sahara Airlines survived. For almost eight years, the industry seemed stagnant with Jet and Sahara handling the traffic alongside the national carriers.

The entry of budget airlines in 2003 marked the next boom. Tickets could be bought for as low as Rs.500 and this allowed the huge middle-class segment to travel by air, thus increasing traffic manifold.

Last year, Jet announced major expansion plans. It had embarked on at least three international routes. Kingfisher also made a grand announcement, at the Paris air show in June 2007, by purchasing 50 aircraft. Additionally, it bought the struggling operator Air Deccan and branded it as its low-cost carrier. Other airlines, particularly the budget airlines, sold tickets at throwaway prices. Even the national carriers, which could not really compete with the private operators, announced expansion and modernisation plans.

The Indian aviation sector was touted as the fastest-growing in the world. According to the Ministry of Civil Aviation, the airline business in India is growing at 27 per cent a year. Between May 2007 and May 2008, airlines carried 25.5 million domestic and 22.4 million international passengers. Air passenger traffic in India had grown by a staggering 40 per cent in fiscal 2007 and 27 per cent in 2008.

Then oil prices skyrocketed. In mid-2008, the industry started spiralling downwards. Jet stopped flying on certain routes. Kingfisher deferred delivery of some of the aircraft it had ordered. Airfares are at an all-time high even with budget airlines. Every airline is deep in debt with the oil companies.

Aviation turbine fuel (ATF) is the one big operating cost that is hitting the domestic aviation industry hard. Whatever an airline does to reduce and control costs, the rising price of ATF upsets all plans. The cost of ATF has doubled from Rs.35 a litre 18 months ago to Rs.70 a litre today. According to an industry analyst, an aircraft consumes about 3,000 litres of ATF for every hour of flying. At Rs.70 a litre, this works out to Rs.2.10 lakh an hour. It is becoming increasingly difficult to sell tickets cheap and meet this cost, he said. In the medium term, the profitability of the sector depends critically on the movement of ATF prices.

Carriers are now struggling to raise funds because of overcapacity, higher fuel prices and slowing demand. According to Kapil Kaul of the Centre for Asia-Pacific Aviation, private banks are refusing to lend money to unprofitable carriers. With the economic slowdown, lenders are worried about getting their money back. The future of the airline industry the world over looks bleak.