Air Transport World

Can merger save India's state-owned Airlines? In an attempt to breathe life into India's struggling state-owned carriers, the Indian government merged Air India and Indian. But will the new integrated effort deliver a stronger, tighter and more profitable entity?(ANALYSIS)

THOUGH OPERATING IN ONE OF the fastest-growing airline markets in the world, Air India and Indian have for some years now been in terminal decline. The former is a classic example of a flag carrier plagued by the ills of a bloated workforce and an aging fleet, the latter a largely domestic operation that has ceded market steadily to nimbler privately owned rivals for the past decade.

In an attempt to breathe life into them, the Indian government, which owns and operates the airlines through its bureaucrat-appointees and is largely responsible for many of their problems in the first place, decided this year to merge the two. A new enterprise, National Aviation Company of India, which will operate the merged carrier--to be called Air India--was incorporated in July.

On paper, the synergies of a domestic and international operation integrated to form a bigger, tighter entity with a fleet of 120 planes seems like a good idea--think Qantas/Australian Airlines or Air France/Air Inter. But everyone involved in the process knows that teaching the elephant to dance will be no easy task.

According to Accenture, the government-appointed consultants to the merger, the primary savings will come from synergies that are expected from route rationalization (since both operate to common points in the Middle East) and the integration of their sales and distribution networks such that the international traffic of AI feeds into IC's extensive domestic network and vice versa. This is apart from the efficiencies of scale that will accrue from lower combined fuel and material procurement costs.

The first year will focus on integration of the workforce beginning with getting together a management team of about 400 people and restructuring the network for immediate results. The plan is eventually to split the carrier into five strategic units: Passenger, Cargo, Ground Handling, MRO and Low- Cost Airline. The five CEOs heading the units would report to one group chairman and MD. …

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