Decision on Air India, Indian merger soon

The final decision on the merger of the state owned national carriers, Air-India (A-I) and Indian Airlines (IA), is expected on Monday as the group of ministers (GoM) will study the recommendations of the merger consultant and take a decision on the approach to be followed for the merger. The consultant, Accenture India Pvt Ltd, had recommended four roadmaps for the merger of the two carriers, the most optimum path being suggested was that the carriers be merged to form a new company. The other recommendations include, merging Indian Airlines into Air India or the vice versa, and forming of a third company that would only be an operational entity under which the two carriers will function as two subsidiaries The first option suggest that the business model should have a group chairman and managing director with special business units as profit centers to deal with cargo, ground handling, maintenance-repair-overhaul, low cost carriers and other allied activities. CEOs would be appointed for these business units and they will report to the group CMD.

Once merged, the airlines expect their market share to touch 40% in both the domestic and international markets. The present market share of Air India stands at 19%, while that of Indian Airlines is 22%. The two airlines have already sought the consent of the employees and have assured them through letters given to every employee that there will be no retrenchment. After the merger of the two airlines, which is expected to come through by the end of the current fiscal, the government plans to raise money for financing the newly purchased aircraft through an initial public offer. With a stronger balance sheet, the merged entity is expected to get a better valuation. The merger entity, with a fleet of 150 aircraft, would feature in the top five airlines in Asia and be able to take on competition from established players like Singapore Airlines. After the GoM zero in on the path to be followed for the merger, the proposal will be placed before the Cabinet for its approval. The group of ministers comprises the ministers of defence, finance, tourism and culture, company affairs, law, civil aviation, minister of state for personnel and deputy chairman of planning commission Montek Singh Ahluwalia. External Affairs minister Pranab Mukherjee will chair the GoM.

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