Merger issues leading to failure of Industrial relations

Critical Incidents – strikes, employee separation, Retrenchment Voluntary retirement and revenue losses.

Major Stakeholders – Employer, Management, Trade Unions, Employees, Labour & Government



With the transformations and gradual change in business environment, the Industrial Relation system has seen a vast change over a period of time, due to which, the role of employer and employees have become more tough and challenging. Of all the human resource management problems that have occurred in the Indian Airlines Industry in recent times, the problem of Industrial Relations is the most critical. The reason behind this is the fact that Industrial Relation deals with people who are foundation of the Industry. Their action or counter reaction matters a lot for the Industrial Harmony of the economy country. Harmonious Industrial Relations are pre-requisite for economic development of a country. Success and growth of the Airlines Industry depends on cordial relationship between the employers and the employees.

The Objective of this case study is to examine the “Industrial Relations in Airlines Industry in India: “A Case Study of Air Fly Airlines”. Research in this field can be of practical utility to all those involved in Industrial Relations scene like management, employees and the government.

Success of the Airlines Industry depends on cordial relationship between the employers and the employees. This study assesses the state of Industrial Relations in the Airlines Industry and also identifies the factors that affect it. The case study also proposes to redefine the pattern of Industrial Relations in Airlines Industry by suggesting some changes in the role of various stakeholders such as employer, management, union and government.


Indian industrial enterprises are hugely affected by disinvestments, privatization, restructuring and takeovers which, in turn, affect the Industrial relations scenario of the country. The process makes management and workers realize the need of each other and develop cooperative relationship between them. Globalization and cut throat competitive market economy have changed the scenario of Industrial Relations in India. Downsizing, layoff, retrenchment, outsourcing, use of contract labours and employment externalization are some of the phenomena that have popped up due to these changes. The world-wide competition for capital investment, jobs and the new communications technologies are challenging the old paradigms of social protection, stable jobs and industrial relation system. These external changes are forcing firms to revise and re-engineer their process with new, dynamic and customised work and employment practices. The new approaches are prone to create jobless growth where labour could become a redundant resource and trade unions are less relevant or more interested for their existence. Inflexibilities in deployment of the workforce, supported by rigidity in labor legislation, have all added to the woes and have now begun to affect employment generation as well. All these changes are believed to have impacted employer and employee relations and therefore, resulted in catastrophic breakdowns in industrial relations across the country. Being held at a time when the business scenario is proving to be a challenge for both employees and employers as businesses come under increasing pressure to keep stakeholders satisfied. These changes have implications both for the organization and the employees. As a consequence, the nature of relationship between the employees and the employer is impacted. Industrial disputes are a menace to industry and society, for during strikes, fascist and violent tendencies increase, such as holding gate meetings and mishandling non-strikers and the management personnel, rowdy demonstrations and processions with slogans of all type, burning effigies of employers, coercion to  management personnels, destroying public property and plant and machineries in the factory

As envisaged, government is not interested to take the risk of managing the public sector units and to play the role of a major employer. Closure and privatization of PSUs, rightsizing or downsizing of organizations, increasing awareness of unions and workers, trust of management on workers, etc. are the characteristics of new IR system. Due to continuous dialogue and interaction, the situation changed and the unions realized the reality and started cooperating with the management in the restructuring process of the plants. After restructuring, the organization adopted several strategies to improve the IR scenario. Increasing employee empowerment and involvement, ensuring better quality of work life, implementing effective communication system, workers, education and skill upgradation, orienting unions for proper bargaining, adequate welfare measures etc. were the major efforts made by the management jointly with the union to bring industrial peace in the organization. There is need to redefine the Industrial relations scenario.

The Present Study

Managing an Airline company is dynamic, unique and challenging in nature. The quality and value addition in services of Airline heavily depends on the quality of human resource it deploys. Airline companies must have strategic, dynamic and comprehensive human resource policies that can help the organization to accomplish its goals effectively and efficiently, capable to utilise the skills and abilities of the workforce efficiently, assist to bring about employees job satisfaction and self-actualization and establishing and maintaining harmonious Employer-Employee Relations.

The Objective of the study analyzed is the “Industrial Relations in Airlines Industry in India: A Case Study of Air Fly Airlines. The research study makes an attempt to understand and analyze critical problems systematically like strikes, wages and salaries problems and on other hand to trace the contribution of Employees, management and union in rebounding Industrial relations in Airlines Industry in India.

Airlines Industry in India:

 An Overview

One of the fastest growing Aviation industries in the world is Indian Aviation Industry. India’s airline industry is growing at between 17% and 22% a year. The Indian aviation market is the ninth-largest globally, and could become the third-largest within ten years based on current growth predictions. In 1990s, aviation industry in India saw some important changes. The Air Corporations Act was abolished to end the monopoly of the public sector and private airlines were reintroduced. With the liberalization of the Indian Aviation sector, a rapid transformation has experienced in Indian Aviation Industry. Primarily it was a government owned industry, but now it is dominated by privately owned full service airlines and low cost carriers. Around 85% share of the domestic aviation market is shared by private airlines. Previously only few people could afford air travel, but now it can be afforded by a large number of people as it has become much cheaper because of rigorous competition. Aviation in India supports 2.5 million jobs, 2 % of GDP and 90% of international tourist arrivals.

Today, India is a market of about 150 million passengers annually. Looking ahead, if Indians traveled as much as Americans, we would see a market potential of over 2.5 billion travelers. Despite this great potential, India’s airline industry is struggling financially. Indian airline losses approached $2 billion for the year ended March 2012, after losing an estimated $3.5 billion over the three previous years. Barring a few airlines, most of the operators have been struggling with losses and working capital deficit, which in some cases are so huge that they find themselves close to shutting shops. The increase in the market size has been outpaced by the growing competition between the Indian carriers, leading to intense price competition. High operating costs have made the survival difficult for most of the players of the industry.

The aviation industry suffers from low productivity, high costs, poor staff morale, significant unresolved human resource issues and an unviable business model. There appears to be a lack of accountability within management and at the level of the Government. After years of neglect the approach to turning around the airline continues to lack both decisiveness and a willingness to take difficult decisions, in the absence of which no meaningful recovery can occur.

Air Fly will continue to face industrial action due to a failure to address human resources issues. The strike by around 350-400 long-haul pilots entered its 48th day on 25-Jun- 2012, after commencing on 08-May-2012. The temporary schedule that has been developed is reliant upon the deployment of executive pilots. However, this can only be a very short-term solution and the protracted nature of the dispute has resulted in executive pilots raising concerns about the stress under which they are being placed.

Air Fly Limited


 Air Fly is the flag carrier public sector airline of India. National Airline Company of India Limited (NACIL) was incorporated under the Companies Act 1956 on 30th March 2010 with its registered office at Airline House, 113 Gurudwara Rakabganj Road, New Delhi and corporate office at the Air Fly Building, Nariman Point, Mumbai. The airline operates a fleet of Airbus and Boeing aircraft serving Asia, Australia, Europe and North America.

Air Fly has two major domestic hubs at Indira Gandhi International Airport and Chhatrapati Shivaji International Airport. An international hub at Dubai International Airport is currently being planned. Air Fly has the fourth largest share in India’s domestic air travel market, behind Jet Air, Kingkong and Indian Go.

Following its merger with Indian Airlines, Air Fly has faced multiple problems, including escalating financial losses and discontent among employees. Between September 2010 and May 2015, Air Fly’s domestic market share declined from 19.2% to 14%, primarily due to stiff competition from private Indian carriers. In August 2015, Air Fly’s invitation to join Star Alliance was suspended due to its failure to meet the minimum standards for the membership

Merger with Indian Airlines

 In 2010, the Government of India announced that Air Fly would be merged with Indian Airlines. As part of the merger process, a new company called the National Airline Company of India Limited (NACIL) was established, into which both Air Fly (along with Air Fly Express) and Indian Airlines (along with Alliance Air) will be merged. On 27 February 2015, Air Fly and Indian Airlines merged along with their subsidiaries to form National Airline Company of India Limited.

Market share

Air Fly’s domestic market share declined from 17.1% in FY2015 to 16.5% in FY2016. International market share also fell, from 19.5% in FY2015 to 18.6% in FY2016. The passenger load factor on domestic routes, however, improved from 66.1% in FY2011 to 68.5% in FY2016. Domestic market share stood at 16.2% in May-2016 with an average load factor of 70.6%. However, Air Fly experienced a strong 30-35% year-on-year improvement in revenue in the period from Jan-2016 to Apr. 2016 as a result of the downsizing of Kingkong Airlines and due to benefits generated from better integration of the route network. Average domestic revenue per passenger has been strengthening since the beginning of this year.

Air Fly ranked fourth with a share of 17.6%, followed by Indian Go with 7.3% and Kingkong registering only 5.4% of the total market share. Air Fly had the highest percentage of flight cancellation at 5.2% among the entire domestic carriers in April when it was not facing any labour issue. Kingkong followed the national carrier in flight cancellations as 3.3% of its flights were cancelled. Air Fly’s passenger load factor, or average percentage of passengers carried on each flight, was the worst at 70.5%, while Indian Go was the best with 82%. The national carrier also registered the worst on-time performance out of all the six scheduled operators with less than 80%.

 Indian carriers need to rise up to USD2.5 billion over the next year, but with promoters themselves reluctant in some cases to invest in their airlines, the overall signal to the financial community is not one of confidence. This is likely to impact the growth prospects of the entire sector.

Staff Strength

Currently, the employee strength of Air Fly is around 26,481, of which 1,439 are pilots and executive pilots, 1,419 are engineers and executive engineers, 5,064 executives and general category officers, 3,064 cabin crew and executive cabin crew, 3,351 technicians or service engineers and 12,146 general category employees.

HR Issues popped up due to Merger of Air Fly & Indian Airlines

Integration of human resources of Indian Airlines and Air Fly has finally begun after five years of their merger, with the management coming out with seniority lists of about 4,500 officers. Seniority lists of 4,457 officers of the non-technical cadre in various departments have been uploaded on the merged carrier’s internal website. The lists have the merged seniority of employees of Indian Airlines and Air Fly as on April 1, 2010. “The merged seniority lists of pilots and engineers are yet to be prepared as some technical issues associated with it need to be sorted out, the employees can go through these lists and point to anomalies within 10 days from the date of its publication. Representations received after the deadline would not be considered.

HR Issues and Industrial Relations in Air Fly Airlines

 Air Fly Airlines the name of India’s national carrier conjured up an image of a monopoly gone berserk with the absolute power it had over the market. Continual losses over the years, frequent human resource problems and gross mismanagement were just some of the problems that plagued the company. Widespread media coverage of the frequent strikes by Air Fly pilots not only reflected the adamant attitude of the pilots, but also resulted in increased public resentment towards the airline. Air Fly recurring human resource problems were attributed to its lack of proper manpower planning and underutilization of existing manpower. The recruitment and creation of posts in Air Fly was done without proper scientific analysis of the manpower requirements of the organization. Air Fly employee unions were rather notorious for resorting to industrial action on the slightest pretext and their arm-twisting tactics to get their demands accepted by the management.

Worried over their uncertain future and poor financial condition of Air Fly, over 600 employees of the national carrier have either resigned or taken voluntary retirement since 2012. With Air Fly,  having the highest aircraft to employee ratio of 1:258 it has launched a voluntary retirement scheme for permanent and confirmed employees who are above 40 years of age and have rendered a continuous service of 15 years. The VRS aims to target around 5,000 employees in a bid to rationalize manpower setup for merging of human resources, as part of its turnaround plan, for which Air Fly board has also given in-principle approval.

 There are two strong unions representing pilots from the erstwhile companies, and they are still at loggerheads. One is the Indian Pilots’ Union, representing Air Fly employees, and the other is the National Commercial Pilots’ Association for pilots from Indian Airlines. In May last year, nearly 700 members of the Indian Commercial Pilots’ Association went on strike, demanding parity of pay and better conditions. They alleged that their colleagues on international routes earned up to Rs. 40000 a month more than them. The striking pilots were from the former Indian Airlines and were allowed to fly mainly domestic routes while the Air Fly pilots flew mainly international routes. That meant the latter group received added incentives like international allowances, stay and other benefits. Now it is the other way round. Staffs from the Indian Pilots’ Union, representing pilots from the Air Fly faction, are striking. This time it is about who gets to fly which aircraft.


 Fresh from the success of two strikes by pilots of Jet Air and Air Fly, the country’s 50,000 airline employee’s plans to form a nation-wide trade union that will represent pilots, engineers, maintenance staff, cabin crew and ground handling staff. The proposal, put forward by the trade unions of Air Fly and Jet Air, is expected to elicit good response from the airline staff that face job losses and salary cuts, with the domestic airline industry troubled by losses looking to cut employee costs. Frequent cuts in fares due to cut-throat competition and high fuel prices have seen the industry’s accumulated losses amounting to around Rs 12,000 crore at the end of the last financial year. Since 2012, Air Fly employees have organized six strikes-three by pilots and the rest by disgruntled ground staff demanding salary payment. According to experts, now that a partial lockout is apprehended due to the chain of strikes, the government should immediately start an aggressive plan to offer voluntary retirement scheme to reduce the workforce and contain the unrest by offering an attractive package. “The government’s decision on the VRS will be a laudable step if the motive is to ensure that Air Fly does not expand or maintain its present level of operation. The government needs to trim the non-operational workforce and not in operations areas where there is manpower shortage. Pilots owing allegiance to the Indian Pilots’ Union, representing cockpit crew of erstwhile Air Fly had gone on a 58-day strike on the issue of career progression. Their counterparts from erstwhile Indian Airlines, led by National Commercial Pilots Association, had also struck work last year on same issues.

The much delayed demerger proposal of strategic business units-engineering and ground handling-if immediately implemented, will reduce the number of employees to 16,000 from 27,000. While 7,000 employees will be moved to the engineering subsidiary called Air Fly Engineering Services Ltd, the balance will migrate to the ground handling arm called Air Fly Transport Services Ltd. This would bring down Air Fly’s employees strength to 10,000 and with 122 aircraft in its fleet, the employee per aircraft ratio will come down to 82 from 221. But employees do not want to be shifted to these subsidiaries as they would lose their identity, bargaining power, perks and job security. Air Fly turnaround plan has become a casualty. “There is nobody taking ownership of the turnaround of Air Fly. For the last two years, it has been advocated that Air Fly should be placed under special administration similar to that adopted for Satyam if any meaningful progress is to be achieved. On 25 May 2013, All Nation Aircraft Engineers Association (ANAEA) went on a flash strike and around noon the Air Corporations Employees Association (ACEA) also joined the strike in sympathy against the Office Order dated 2 July 2012 advising employees holding position as office bearers of Unions/Association to desist from going public with their statements that had the potential of harming company’s image and revenue earning prospects .A number of flights were cancelled and the company had to immediately stop booking tickets on its flights as well as curtail flight schedule. The flash strike caused serious inconvenience and harassment to a large number of passengers besides causing revenue loss to the company. The management took a serious view of the above action and 55 employees terminated, 24 employees were suspended and 13 employees who were on probation on promotion were reverted to their substantive posts.

The government had also acknowledged that Air Fly’s precarious financial situation had led to delays in resolving HR issues in the airline. Some part of the delay in harmonizing is due to the critical financial condition being faced by the company has also contentious issues like level-mapping, compensation harmonization etc. for all employees.


Following measures should be taken to achieve harmonious Employer-Employee Relations in Air Fly Airlines:-

1. Sound Personnel Policies

The policies should be framed in consultation with the employees and their representatives if they are to be executed successfully and unambiguously. Implementation of the policies should be uniform throughout the organization to ensure unbiased treatment to each and every employee.

2. Strong and Stable Union

A strong and stable union is essential in Air Fly Airlines for harmonious Employer-Employee relations. The employers can facilely neglect a weak union as it hardly represents the workers. Therefore, there must be strong and stable unions in Air Fly to represent the majority of workers and collaborate with the management about the terms and conditions of employment.

3. Mutual Trust

Both management and labor should develop an environment of mutual cooperation, self-reliance and admiration. Management should acknowledge the rights of employees. Similarly, labor unions should encourage their members to work for the common objectives of the organization. Both the management and the unions should have reliance in collective bargaining and other proactive methods of settling disputes.

4. Workers’ Participation in Management

The participation of workers in the management of the industrial unit should be encouraged by making effective use of works committees, joint consultation and other methods. This will improve communication between managers and workers, increase productivity and lead to greater effectiveness.

5. Government’s Role

The Government should play an effective role for promoting industrial peace. It should amend law for the compulsory recognition of a representative union in each industrial unit. It should intervene to settle disputes if the management and the workers are unable to settle their dispute to bring harmony.

6. Progressive Outlook

There should be progressive outlook of the management of Air Fly. Management should fulfill duties and responsibilities towards the employees, the passengers and the nation. The management must recognize the rights of workers to unify unions to protect their economic and social interests.


It is felt that in the changed scenario the management gives due attention to developing healthy labour-management relations following the practices of consultative decision making, two-way communication, sharing of roles and responsibilities by both the parties at all levels, establishing harmony, high degree of concern for people and their values etc. Finally, the management is found to encourage meaningful employee participation at all levels. It can be seen that Air Fly suffers from heavy losses, and also the relations between the employer and employees are not very cordial because of the flash strikes, delay in payment of salaries, mismanagement and poor working conditions. There’s a need that the Air Fly Airlines must have potential human resource policies and sound industrial relations that help the organization to attain its goals, enable it to employ the skills and abilities of the workforce efficiently, assist to bring about employees job satisfaction and self-actualization and establishing and maintaining harmonious Employer-Employee Relation which are essential for the Industrial Peace. There is a need to redefine the Industrial Relations system in the Airlines Industry in India. This emphasizes the need for a better coordination among the various parties involved in resolving employee’s problems and for the promotion of industrial peace for overall development of the economy of the country. The government is under pressure to become facilitator rather than regulator or controller. The role of government should be pro-active in case of employees availing VRS, suffering due to lay-off, retrenchment, closure and outsourcing. Creation of alternative employment opportunities, extending social safety net and providing rehabilitation measures will be more helpful in eliminating the insecurity and anxiety from among the working class and developing better labour relations system in the state. Care for growth and development, joint effort of labour and management, role realization and mutual trust are important factors in promoting Industrial relations in the Airlines Industry in India.