The CoS, headed by Cabinet Secretary K M Chandrasekhar, has also decided to set up a committee overseen by additional secretary, expenditure, Vilasini Ramachandran, and key finance ministry officials who have been asked to work out a financial package.
To support the state-owned airline, aviation ministry officials have also formulated a new policy, making it mandatory for all central government employees to fly only Air India, a move that will guarantee assured business of around Rs 1,000 crore a year.
The CoS is also considering an extension of the order to all public sector undertakings, though this would require the clearance of all administrative ministries concerned. Ministry officials hope this will bring another Rs 500 crore of business to the airlines.
These decisions of the CoS, which was mandated by the government to prepare a rescue package for the airline, was taken at its meeting last Saturday and is expected to meet an informal annual cost-cutting target of Rs 1,000 crore that will also cover the Rs 3,000-crore wage bill.
The unions, meanwhile, say they are ready to negotiate new terms based on productivity but cannot be pulled up for the airline's Rs 5,000-crore losses.
"Our wage agreement was signed in 2004. We are ready to rework our wage agreement based on productivity if the management is transparent which they are not. If the company sells seats at cheaper price than the cost and makes losses, we cannot be pulled up for that," said Dinakar Shetty, president of the Air Corporation Employees Union (ACEU), Air India's largest union.
Shetty, however, said the unions had not yet received notice from the management for re-negotiations. Air India has unions representing pilots, technicians and engineers, cabin crew, ground staff and so on.
The new wage agreements will align the company's productivity linked incentive (PLI) scheme, which accounts for over 45 per cent of the airline's wage bill, with the government's Department of Public Enterprises (DPE) norms. Under this norm, PLI cannot be more than 50 per cent of the basic salary. It can exceed this only in exceptional cases, but subject to a limit of 5 per cent of the airline's distributed profit.
Aviation ministry officials said in many cases PLI is nearly three times the salary for employees such as technicians and there was no link between this pay-out and the airline's profitability.
For instance, technicians get a salary of around Rs 50,000 per month but income from PLI is as high as Rs 1.30 lakh a month. Even at the lowest category of employees, the PLI constitutes 20 to 30 per cent of the overall salary.
"Our effort will be to align PLI to productivity parameters, as well as profitability. Considering that the company has made major losses, there is no justification for such huge PLIs at all," said a senior ministry official.