Cabinet clears A-I, Indian merger

Clearing the last hurdle, the Cabinet today approved the merger of state-run carriers Air-India and Indian (formerly Indian Airlines). The legal and procedural formalities needed for the merger will be cleared in the next 16 weeks.

All told, it will take another 24 months for the merger to be completed, said Vasudevan Thulasidas, chairman and managing director, Air-India.

Briefing reporters after the Cabinet meeting, Information and Broadcasting Minister Priya Ranjan Das Munshi said the synergy benefits of over Rs 820 crore a year are expected to be available to the merged company at the end of the third year of the merger, against the estimated one-time integration cost of Rs 200 crore.

The potential recurring synergies, Munshi said, are expected to enhance the profitability of the new entity by Rs 600 crore "" which is 4 per cent of the current combined assets of the two companies.

Consultant majors Accenture and Ambit Corporate Finance are working on the various modalities of route rationalisation for the two airlines.

Post-merger, the possible areas of synergies could include sales, distribution network, fuel procurement, material procurement, passenger amenities, ground handling and parking facilities.

Consultants said there would be five special business units after the merger "" passenger, cargo, ground handling, maintenance repair and overhaul and low cost carrier business. There would be five CEOs reporting to one group chairman and managing director.

The logic behind the merger is to regain lost market share from global airlines, in addition to leveraging potential synergies that will catapult the merged entity among the top airlines in the world in terms of passengers carried, turnover, fleet size and growth.

Leading aviation consultant firm Centre for Asia Pacific Aviation Chief Executive Officer (Indian subcontinent & Middle East) Kapil Kaul said the merger would result in a profitable and global airline, provided it had a better management structure with managers having long tenures.

The combined entity currently has over 122 aircaft (which includes many smaller planes) and a turnover of Rs 14,000 crore and carried over 11.7 million passengers in 2006.

However, it will be smaller than Singapore Airlines which carried 17 million passengers (with a fleet of 90 aircaft) and Thai, which flew 17.9 million passengers (with 85 aircraft).