AI-IA merger to create Rs 7,500 cr firm

MUMBAI, DEC 9: The merger of Indian Airlines and Air India will create a Rs 7,500 crore holding company with accumulated losses of over R...

MUMBAI, DEC 9: The merger of Indian Airlines and Air India will create a Rs 7,500 crore holding company with accumulated losses of over Rs 2,500 crore based on fiscal 1998 balance sheet. The holding company, to be set up on the lines of Steel Authority of India Ltd (SAIL), will have a fleet of 78 aircraft and 36,000 employees.

Though both the airlines will have separate managing directors and management, the excess staff of a department would be shifted to the other. For example, say AI officials, if Air India needs people in its traffic department, it can source people from Indian Airlines and vice versa.

There would be, however, problems in the disinvestment of government’s equity in both airlines. As the disinvestment of both airline is being taken as separate entities, the ownership of holding company will create problems, say officials. “The merger would not be a smooth affair. There are many roadblocks, eg. militant unions, excess staff, overlapping of routes etc,” say officials.

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Besides, thereis an intense opposition from the bureaucracy — especially of the aviation ministry — to either privatise or merger the airlines. The bureaucracy — following lobbying by the private airlines — has prevented till now any steps being taken the disinvestment. Despite civil aviation minister’s utterances, the actual disinvestment in either Air India or Indian Airlines will take more than a year, say aviation sources.

The merger will not serve any purpose as both the companies will not be unable to retrench any excess staff. For every aircraft in the holding company, there would be over 462 employees as compared to international average of 26 people.

There would, however, be a common balance sheet written in red ink and overlapping of routes. The airline is now planning to stop flying to each other’s territory following a ministry directive.

Air India officials say that there will not be any real merger so as to avoid retrenchment in both the airlines. A top official admitted that in order to makeprofits and reduce costs, both airlines can do away with at least 14,000 employees with 7,000 staffers in each airline. "There will not be any financial gain for either airline if there is no retrenchment. The merger will not serve any purpose. It will however derail the privatisation process which is being opposed by all, including the top management," say aviation experts.

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The combined assets of both airlines will shoot up as both airlines presently own aircraft as well as real estate all over the world. While Indian Airlines assets — which have been not calculated recently — is about Rs 10,000 crore, Air India’s assets are estimated at Rs 15,000 crore.

The merger would give size to both airline in a industry where size does matter. Size can gain both the airlines’ marketing clout and higher market share, economy in purchases, economy in engineering services, and a common training centre.

At present, both the airlines are cooperating in three or four major areas like hub and spoke operations, commonfrequent flier programme, computerised reservation system and joint operations in some sectors.