The Indian Government yesterday gave post-facto approval to the formation of following Joint Venture Companies (JVC) between the National Aviation Company of India Limited (NACIL) which is the combined Air India and Indian Airlines entity, but branded Air India now, and Singapore Airport Terminal Services (SATS). The joint venture companies are more commonly referred to AI-SATS or Air India-SATS:

For Cargo Handling at Bangalore International Airport Limited (BIAL), Bangalore with 50:50 shareholding.

The project cost is estimated to be Rs.99.10 crores. (Rs. 5 Crore ~ $1 million). The debt-equity ratio will be 50:50 and each partner's equity contribution would be Rs.30 crores in the total share capital of Rs.60 crores. The balance would be borrowed from Banks and Financial Institutions. The JVC is estimated to be profitable during its operation and expected to yield an IRR of 17% over a 15 year period.

To undertake the Ground Handling activities at Bangalore International Airport Limited (BIAL), Bangalore with 50:50 shareholding.

The 50-50 joint venture company would involve investment of around Rs.72.78 crores, out of which Rs.50 crores would be share capital and the balance raised from banks as commercial borrowings. As per estimates, it is expected to yield an IRR of 35% over a period of 10 years.

To undertake the Ground Handling activities at GMR Hyderabad International Airport (GHIAL), Hyderabad with 50:50 shareholding.

The JVC for ground handling services at GHIAL would involve investment of approximately Rs.80 crores, out of which Rs.60 crores would be share capital and the balance capital would be raised from banks as commercial borrowings. The equity share holding of AI and SATS would be in the ratio of 50:50. As per estimates, it is expected to yield an IRR of approximately 41% per annum over a period of 7 years.

(iv) To undertake Ground Handling at Mumbai, Delhi and other Indian Airports excluding Bangalore, Hyderabad and Cochin with 50:50 shareholding.

NACIL as a National Carrier had the option of either undertaking the ground handling services at all metro airports under its subsidiary company or through a Joint Venture partnership company in terms new ground handling policy. It selected SATS as its JV partner for providing comprehensive ground handling services at Indian Airports. This agreement is for all airports other than Bangalore, Hyderabad and Cochin. In the proposed JVC, both AI and SATS shall subscribe 50% of the shares each. The terms and conditions will be firmed-up after negotiations with SATS and accordingly the Memorandum Of Understanding for a particular station would be signed by the partners.

As I had indicated in my article "An air battle ..... on the ground", Government owned Air India, holds majority market share of the ground handling business at Indian Airports, since the existing agreements were signed when the airports were operated by Airport Authority of India, a government department, creating a monopoly situation.

Almost all these contracts were to cease by December 31, 2008, with the introduction of the new policy on ground handling but will now cease by January 1, 2010, due to the protests of airline companies, airline employees, and employee unions of existing ground handling companies.

SATS is considered one of the première ground and terminal handling companies in the world, and Air India would like to meet the increasingly competitive, price sensitive and demanding needs of its customers in a free market scenario. It is looking to SATS to provide the modern equipment, processes, technology and resource management tools needed to upgrade its capabilities.

In the aviation world, one hears of competition and disagreements in the skies, but in India, over the past year, an air-related battle has been steadily brewing -- on the ground.

Ground-handling is all the work on the ground relating passengers, cargo and aircraft. It involves passenger check-in, aircraft cleaning, aircraft handling, fuelling, baggage handling, cargo handling, boarding and disembarking passengers i.e. attaching the aero-bridge or ladder, etc. It does not include engineering functions, and catering.

Most passengers remain blissfully unaware of ground handling, since much of it happens out of sight, and is transparently to us, till there is a hiccup.

In India, most domestic airlines do the ground handling themselves also called "self handling", as they find it cheaper. Some foreign airlines with extensive operations to a given city, also do self-handling. Other airlines outsource the ground handling to either Air India or private companies like Cambata Aviation.

This has produced what I can best describe as an "organised zoo" at most Indian airports, especially the larger ones. As per the government, currently, more than 50 ground handling agencies, employing over 70,000 people, operate in India, which in many ways leads to chaos and congestion, especially at Mumbai and Delhi airports.

The duplication of equipment is enormous, as is the consumption of space used to store them when not in use, which is significant. The multitudes of companies and people involved, have also created a security nightmare in terms of administration.

To address these issues, in 2007, the Government of India laid down a new Ground Handling Policy (GHP). The Indian Directorate General of Civil Aviation (DGCA) issued a circular dated September 28, 2007, and the Airports Authority of India issued a notification dated October 18, 2007 — to be effective January 1, 2009 that essentially said, airlines cannot employ their own staff for ground handling, nor can they engage any outside agency at the six major airports (Mumbai, Delhi, Kolkata, Chennai, Hyderabad, Bangalore), other than from a basket of those pre-selected by the airport operator. Simultaneously, the new policy also clarified that only domestic airlines can handle the ground services at the other smaller airports.

The idea was noble, and does make sense. The six major airports were to have selected two ground handling agencies, each, to provide services, using “competitive bidding to ensure that the best-equipped ground handling agency is selected.", but, as with any government initiative, it got lost in translation to policy, and flawed in implementation.

A taste of the "competitiveness" was given earlier this year, when the government had to back down from implementing this policy, after airlines boycotted India's first private Greenfield airport, the Rajiv Gandhi International Airport at Hyderabad, citing the exorbitant prices demanded by the private ground handling agents. The back-down affected the revenue plans of all airports, especially the privately operated ones at Mumbai, Delhi, Bangalore, and Hyderabad.

A government affidavit in a recent court case also gives us clues to some of the motives behind the new GHP. The affidavit admits that “upkeep, development and upgradation of the airport infrastructure require financial resources, which are to be raised from airport-related services such as ground handling. This ensures generation of income not only for the airport operator to maintain the infrastructure, but to ensure orderly growth and development of the airports.”

Another fundamental flaw is the inclusion of passenger facing services such as check-in in the ground handling policy. Check-in is a core customer service and product differentiation function for airlines. To expect airlines to exclude themselves from this critical function, is outright naive, and has expectedly, invited protests and non-cooperation from the airlines and their staff.

Another factor, and for this, one has to blame decades of left-leaning, communist hugging, Indian labour laws, that allow an organisation to hire a person, but never to fire. Government being the champion of these laws, and by extension all government controlled entities, have thus created a culture which tolerates unheard levels of incompetence, indifference, and sloth, in some cases bordering on criminal.

The state owned carrier, Air India, is also, one of the biggest ground handlers, but has formed a separate joint venture company Air India-Singapore Airport Terminal Services (AI-SATS) for ground handling. In most countries, one would logically expect a smooth transfer of employees to the new company and minimal disruption, but not in this case. After all, SATS has operational control, and will demand maximum productivity from these employees.

Naturally, incidences of union led disruptions have erupted over the last month, as the implementation date draws closer. A union called CAJAF (Civil Aviation Joint Action Front) has been protesting, disrupting ground operations, and in one totally deplorable incident, Air India staff, part of CAJAF, beat up the COO of SATS, Mr. Karamjit Singh .

Thanks to the inclusion of passenger check-in in to the GHP, and exclusion of foreign carrier, employee unions of of foreign carriers, Gulf Air, British Airways and Saudi Arabian Airlines have challenged the notifications in court claiming this would lead to job losses for over 50,000 workers. Staff of other airlines are silently cheering them on.

I must congratulate the government on achieving the impossible. In one fell swoop, the policy has united domestic and international airlines, as well as trade unions in their wrath. While the employees fear the new policy will divest a staggering 15,000 people of their jobs, airlines fear that it will affect customer services.

A new approach to ground handling is critically required, but it needs to be done with cooperation and rational expectations from all sides. Everyone will have to compromise to reach an amicable solution, the question is will they ?

As usual your comments are requested.

On Friday, 13 June 2008, I had the privilege of leading a delegation of senior supply chain managers from member companies of the Bangalore Chamber of Industry and Commerce (BCIC) on a visit of the two cargo terminals operated by Menzies Aviation Bobba (Bangalore) and Air India Singapore Airport Terminal Services (AI-SATS) at BIAL airport.

The team comprised of senior officers of a veritable "Who is who" of Bangalore industry, and was 360 degrees in sector verticals (Automotive, Biotech, Earth Moving, Electronics, Floriculture, Garments, High Tech, Logistics providers, PCB), as well as geographic locations all around Bangalore.

Hosting us were Mr. Andrew Brant, CEO, and Mr. Kamesh Peri, Director, of Menzies, Mr. Ranjiv Ramanathan of AI-SATS, and Mr. Marcel Hungelbeuhler, COO of BIAL, along with their respective operations teams. They are all competent and committed people.

Compared to my visit of 28-Apr-2008 (read article), the progress made in the last 15 days has been astounding, reflecting the hard efforts of everyone at Menzies, AI-SATS, and BIAL.

Menzies, services the European carriers, Lufthansa, British Airways, Air France, Thai, and Kingfisher, while AI-SATS services Air India, Indian Airlines, Jet, Singapore, Malaysian, Emirates, Etihad amongst others.

While the Menzies terminal is definitely way ahead in terms of preparedness, AI-SATS is making rapid strides in catching up.

After a tour of the two warehouses, the team's assessment was, that AI-SATS, which was forced to commence operations in an unprepared state, should be fully functional in about 6 - 8 weeks, while Menzies-Bobba is almost fully operational.

Compared to the poor conditions at MSIL and JWG terminals at HAL airport, the new cargo terminals are definitely superior, (read article), but they need to improve to global standards.

While new concepts in cargo handling have been brought in, the team, all expert supply chain managers, some handling over 100,00 item inventories, was disappointed by the lack of quality systems and metrics with regards to traceability and handling.

The offered many expert suggestions and critical assessment to Menzies, AI-SATS, and BIAL. The reception of suggestions was encouraging, and we look forward to constantly improving services, in-line with the global reputations of both operators, and BIAL.

BIAL indicated, that they have made facilities for low cost meals that will be helpful for the numerous employees of Customs Agents, Cargo Agents, and transporters. Traffic flow issues were being addressed.

Despite the best efforts of both the cargo terminal operators, it is still taking a minimum of 2 days to clear the cargo. The two big impediments appear to be, operations of Indian Customs authorities and some airlines.

Despite, the commitment of both the Chief Commissioner and Commissioner of Customs, to industry at a meeting in early March, there is still no assessment at BIAL, only at HAL airport. Despite the Electronic Data Interchange (EDI) system, Customs demands physical papers, which need to be collected the day following cargo landing, and physically carried across to HAL, assessment carried out, duty paid, and then the papers again carried back to BIAL for customs inspection and release. It is painful, time consuming, and only hurts Bangalore's industry by increased time and costs. The team demanded that Customs live up to their commitments and commence assessment at BIAL immediately.

Certain airlines are not further aggravating the situation by not filing their paperwork electronically. The team requested BIAL to ban these airlines from carrying cargo.

One of the cargo operators was very insistent, on not being clubbed along with the other, in assessments. Unfortunately, the one point the cargo terminal operator missed, was the fact, that the team was the customer of their customers, the airlines. The airlines decide on which terminal operator handles their cargo, not industry. Therefore, the two operators are measured in entirety.

As Theodore Levitt said, “The true business of every company is to make customers, keep customers, and maximize customer profitability”.

The team offered a constant engagement to help Menzies, AI-SATS and BIAL, reach their potential of global standards in service, and ensure industry's profitability and by extension Bangalore's growth. The encouraging response is promising.