A couple of days back, Lee Kuan Yew, Singapore's first prime minister, who still holds the influential position of senior minister, hauled the management and unions of Singapore Airlines into a meeting to tell them that the company must outsource its basic services and divest key units within the next six to 18 months.

Lee also warned that there could be job losses in the restructuring process and stressed that the government intended to protect the hub status of the Changi airport over preserving the assets of the airline.

Lee's prescription to turn around Singapore Airlines is no rocket science. This is precisely what Air-India and Indian Airlines brass has been telling their owners -- the government -- for many years now, but with little success.

According to Indian Airlines estimates, it will be able to do away with around 7,050 employees, resulting in an annual staff cost reduction of Rs 200 crore (Rs 2 billion)  if the non-core activities are contracted out. As a result, the cost of emoluments as percentage of operating expenses will drop to 20.63 per cent from 25.81 per cent in 2001-02.

HR consultants say that Air-India has about 6,000 people whose job can easily be outsourced. At an average annual salary of around Rs 300,000, the airline can save around Rs 180 crore (Rs 1.8 billion). But the limited outsourcing that has been allowed in both the airlines is small change compared to the ground that has been left uncovered, the consultants say.

There are examples galore of such warped priorities. Consider, for example, the productivity-linked incentive scheme introduced by Indian Airlines in the 1990s.

The irony is that the incentive, which inflated the annual wage bill by over Rs 200 crore, was never linked to productivity from the start. For proof, read the Comptroller and Auditor General's report on the airline's wage policy. Amazingly, the total payment of Rs 1,449 crore (Rs 14.49 billion) under the PLI during April 1998 to March 2003 exceeded the airline's losses of Rs 586 crore (Rs 5.86 billion) during the same period.

Also, the entire incentive policy seems to have been designed to meet the airline's pay-more-for-less policy. By definition, incentive should be motivation for the employees to perform better. Strangely, Indian Airlines pegged the base of the incentive below the average performance level.

For example, for on-time performance, the base performance level for payment under the PLI was fixed at 60 per cent compared to the 65.92 per cent average performance level prior to the scheme. Similarly, for average annual flying hours per aircraft, the performance level under the PLI was fixed at 2,300 hours compared to 3,055 hours average performance before the scheme was introduced.

A closer look at the scheme reveals several other glaring loopholes. Conventional wisdom says any incentive plan should be linked to an increase in revenue. But Indian Airlines seems to know better.

Employees got an additional incentive of Rs 8.96 crore (Rs 89.6 million) as the average annual utilisation per aircraft showed an increase from 2,862 in 2000-01 to 3,298 in 2002-03. Nothing wrong with that, except that the number of passengers flown on an average per day declined from 20,959 to 19,323 in the same period.

Which means that though the airline did not get any revenue, the employees were richer. Indian Airlines had a strange explanation to this: the purpose was to ensure higher utilisation of aircraft and increase productivity. It had no answer to why the incentive was not linked to any increase in revenue.

The result of such short-sighted wage policy is predictable: the total employee cost of the airline increased by Rs 143.05 crore (Rs 1.43 billion) and the cost per employee by 30.83 per cent during 1998-99 to 2002-03, although the number of employees decreased by 10.93 per cent.

The scenario at Air-India is no better. The airline has 750 employees to an aircraft as against the international norm of 150. Many of the employees get salaries that are way above their educational qualifications or the kind of jobs they do.

For example, as per the airline's annual report for 2002-03, a messenger boy posted abroad gets an annual salary of Rs 36 lakh (Rs 3.6 million), and as many as 15 staffers in foreign stations getting salaries of over Rs 24 lakh (Rs 2.4 million) have studied only up to high school.

These are unreal amounts for an airline that flies to so few destinations. The situation at home is not very different. And such pampering of staff is not restricted to pay packages only.

Look at the Air-India pilots, the overpaid prima donnas, who have struck work or agitated on 43 occasions since 1974. The point is that the pilots had been allowed to get away with murder several times in the past.

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