New entity to up revenue by Rs 1200 cr

The proposed merger of national flag carriers Air-India and Indian Airlines is likely to enhance the revenue of the merged entity by Rs 1,200 crore.

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

"The merger will enable the airlines to enjoy synergy of values which will cut down costs substantially and increase revenue flows, sources close to the development told Business Standard. Apart from integrating operations, a merged entity could have common procurement of materials and fuel and uniform ground handling and insurance procedures, they said.

Stamp duty exposure will be mitigated through legislative sanctions or a government ordinance. There is also a finance ministry proposal to amend Section 72 (A) of the Income Tax Act to provide carry-forward of the unabsorbed loss of depreciation of both Air-India and Indian Airlines.

According to Accenture and Ambit's first report, the merged entity's fleet of 120 aircraft would be larger than Emirates' (93), Singapore Airlines' (118) and Malaysian Airlines' (110).

The report suggested that the merger would help the airlines recapture their lost market share. Air-India, which enjoyed a market share of 30 per cent in 1980s, has a market share of 20 per cent today, while Indian Airlines slipped to 22 per cent from 50 per cent in 2000.

"Air-India and Indian Airlines are fast loosing the home sky advantage to international carriers such as British Airways, Lufthansa and KLM," industry analysts said.

The advisors are working out common guidelines to ensure that employees do not lose out on seniority and the wage structure in the merged entity. Air-India has 15,500 employees, while Indian Airlines has 18,000.