A-I, Indian merger to create behemoth

If the government merges Air-India with Indian, the new entity will be powerful enough to close in on the big boys of aviation like Singapore Airlines, Malaysian Airlines and Emirates.

Besides having a fleet of 120 aircraft, the proposed entity will have a workforce of 33,000, a combined turnover of $4 billion and control over 70 per cent of the real estate at airports (like parking bays, hangars and maintenance slots) in Mumbai and Delhi.

"The merged entity will have 120 aircraft in the next three years as part of the current acquisition plan. With an initial public offer following the merger, the airline may go for further expansion," a source said.

In the next three years, the merged entity will be able to compete with leading carriers in Asia like Emirates, which has over 93 aircraft, Singapore Airlines (118) and Malaysian Airlines (110). It will also give tough competition to its domestic rival Jet Airways.

Air-India now has 15,500 employees while Indian has 18,000. "Though the merged entity will be over-staffed, the expansion in the fleet from 90 to 120 will absorb the surplus human resources," sources said.

Industry analysts said the ideal employee-aircraft ratio for carriers was around 250-300, the range that the merged entity would have after the fleet acquisition.

Consultant majors Accenture and Ambit Corporate Finance are advising the government on merger proposals of the two airlines.

The Accenture-Ambit report suggests that the merger will help the entity recapture its lost market share. Air-India's market share, which was 30 per cent in the 1980s, slipped to 20 per cent while that of Indian went down to 22 per cent from 50 per cent in 2000.

"The merger is happening at a favourable time. Both airlines are acquiring new aircraft, the government is in the process of liberalising the norms for the aviation sector. Plus, the airports of Mumbai and Delhi, two prime cities of the country, are undergoing modernisation," said Kapil Kaul, CEO, Indian subcontinent and West Asia, Centre for Asia Pacific Aviation.

However, he cautioned, "There should be a comprehensive restructuring for the merged entity followed by partial privatisation."

According to the Accenture-Ambit report, the merged entity will save 3 to 4 per cent on cost due to sharing infrastructure and route rationalisation.

"The proposed merger will enhance the revenue of the merged entity by Rs 1,200 crore. At present, the revenues of both airlines is Rs 14,000," sources said.