Slow progress in merger of Air India, Indian Airlines despite Cabinet nod

ANOTHER TAKE-OFF: The proposed merger of Indian Airlines and Air India should improve the finances of the merged airline.   | Photo Credit: FILE PHOTO

V. Jayanth

Airlines considering special business units that should become the real profit centres

Staff interests and seniority will be protectedGovernment will retain its holding in the new airline

CHENNAI: When the Union Cabinet cleared the merger of the two national carriers Air India (AI) and Indian Airlines (IA) the Civil Aviation Ministry put a March 31 deadline to the exercise. Though a lot of groundwork has reportedly been done, it remains to be seen if that deadline can be met. Even if that is done, the aviation authorities in Government and the two airlines have a daunting task to ensure that the process comes off smoothly and successfully. Obviously, the Government and the Group of Ministers in charge of the merger plan want it to be a successful model and a profitable one at that.

Sources in the two airlines say that the process appears to be well under way, though they do not want to hazard a guess on whether they can complete the process by the end of next month. "Accenture, as consultants for the merger, has drawn up a road map and we believe that the Group of Ministers has gone through the same and will be authorising the go-ahead for the same,'' explains a senior airline official. He says those involved in the process appear to be working at several levels. Perhaps the most obvious and visible level may be at the human resources in both the airlines. The Chairman and Managing Directors of both airlines have sent out a detailed letter to their staff on the merger plan and re-assured them that they come on top of the priorities in the exercise. All their interests and seniority will be protected.

At another level, top officials are looking at the creation of special business units (SBUs) that should become the real profit centres for the monolithic airline after merger. Though several private airlines and potential joint venture promoters seem to be eyeing the emerging aviation industry and its support services in India, the merged AI-IA enterprise too will be banking on SBUs to make the new airline viable and profitable. In an era of intense competition on fare cuts, the merged airline has to look at other options to generate revenue.

Airline sources say that cargo services, ground handling facilities, maintenance, repair and overhaul (MRO) facilities, and even low cost carriers may be options that they are examining in detail to fit into the road map. Those involved in the planning process appear concerned at the recent statement of Civil Aviation Minister Praful Patil on enhancing the ceiling for foreign investment in the aviation industry and its support services. Simultaneously, Jet Airways and Air Sahara have expressed their desire to take care of their own ground handling services. So also, Hindustan Aeronautics Ltd. (HAL), which owns and manages the existing airport in Bangalore, is looking at the MRO option to offset the loss of revenue it will suffer when the new greenfield airport takes shape outside Bangalore. The Union Aviation Ministry may soon need a regulator to handle these developments and projects in the new liberalised aviation scenario.

According to present indications, the Government would retain its share or holding in the new airline, which will also become Asia's largest carrier. In addition to the expected savings from merger and avoidance of duplication in services, the merger should really improve the finances and bottom line of the airline. "We expect a real synergy to take effect because despite previous efforts we seem to be competing in many routes for the same traffic. A lot of planning will now go into the operations and deployment of the entire fleet of aircraft in operation and on order,'' sums up a senior operations manager. The airlines' authorities seem to be waiting for the final stamp of approval and the date for the launch of the merged airline, hoping that it will be allowed to function as a "commercial airline, free of political or governmental interference,'' so that it can meet the challenge of competition.