Why Air India chief lost his job

With Arvind Jadhav, principal secretary, in the department of infrastructure development of the Karnataka government, emerging as the frontrunner in the race to replace Raghu Menon as the chairman and managing director of the state-owned National Aviation Company of India Ltd (Nacil), which runs Air India, informed sources said Menon lost the coveted job because of his opposition to the airline's proposed joint venture with Singapore Airport Terminal Services (SATS) for ground handling.

According to the joint venture agreement, Nacil will have a 51 per cent stake, while the rest will be owned by SATS. The ground handling business of Nacil and almost 6,000 employees will be transferred to the joint venture company.

Menon had also come under attack from the ministry of civil aviation for his failure to integrate Air-India and Indian Airlines smoothly, as well as his inability to improve the financials of the company and provide a business plan for the coming year.

Even while Menon was on leave till April 30 (which he has extended now), EK Bharat Bhushan, a financial advisor in the ministry, was given the additional charge of the airline on April 23. That was also the time when the ministry decided to look for Menon's successor. A list of names was sent by Cabinet Secretary KM Chandasekhar yesterday to the Appointment Committee of the Cabinet for replacing Menon.

Sources close to the deal said the Nacil brass led by Menon opposed the joint venture on three key counts. One, the ground handling business was lucrative for Nacil as it provided revenue of over Rs 1,000 crore (Rs 10 billion) and profit of around Rs 200 crore (Rs 2 billion). It should therefore not be given to SATS on a platter.

Two, Nacil would have to pay the joint venture company 20 per cent over the cost for ground handling services. As Nacil operates over 1,000 flights a week, this payment would be much more than the dividends it would get from the joint venture. And three, transferring 6,000 employees to the joint venture would make their future uncertain. 

Civil aviation bureaucrats, on their part, did not agree with these arguments. They pointed out that SATS was chosen through a transparent process and the joint venture proposal was given the go-ahead by the Union Cabinet. "SATS was a logical choice as Nacil already has a joint venture with it for ground handling in Hyderabad and Bangalore, which would now be extended throughout India," said an official. He added that Menon's fear of loss of control had been addressed as Nacil will have a 51 per cent majority stake in the joint venture.

Officials also confirmed that Menon was under scrutiny for his inability to integrate Air-India and Indian Airlines. (The two airlines were merged to form Nacil in 2007). "The integration was in very bad shape. There has been a huge delay in the integration of the information technology systems, which was important for it to become a member of the Star Alliance," said a government source. He also pointed out that even now Nacil operates two separate reservation platforms, through the common reservation system was supposed to be up and running in six months.

The sources also said that Menon even delayed Nacil's business plan that was supposed to be sent to the ministry of finance. The ministry had asked Nacil to give a detailed business plan including its future expansion plans before approving the soft loan of Rs 1,000 crore and fresh equity infusion into the company. The business plan that Nacil had given, the sources said, was unsatisfactory and a complete report has not yet been submitted.