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| Sunil Jain: Does competition matter? | | 80% of Air India?s 31,000 staffers account for just a third of its wages |
| Sunil Jain / New Delhi Jul 13, 2009, 00:39 IST |
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Most of those who are focussed on the Rs 10,000-odd crore Air India bailout are naturally sceptical about whether it will work. Aviation Minister Praful Patel spends a lot of time talking of the 1,000 employees Air India has in its canteen and even a tailor who gets paid Rs 1.5 lakh a month ‘to repair the seats if they get torn’, but this is hardly the issue — to put it in perspective, 80 per cent of Air India’s 31,000 staffers account for just a third of its wages. So, though the canteen staff is certainly a large number, their costs cannot account for Air India’s plight. Ditto for the cleaners.
Similarly, while Patel is right that, at 205 employees per aircraft, Air India has 50-60 per cent more employees than top-notch global competitors, this isn’t strictly correct either — if Air India hives off various operations, like ground handling activities, into separate profit-making centres, the number may not be too different from other airlines (for instance, the proposed JV with Singapore Airport Terminal Services, SATS, for ground-handling will absorb 33 employees per aircraft). As compared to its 13,942 staffers in the main airline, for instance, Singapore Airlines’ SATS employs 8,300 people.
Certainly Air India’s pilots, cabin crew and technicians are far less productive than those of its competitors and, as has been pointed out, Air India has been lowering its average performance benchmarks to be able to pay them productivity bonuses, but a lot of the mess has to be laid at Praful Patel’s doors. So, while he justifies the large number of bilateral agreements he signed with other airlines in the name of bringing in more competition and getting the Indian passenger a better deal, he must have known that Air India’s market share just had to decline as other airlines were given the rights to fly more in and out of India — and when it did, what business did he have to order Rs 55,000 crore worth of more planes? Despite knowing the fate of most mergers the world over, he presided over a merger of Air India and Indian Airlines without enough controls to ensure it actually happened on the ground and, more than two years later, they don’t even have a common technology platform. The airline is buying long-haul Boeing 777s in order to offer premium non-stop flights to the US, but now plans to break journey at Frankfurt. The list goes on (see my colleague Surajeet Das Gupta’s piece, http://www.business-standard.com/358269/ for details).
But Air India’s plight is not the burden of this piece. What is disturbing is that the newly-empowered Competition Commission of India doesn’t seem to think it even has a role to play in the Air India bailout. After all, if Rs 5,000 crore, or Rs 10,000 crore, is to be given as dole to Air India, surely it will affect its competitors since Air India will not close down in the manner they will in the face of continuing losses? Given its mandate to ensure a level playing field for everyone, it is surprising the Commission hasn’t asked Air India’s management and the aviation ministry for presentations on this. Some argue there is nothing anti-competitive in the government bailing out Air India since this is tantamount to the largest shareholder putting in more equity to shore up a company — surely, they point out, Naresh Goyal putting in Rs 1,000 crore into Jet Airways cannot be seen as anti-competitive?
A powerful argument, but it’s not quite the same thing. For one, Naresh Goyal doesn’t have unlimited access to funds in the manner the government does, nor does he get it as free as the government does since it can, at will, just levy more taxes on us. By way of example, when, some years ago, the French government wanted to inject money into the ailing state-owned Alstom, the European Union’s competition commissioner never allowed this until the French whittled this down considerably and made major concessions in terms of hiving off parts of the engineering giant.
Many in the Commission will argue that their mandate does not extend to government companies, and maybe they’re right. But when government companies have a huge impact on the competition, it is the Commission’s job to intervene, indeed to test the limits of the law given government companies still account for 60 per cent of the assets, 42 per cent of sales and 50 per cent of the profits of all firms listed in CMIE’s Prowess corporate database. Otherwise, it’s time to think of winding up the Commission.
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