Each Air India strategic business unit must be a profit centre: NACIL
22 September 2007
National Aviation Co. of India Ltd (NACIL), the new company created from merging state-owned airlines Air India and Indian Airlines, has said its divisions will have to pay for the services other divisions provide to them. For example, the cargo division will have to pay for the services provided by the ground-services division. Termed as transfer pricing, the move is aimed at making all divisions into profit centres.
Transfer pricing will make the conventional department system in Air India and Indian Airlines redundant. NACIL will now have a linear organisation structure based on its different operations. Consulting firm Accenture is advising NACIL on the new structure.
There are six business divisions, dubbed as strategic business units or SBUs. They include the low-cost carrier, cargo, maintenance and repair, ground handling, engineering, and other related businesses.
The company has set up a governance model and corporate monitoring services to make sure the SBUs deliver. A major reshuffle within the organisation has seen two executives appointed as integration specialists, one based out of Mumbai and the other from New Delhi.
NACIL is also planning to offer employee stock options (ESOPS) to its 33,550 employees. The company plans a 5 to 10 per cent stock dilution through ESOPS before its proposed initial public offering (IPO), but details are yet to be finalised.
But the airline''s employees don''t seem very enthused. "We are going to oppose the proposed IPO as it will result in privatisation of the company. Only a state-owned airline can connect far-flung areas without considering profitability, unlike private carriers," said DK Shetty, president of the Air Corporation Employees Union, which accounts for 14,000 of the 18,000 employees in the former Indian Airlines.
unions say they have lost faith in union civil aviation minister Praful Patel,
and they don''t expect justice from him in this merger process. The majority of
the employees'' demands are yet to be fulfilled by the new company. This includes
outstanding arrears of pay, they say.