Status of the deal as of now
The consultants report on the merger has been accepted in principle by the Civil Aviation Ministry and approval from the Group of Ministers (GOM) comprising of Foreign affairs minister, Finance Minister, Civil Aviation Minister and Minister for law and company affairs has come. The expectation is that the deal will come through in the first half of 2007 itself.
Planned course
The merger of the national Airlines will be based on a holding company concept headed by a Chairman. Below the holding company, SBUs to cover Airline division, MRO, handling, catering etc will be set up under individual CEOs / MDs. The purpose of this organizational plan is to ensure greater autonomy and strategic focus on profitability.
Investments and funding
The investment plans already approved and committed by both the Airlines with regard to aircraft acquisitions, modernnisations etc will be brought under the holding company’s control and administration. Government is trying to over come issues like stamp duty and other taxes associated with M&As, by issuing ordinance to waive of such requirements to this merger plan.
Operating synergy
The merged entity will function on the business plan of one full service carrier and another low fare carrier under the same umbrella. Accordingly, the activities of Air India Express and Alliance Air will be brought under one common organization which will deal with the low fare market. The full service wings of Air India and Indian also would similarly be brought under a common platform.
According to trade and media information, the merged Airlines will focus on a hub / spoke strategy with prominent Indian points developing to feeder hubs for the long haul operations.
The current duplication of routes both on domestic and international routes will be eliminated, thereby aiming at optimal utilization of resources and consequential cost advantages.
Traffic rights
The protectionism enjoyed by the national carriers with regard to the traffic right entitlements is likely to continue even after the merger. This will ensure that the merged Airlines will have enough scope for continued expansion, necessitated due to their combined fleet strength.
The protectionism on traffic rights have another angle, which is aimed at ensuring higher intrinsic value , since the Government is likely to divest certain percentage of its holding in the near future.
Labour Issues
The merger is likely to eliminate duplication in activities, which eventually may turn to surplus manpower. The government has assured the labour unions that there will not be any retrenchment and all surplus manpower will be retrained for other activities that might arise out of expansion need. Government has also committed to the labour unions of protection of all the present service conditions and wage structure.
Other aspects
Issues arising out of non compatibility of systems and procedures are likely to crop up. Expert groups within the Airlines will be assigned to examine the feasibility of integrating the areas of divergence without conflict of interest and financial losses. The sharing of hangars and parking bays will be very beneficial in this infrastructure hungry condition.
Future forward
The merged Airline will have a fleet strength of over 150 aircraft, making it the biggest in India and comparable to established airlines like Singapore Airlines and Emirates. Till such time the merged Airline is privatized, it will continue to enjoy government’s patronage. To other Airlines in India, this protectionism is likely to cause great deal of obstacles in growth. However, it is expected that by 2010, before the common wealth games in DEL, government might embark on a privatization plan of the merged Airline and consequential withdrawal of some of the special considerations it is enjoying.
Such an action have two effects- The private airlines in India will benefit from the whole lots of traffic rights which are currently unutilized by Air India and Indian, but at the same time, the merged entity upon privatization may emerge more efficient and stronger.
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4 comments:
Good article. But do you think that having a bigger fleet size would increase the profitability? The only profitable scenario I see here is eliminating the duplication of routes and maybe sharing of ticketing offices, hangars etc.
There will be no change in the situation till the quality of service is improved, old and ugly air-hostesses done away with and they stick to the flight schedules, barring unavoidable circumstances. In short, they need to privatise it soon, FULL STOP.
Dear Vikas,
I agree with you. As i have mentioned in my article that the hangar and infrastructure space will be shared and after the merger the government may look at privatisation, which i think they also started thinking is the solution to save the sinking entity (although i may be wrong, because if synergies click, this could be a behemoth to watch out for.
Sounds like the Govt of India means BUSINESS ....
Well written article.
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