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Lecture Notes

HR MANAGEMENT IN INTERNATIONAL AIRPORTS IN TRANSITION

Dr. Tayyab S. Shaikh*Privatization and Disinvestment in Airports

A Govt. taskforce on infrastructure has recommended scrapping of plans to privatize Delhi, Mumbai, Chennai, Bangalore and Kolkata Airports and instead recommended offering all of these Airports except Bangalore on lease to private investors for 30 years. This recommendation was to bypass the lengthy and complex legal process of earlier privatization plans, and this was to be put-up to the Cabinet for approval.

As regards Bangalore Airport, a fresh Memorandum of Understanding has been signed between the Karnataka Govt. and the Civil Aviation Ministry. The project is implemented by a JVC with Airports Authority of India and Karnataka State Industrial & Investment Development Corporation each holding 13% equity and co-promoter the rest.

The countrys first Airport to be promoted as a JVC was commissioned in Cochin in May 1999. The State Govt. and Public Sector Undertakings jointly hold 51% of the equity and private investor the remaining 49%.

Operations, Maintenance & Development Agreement (OMDA) Salient Features

With the Govt. decision, two Airports i.e. Indira Gandhi International Airport and Chatrapati Shivaji International Airport were handed over to Joint Venture Company at 00:00 hrs. of 3rd May, 2006. These Airports are now called as Delhi International Airport Pvt. Ltd. and Mumbai International Airport Pvt. Ltd.

During the period of three years from the effective date, Operations, Management and Development Agreement (OMDA) has come into being in order to facilitate smooth transition from the PSU Airports to JVC Airports. Salient features of the OMDA are as under:

The first three months period from effective date will be called as Transition Phase during which al the Airport personnel, including Airport Director, will continue to work with JVC.

Upon expiry of the Transition Phase, none of the Senior Management (employee above the level of Deputy General Manager) shall remain at the Airport. JVC shall have the right to appoint its Senior Management at the Airport. Consequently, upon such appointment by JVC, AAI shall reduce the number of its Senior Management located at these Airports.

Employees of the level of DGM and below will be called as General Employees and they will be retained at the Airport to perform such functions and undertake such duties as would be required by the JVC for rest period.

During the Operational Support Period, JVC shall pay AAI monthly Operation Support Cost as defined.

During the Operational Support Period, JVC may ask AAI to take disciplinary action against the General Employees, if necessary, as per the AAI Rules & Regulations.

RED (Western Region) for Mumbai and RED (Northern Region) for Delhi Airport will act as Disciplinary Authority for Group C & D employees, whereas for Group A & B, the concerned Member or Chairman at Headquarters will be Disciplinary Authority as per the AAI Regulations.

During the Operational Support Period, all General Employees would be governed by the existing terms of employment of AAI.

At any time but three months prior to expiry of Operational Support Period, JVC shall make offer of employment to General Employees. Such offers shall not be inferior in terms of salary, position, etc. than the current employment terms to be determined on cost to company basis.

JVC shall be required to make offers to minimum 60% of the General Employees.

The General Employees shall have the option of accepting or declining the employment offer of the JVC within one month. In case of accepting the offer and upon resigning from AAI, shall cease to be AAI employee from the date of acceptance of the offer or completion of Operational Support Period, as applicable.

In case of transfer of any employee during Operational Support Period out of the Airport, JVC shall not be liable for making payment of the monthly Operational Support Cost with respect to the said General Employee.

General Employees opting to continue employment with AAI or those not receiving offers from JVC shall continue their employment with AAI and be deployed at establishments other than these Airports.

HR Issues During Transition Period

HR issues could be perceived differently by the HR personnel of AAI and JVC. Broadly, perceptions are as under:

General Perception

Adjusting with the unwilling workers for comparatively long duration of three years.

Living with two divergent work cultures i.e. work culture of public sector and private sector.

Challenge to establish that we are better employer and better HR managers than the PSU.

The bridge not burnt syndrome.

Eventuality of mass exodus.

Preparation of second line of defense.

Attitudinal change.

Employee acceptance to changing work procedures and methods.

Appeasing vs. Appeasing employees approach.

Dual loyalty and its consequences.

Disciplinary Authority outside the purview of JVC.

JVC Perception

Establishing identity.

Explaining rationale of takeover.

Conveying in broad terms philosophy and future plans to make a difference.

Addressing concerns of employees.

Act more than talk and convey to all that company means business.

Position the top management team to the culture of old company.

Articulating behaviour required from employees for a new culture.

Constantly be in touch with the employees.

Primary Objectives of Privatization / Disinvestment

Releasing the large amount of public resources locked up in non-strategic PSE, for redeployment in areas that are much higher on the social priority, such as, health, family welfare, primary education and essential infrastructure.

Stemming further outflow of these scarce public resources for sustaining the unviable non-strategic Public Sector Enterprises.

Reducing the public debt that is threatening to assume unmanageable proportions.

Transferring the commercial risk, to which the taxpayers money linked up in the public sector is exposed to the private sector wherever the private sector is willing and able to step in the money that is deployed in the private sector enterprises is really public money and is exposed to an entirely avoidable and needless risk in most cases.

Releasing other intangible resources, such as, large manpower currently linked up in managing the private sector enterprises and their time and energy, for redeployment in high priority social sectors that are short of such resources.

Other Benefits

Disinvestment would expose the privatized companies to market discipline, thereby forcing them to become more efficient and survive or cease on their own financial and economic strength. They would be able to respond to the market forces much faster and cater to their business needs in a more professional manner. It would also facilitate in freeing the private sector enterprises from Govt. control and introduction of corporate governance in the privatized companies.

Disinvestment would result in wider distribution of wealth through offering of shares of privatized companies to small investors and employees.

Disinvestment would have a beneficial effect on the capital market. The increase in floating stock would give the market more depth and liquidity, give investors easier exit options, help in establishing more accurate benchmarks for valuation and pricing, and facilitate raising of funds by the privatized companies for their projects or expansion in future.

Opening up the public sector to appropriate private investment would increase economic activity and have an overall beneficial effect on the economy, employment and tax revenues in the medium or long term.

In many areas like the telecom sector, the end of public sector monopoly would bring relief to consumers by way of more choices and cheaper and better quality of products and services, as has already started happening.

Impediments to Privatization

Privatization is not easy even after the decision has been taken or imposed, as has happened and continues to happen in many countries and cases. In fact, the principal actors the state owned enterprises and private sector would themselves be barriers. Some of these barriers are:

The state itself.

The state owned enterprise itself.

The private enterprise itself.

Volatile and / or fluid political situation.

Opposition from interest groups.

Considerations of equity and justice.

Surplus labour and huge liabilities.

Weak capital markets.

Legal and other technical problems.

Inefficient regulatory mechanism.

PSU Shortcomings

Overstaffing.

Low work ethics.

Low capacity utilization.

Inability to innovate.

Inability to take quick and timely decisions.

Large interference in decision making process.

Over-centralization and decision making.

Excessive bureaucratization.* * * * *

* Executive Director (Personnel & Administration), Airports Authority of India, New Delhi