The airline, which is likely to end up showing a loss of Rs 225 crore in 1998-99 against the budgeted Rs 341 crore, had sought to merge the engine overhaul and engineering departments into one thereby cutting down on duplication, costs and have similar mergers of other departments.

At a presentation before the recent board meeting, one senior official was for the merger, while the other was against it, leading the board referring the matter to a "third party", Air India officials said here today. The matter is likely to be referred to officials of Hindustan Aeronautics Limited (HAL), who are to submit its report within two months.

AI officials feel that merger of engineering department could lead to merging of other departments like vigilance with security and planning with commercial thereby help in reducingthe number of directors and perks associated with it. According to officials, the total staff cost of AI today was as high as 27 per cent because of high emoluments as against the industry average of 15 to 20 per cent in South East Asian airlines.

A series of cost saving measures have been initiated which include shorter working week, discussing with unions on wage cuts ranging from five to 40 per cent, deploying staff from non-operational to operational areas and withdrawing from loss making routes. A proposal to reduce the age limit of retirement from 60 to 58 is awaiting government approval. According to AI officials, at least two unions during a recent meeting with the secretary of civil aviation P V Jayakrishnan, who is also the chairman, suggested a stock option plan.

They suggested working out modalities and participation in the airline board, the official said.