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October 24, 2000
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Interview / Capt SP Varma & Capt KR Singh

'Pilots are not unnerved that corporates like the Tatas are also bidding for Air-India'

Part I: 'It's absolutely easy to turn around Air-India'

You seem to be trying to invoke the nationalistic fervour to tilt the deal in your favour.

Sure. Certainly, because every country has to have a national flag carrier. Most of the countries have one. The UK has British Airways. The US has USAir. Sure, they are private enterprises. But all the same, they are national flag carriers.

So, here, even if the government has to disinvest, there are a lot of angles to look at. Even in the terms of military airlift, the airlift capability which is available in the civil aircraft is so phenomenal that it could be (foolhardy to overlook this factor).

Click for a bigger image. Prime Minister Vajpayee alights from an Air-India aircraft. Pic: Y Siva Sankar All our armed forces, specially the army, are not really along the border. They are deep into the insides of the country and, if required, they have to be moved up.

Air-India's airlift capabilities are phenomenal which others can't match. We also fly the head of state and the head of the government.

I feel other Indian bidders too, if they are successful in their bid, would retain the national flag on the aircraft. But their attitude will be quite different.

You may have read in the newspapers a few days ago that Jet Airways refused to carry sick passengers because they said it is against their image. Now what does the sick man do when he has to travel?

If we succeed in our bid, we will be humane in our approach. Hundred per cent. We will maintain the Indianness. The Indian hospitality industry is doing fairly well. As Indians, we are more hospitable than anybody else.

You have been interacting with the government in the context of your bid. What kind of response have you got so far?

Capt Singh: Divestment Minister Arun Shourie has basically said that 'you come with a business proposal and we will look into it.' We will do that now.

We have hired a business consulting firm EnVE Enterprises (Enterprise Value Enhancement India Private Limited). They are formulating the business plan.

Capt Varma: This firm is basically into assessment of tangibles and intangibles. What we are worried about is the intangible part. How are they going to be assessed? We've also hired McCann, a public relations firm.

It is said that to buy the 40 per cent of Air-India, one would require Rs 60 billion. How will you raise the money?

Capt Singh: That is all speculation. Nobody really knows what the real amount is. Till the Morgan Stanley report is out, nobody will be able to put a figure to what we are talking about. God knows what it is.

I don't know how they are going to valuate the bilateral landing agreements, human resources. The fixed assets are, fine, everybody knows the depreciated value, that the aeroplanes are 20 years old.

We presume that the net worth would be around Rs 40 billion. To that, we have added another Rs 20 billion for the sake of improving the product. At this point, that is what we presume is the requirement.

Given an opportunity to run the airline, we will request the government to defer that 40 per cent into something, because obviously the employees are doing it, so to take on such a financial burden straight on will be difficult. If they reduce it, it will be major help.

Today, we don't know what the government is talking about the ESOPs. The company is not listed today. So we don't know the value of the share. So we really don't know what they are talking about when they say they will divest ten per cent in favour of the employees. Ten per cent of what? So that's a grey area at this point in time.

But, when you talk about stockholding and divesting some equity to the public... whoever takes over the company, he has to realise that after paying off the government, there will remain a need for a phenomenal amount of fund infusion. So, is the government also going to induct some funds? If they are not, then the strategic partner will have to put in that kind of money. So his holding will automatically go up.

Capt Varma: And the government's 40 per cent will get diluted. That should happen.

It is obvious you need the support of financial institutions. When it comes to major decisions, Indian FIs are reputed to toe the government line. Given the fact that the pilots have not had the best of relations with the government, do you think this might work against your bid?

Capt Singh: I don't really think so. Whatever the past has been, we don't really want to bring it up because both sides have to tell the story of why it happened.

But I don't see the financial institutions questioning our past, because we are not talking about unionism or why and how the company is run, or what has led to the company being sold at this stage; we are talking about business. We are just putting up, together with our partner, a business proposal; if the FIs accept it, good enough, otherwise that's up to them.

You have been interacting with both Indian and foreign financial institutions. Any interesting observations?

Capt Singh: Yes. The foreigners seem to be a little more open to what we are talking about.

I don't think this kind of a proposal has ever been put up in the Indian market.

Abroad, especially in the US, people are familiar with this kind of proposals. There are companies run by professionals who deal in employee buyouts. It's not a new subject to them.

I would not say the response of Indian financial institutions has been lukewarm. But the foreign FIs seem to understand better what we are talking about.

Big Indian corporates like Reliance and the Tatas and some famous foreign airlines are reportedly eyeing the same stake you are looking at. Does this unnerve you in any way?

Capt Singh: Not at all.

Capt Varma: Why should such names unnerve us?

I mean, they have a long business record. They are also known for their lobbying skills.

Capt Singh: We also have a record. Air-India has a record of 40 years of profit. There were times when pilots ran the company. When those pilots such as Captain Mathur were at the helm, the airline made profits.

Capt Varma: Take Indian Airlines. Air Chief Marshal P C Roy turned around that airline.

Capt Singh: As for lobbying, well, you seem to imply that since pilots have had fights with the government, they are anti-establishment, so can't lobby. I think that's a very wrong impression being projected by the media.

At no stage were Air-India employees anti-establishment. If you recall, as and when some unions threatened to go on a strike, it was not done overnight.

Strikes happened because the CEO at that point in time or his entire team, refused to follow up on the bilateral agreements signed by them. They have, at all stages, pushed the unions to take drastic action, to conceal their own misdoings.

So it is not really that the employees of the company are anti-establishment or that they don't want the company to run smoothly. The employees also know that if the airline prospers, they prosper too. They are very aware of that. What can you do if you have a management like this?

In fact, I think, the management last year spent some Rs1.10 billion, no less, on litigation! The figure is so phenomenal that it might be the highest for any airline in the world -- the legal expenses in one year.

Capt Varma: Legal expenses are only an example. There are other things that illustrate mismanagement: the Caribjet deal. Caribjet filed a case in Europe. A whole team of Lalit Bhasin and Company was flown by Air-India at the airline's expense from India to the UK. They were put up in London at the crew's hotel and the hotel expenses were shown as if they were part of the operating crew's expenses!

Everyone is talking about that Rs 1.30 billion out-of-court settlement. Air-India has spent much more than that. The first class travel up and down, their stay in London, all the facilities provided to them in London. It was not a question of one or two persons going to London. The whole bunch of associates used to go. Who bore their expenditure? The company. All this is not reflected in the Rs 1.30 billion out-of-court settlement.

You have said that there won't be any retrenchments if the guild succeeds in taking over Air-India. But then, it is widely accepted that the company has excess workforce, that it needs to right-size itself.

Does 'excess staff' make Air-India flabby? (Both of them smile at each other)

Capt Singh: Aah! See the overstaffing basically was totally unavoidable by the airline because at so many stages, the government forced the company to take in many employees, like contract labour, good staff. All that added up to the increase in employees.

Secondly, there was a plan, I think the Kelkar Commission, that by the end of the 20th century, Air-India was supposed to have 54 aeroplanes. In reality, the number of aircraft has come down from 29 to 23! All this adds up to the aircraft-employee ratio. It is high, no doubt.

Capt Varma: Why is it one of the highest? It is basically because everything is done in-house. All other airlines outsource their needs. If you buy ten more aircraft, the ratio of 1:750 will come down. If we had 54 aircraft by now, the ratio would have been reasonable.

Air-India's pilots have a record of holding the company to ransom, so to say, in terms of striking work at will on allegedly ridiculous grounds.

Capt Singh: Unfortunately, this issue has been blown out of proportion by the media. We also, like anybody else, have to work under a certain set of rules which are framed by the government and which are agreed upon by the management bilaterally.

So, as workers, you work within the framework of these rules and by doing so, the travelling public might get inconvenienced. There are so many reasons which are just beyond us.

We don't really want to walk off an aeroplane. Why should we do that? That's our job (flying aeroplanes). But sometimes things happen because the aeroplane is not available, because of the engineering problems, traffic problems, weather.

There was an infamous incident reported by the media as one where a pilot refused to fly the aircraft at the last minute because his relatives were not given air-tickets ahead of passengers. In that incident, the pilot did not even know a single person who was in question.

Secondly, these people were accommodated on the crew seats. Not on the regular fare-paying seats. And it was the traffic people who created all this disruption. But the pilot was blamed.

Unfortunately, it is because of the position that we are in that the entire blame is thrown on to us.

When you first announced that the guild will seek to take over Air-India, some people said, 'Ha, how can these uncaring, greedy pilots make Air-India customer-oriented?'

Capt Singh: Yes, because, like I said, everybody just sort of puts all the blame on us. Right or wrong, unfortunately, the media does not always publish both sides of the story when it happens.

Secondly, like I said earlier, we are now not talking about anything but a business proposal. And if there's going to be a business proposal, if the employees are going to put their money into it, they are going to make sure that the airline is turned around and becomes prosperous again.

Even after the divestment, the government will retain a 40 per cent stake. It may even be the single largest stake-holder.

Capt Singh: It doesn't really mean anything. We feel that the government retaining 40 per cent is probably to see how much that stake will increase in value over a period of time and to ensure that the legalities are retained within the airline.

But otherwise, I think there is going to be a shareholders' agreement, between the government and whoever takes over, on the kind of role that the government is going to play. Because somebody pumping in this kind of money will not want any interference from external sources.

So, that will be taken care of by the shareholders' agreement. That's what we have been told is legally possible.

Do you think the government should privatise Air-India fully?

Capt Singh: At this point in time, I don't see why there is any requirement to do that. The government can maintain a 40 percent stake, leave the management to somebody else, so that their 40 per cent keeps growing in value.

Part III: 'We can make Air-India profitable in two years'



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