Sources from the airline said that Butchers has been hired at a salary of $20,000 (approx Rs. 9 lakh) a month.
AI officials said that Butchers's appointment is a short-term measure to set up the IOCC, which was announced two months ago.
The move has upset employees in the loss-making company as the management has delayed their January salaries till February 14, citing a cash crunch. Earlier this week, AI's pilot unions had threatened to go on strike owing to regular delays in payments since mid-2009.
The process of Butchers's appointment began around the same time last month when the management proposed a pay hike for its chief operating officer, Gustav Baldauf, another expat.
An Air India spokesperson refused to comment.