Air India to spin off key units, shift 18,000 staff

Air India (AI) plans to separate — operationally and financially — its ground handling and engineering units into two separate subsidiaries and transfer 18,000 employees to them from the mothership.

The ‘spinning off’, as it is called in corporate parlance, will mean AI will no longer be paying the expenses of running the two strategic business units or SBUs, as they will be called.

And since both are existing businesses that already generate money, their income will be used to meet expenses such as salaries.

The airline’s long-pending proposal to create these SBUs is yet to get the government’s nod, but once that comes, there will be a saving of almost Rs1,500 crore every year in salaries alone, or 50% of the national carrier’s annual salary bill of Rs3,000 crore.

Sources familiar with the development said AI plans to shift 7,465 employees to the engineering unit and another 10,481 to the ground handling unit. This will take Rs931 crore and Rs600 crore in salary payments, respectively, off the Air India’s books.

The formation of the SBUs will need approval from the Union Cabinet. “We are pushing and want it to happen soon,” one source said.

As per a turnaround plan of AI, which has been vetted by Deloitte Touche & Tohmatsu, the auditing firm and consultant, the airline is expecting a significant reduction in staff expenses in this financial year because of the proposed spinoff.

“The staff number is expected to increase thereafter, in line with increase in volume of operations. The wage rates are also expected to increase 4% every year based on provisions of the agreement,” Deloitte said.

Deloitte has also said that Air India’s staff cost per available seat km or ASKM (a measure of an airline’s passenger carrying capacity; its calculation is seats available x kilometres flown) is projected to decrease gradually from Rs 0.92/ASKM in 2010-11 to Rs0.32 in 2014-15.

“This would imply that Air India’s cost structure would be significantly lower than those of Kingfisher Airlines and Jet Airways over the next 5 years,” Deloitte said.

Meanwhile, Air India is also scouting a global partner for its engineering subsidiary. It already has a ground handling joint venture with Singapore Airport Terminal Services, Air India SATS Airport Services (AISATS).

Its earlier plan to shift staff to AISATS did not fructify because the subsidiary refused to take staff on existing terms and conditions but preferred to hire on contract.

AISATS operates in the Hyderabad, Bangalore and New Delhi airports. Ground handling at all other airports will be handled by the new subsidiary. It will offer services to Air India that will be 50% cheaper compared with what it will charge other airlines.

The engineering unit will also look at getting third-party business from the Rs 2,000 crore Indian maintenance repair and overhaul sector, which is expected to see fast growth in the coming years as more people fly and more planes are used.

The current engineering division only services Air India planes.